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The Timeless Wisdom of Sir John Templeton

Sir John Templeton (1912-2008) may be gone, but he’s still remembered as one of the greatest investors of all time.

For one, Sir John popularized the idea of investing globally for U.S. investors.

He launched his flagship Templeton Growth Fund when most didn’t even think of investing outside U.S. borders. That pioneering fund racked up an enviable track record, returning an average of 13.8% annually from 1954 to 2004.

To this day, many of Templeton’s timeless investing principles still apply.

Indeed, some of his principles have shaped how I approach investing. Below are a few of them. They come courtesy of the Franklin Templeton website and the Templeton Foundation.

#1: Buy Low

Seems obvious, right? But in reality, many investors do the opposite. They chase hot sectors after dramatic moves higher.

Sir John always scoured the globe for bargains. He told investors to buy when everyone else is selling, when things look darkest, when all the experts say a certain investment is too risky.

Templeton advised us to “buy when others are despondently selling and sell when others are avidly buying.”

He would often say, “People are always asking me where the outlook is good, but that’s the wrong question. The right question is: Where is the outlook most miserable? The obvious application of this concept in practice is to avoid following the crowd.”

I wonder what Sir John would think of today’s market, where the elite tech and biotech stocks are loved and everything overseas and commodities-related is detested?

#2: Invest for the Long Term

Hand in hand with value investing is investing for the long term.

Templeton said, “Experience teaches us that one of the most common errors in selecting stocks… is the tendency to emphasize only the most obvious factor – namely, the temporary outlook for sales and profits of the company.”

In other words, ignore Wall Street’s emphasis on quarterly earnings reports. Too many investors spend too much time looking at the short-term market outlooks and trends.

#3: Diversify

Sir John didn’t believe that one specific investment is always best – although over the long term, stocks do outperform.

More importantly, no one can predict the future. If you’re focused too much on one company, sector or country, your portfolio is at risk.

Sir John advised us to diversify by risk, industry, and country. He would say, “In stocks and bonds, as in much else, there is safety in numbers.”

#4: Learn From Past Mistakes

Everyone makes mistakes investing, even Sir John. As he said, “The only way to avoid mistakes is to not invest – which is the biggest mistake of all.”

Instead, Templeton advised us to not become discouraged by loss and especially not to take even greater risks and try to recoup our losses all at once.

He believed that the difference between successful and unsuccessful investors is that successful investors learn from their mistakes and the mistakes of others.

Relatedly, you should run for the hills anytime you hear someone on CNBC say it’s a new era or that it’s different today.

According to Sir John, “The investor who says, ‘This time is different,’ when in fact it’s virtually a repeat of an earlier situation, has uttered among the four most costly words in the annals of investing.”

#5: Don’t Be Overconfident

In other words, always question your investment approach. Is it still valid?

Sir John wrote, “Everything is in a constant state of change, and the wise investor recognizes that success is a process of continually seeking answers to new questions.”

A great example of this is how much the investment climate has changed surrounding energy MLPs. Investors poured tens of billions of dollars into funds investing in the sector, only to see losses of up to 35% on some funds this year.

Other Templeton Insights

Of course, there are plenty more insights to be gleaned from Sir John’s vast experience.

He wasn’t a fan of trading – “The stock market is not a casino” – or of index funds – “If you buy the same securities everyone else is buying, you will have the same results as everyone else. By definition, you can’t outperform the market if you buy the market.”

He also gave other common sense tips for investors, such as remembering inflation and taxes when investing, doing your homework, and always monitoring your investments.

If readers wish to look at a number of Sir John’s investing tips, here’s a link: Templeton Wisdom. Keep in mind that they were written in 1993, so some of the data is very outdated.

The insights, however, are timeless.

Good investing,

Tim Maverick

Tim Maverick

, Senior Correspondent

View More By Tim Maverick