The greatest global stock picker of the 20th century - and what we can learn from him

Sir John Templeton in his office. Image courtesy of templeton.org

We writers are all competing for your attention. That is the nature of journalism.

But, as a result of this battle for clicks, the news gets sensationalised. 

In the case of financial journalists, it means we often find ourselves (or our headline writers) urging readers to “buy this now!” or “sell this now!” 

Often, however, the best advice is not to buy or sell, but to do nothing. But how many readers will an article urging you to “do nothing” get? 

And of course, there are times when you really do have to act. 

So we have to find a balance.

Investors also have to find a balance between doing nothing and sudden, decisive action. Periods of inactivity punctuated by sudden bursts – it’s like a greyhound’s life, or HIT - high intensity training. 

And one man who seemed to have found this balance was Sir John Templeton…

Sir John Templeton’s extraordinary trend-spotting skills 

Templeton became a billionaire at a time when billionaires were not two a penny. He was described by Money magazine in 1999 as "arguably the greatest global stock picker of the century." He might also be seen as a poster child for idle investors. 

The reality of investing is that it can quickly become a full-time occupation – researching companies, tracking investments, rebalancing portfolios – it really can take over. But Templeton’s first great trade seemed to involve no research at all. It was all about timing.

In 1939, after almost a decade of Great Depression, general investment psychology was not exactly bullish. When World War II broke out, investors panicked and stock markets fell. Templeton phoned up his broker and told him to buy 100 shares of every New York-listed company trading at less than $1 a share. 

There were, I gather, 104 such companies, so Templeton’s total outlay was $10,400. It didn’t matter what the company did, just what its price was. 

US industry famously picked up during the war – indeed as a result of it. The value of his stocks multiplied and Templeton became a wealthy man.

There was no research, nor sector allocation. There was no sweat. No grind. He just made a big call at the right time. As Warren Buffet said, “buy when there’s blood on the streets.”

But, unfortunately for those who would write about it, there is not always blood on the streets. Such moments do not come along very often. We have seen perhaps three such big moments in the last 20 years – after the Dotcom crash, during the Global Financial Crisis, and in March 2020 at the height of the Corona Panic. 

That means a lot of time in between.

“The time of maximum pessimism is the best time to buy,” Templeton, the famous contrarian, said, “and the time of maximum optimism is the best time to sell. The four most expensive words in the English language are 'This time it's different’.”

Templeton had an uncanny ability to spot trends before they happened. As well as the famous WWII trade, he was early into the Japan boom, early into emerging markets and got out of the stock market in early 2000 - in what must be considered one of the greatest trades ever (this one did require some research).

He knew the stock market was overvalued in 2000, but how to time the short sale? As John Maynard Keynes famously said, “the market can remain irrational longer than you can remain solvent”. 

In January 2000, Templeton shorted more than 80 Nasdaq stocks. He’d identified those trading at the most extreme valuations and timed his short positions to kick in just before the post-IPO lock-up periods (during which insiders can’t sell their shares) were set to expire. He knew most sensible insiders would sell to lock in some of their gains as soon as they were allowed to do so. He made a billion. A wonderful top and tail to his career.

In 2005, he wrote a brief memorandum predicting that within five years there would be financial chaos in the world, a collapse of the housing market and government bond yields would crash to zero.

Templeton’s investment style is an object lesson in being patient

In 1968, Templeton renounced his US citizenship and moved to the Bahamas. He did this for two reasons: one, to escape the noise of Wall Street; and two, to pay less tax.

Templeton spent the rest of his days largely by the beach, eventually dying in 2008 at the ripe old age of 95.

Every morning at his seaside residence Templeton would leaf through a copy of the Financial Times and check prices. Any news was always a day or two late – being where he was in the Bahamas, the copy of the FT he received was a day or two behind those read on the desks of London or New York. 

Any decisions he needed to make were made from that isolated distance and then he would potter off and do whatever it is billionaires do with the rest of their day. (Philanthropic hobbies were Templeton’s favoured pursuit).

But those years operating from the beach side were his most profitable. According to his biographer, Jonathan Davis (check out his Investment Trusts Handbook), Templeton “outperformed the world index by 6% per annum compound after he moved to the Bahamas”, whereas he only matched it before.

Templeton stripped out all the noise, and based everything on his morning read of the FT, which was a day or two late. An idler’s life if ever there was one.

Before you judge him for not paying taxes, Templeton was one of the most benevolent philanthropists who ever lived. Like the liturgists of Ancient Athens, he wanted to manage his benevolence himself, hence low taxes and philanthropy, rather than have it mismanaged and squandered by some incompetent government. 

So how do we put the Templeton approach into practice? One strategy would be simply to accumulate as much cash as possible, have it sitting in your broker’s account, then wait. Then when the world hits what you deem to be peak and excess panic – perhaps in the event that Russia invades Ukraine – then buy. 

There is an investment trust that the man himself used to manage - The Templeton Emerging Markets Investment Trust (TEMIT:LSE) - and presumably managed according to his philosophies. (I don’t own this one).

But the bottom line is I guess - think, contemplate, watch - but often do nothing.

This article first appeared at Moneyweek.

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