Great Investors - Sir John Templeton

The world of investing contains countless individuals but few people of distinction and influence. The wisdom they have gathered throughout their lives can help anyone become a great investor.

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Sir John Templeton

Born:  November 29, 1912

Investing Style:  Value/Contrarian (Global)

Company:  Templeton Funds

Best Investment:  Japanese Economy

Templeton was one of the first American investors to focus on trading outside of U.S. companies.

Originally from Tennessee, Templeton renounced his U.S. citizenship at the age of 55 and moved to the Bahamas, where his international funds were based.

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The one thing all great investors share is a pursuit of knowledge. Successful investors have always stuck to learning as a way to gain an advantage in the market. For Sir John Templeton, discovery and personal growth were about more than just business; they were the core of his beliefs. His open-mindedness and ability to go against the crowd made him a giant on Wall Street and in the global community.

John Templeton was born in Winchester, Tennessee, in 1912. Both his father and his mother encouraged him to explore and educate himself about the world around him. His family had strong Presbyterian roots and raised Templeton to be religious in his daily life. The values of curiosity and spirituality stuck with him his entire life, and he routinely encouraged them in others.

Templeton attended the local public schools and excelled as a student. After completing high school, he was admitted to Yale University (which almost exclusively took private school students). Unfortunately, the Great Depression had begun only a year before, and soon his father was forced to cut his financial support. Not willing to leave, Templeton began working jobs while in school to pay for tuition.

Upon graduation in 1934, Templeton was named a Rhodes Scholar to Balliol College at Oxford. In 1936, he graduated with a master’s in law and spent the next several months traveling around the world. His time abroad taught Templeton that businesses all over the world operated like those he knew in the United States. No matter where they were, good companies could prosper. When he returned to the United States in 1937, he started work on Wall Street at the major brokerage firm Fenner & Beane.

In 1939, Templeton took a major chance. World War 2 had just started in Europe and was causing uncertainty in the markets. Templeton saw low prices and borrowed thousands to buy 100 shares of every stock selling for less than one dollar. Even when a third of the companies faced bankruptcy, he held on to his shares. All but four of the stocks rebounded, making nearly a 400 percent return in just four years.

By 1940, Templeton had co-founded the investment firm Templeton, Dobbrow and Vance Inc. The firm took a very value-focused approach to investing, buying stocks that were temporarily out of favor and undervalued. What set Templeton apart on Wall Street was his willingness to look outside America for investments. He had seen that the United States was not the only country with successful businesses; the rest of the world was selling at bargain prices.

In 1954, Templeton set up his own mutual fund. Though he sought investments on the principles of value, the fund was named the Templeton Growth Fund to reflect its interest in growing international businesses. The fund was massively successful, averaging nearly 15 percent annual returns over its 38-year existence. The success drove Templeton to add other funds, slowly forming the Templeton Funds group.

Because of his international clientele and his interest in foreign investing, Templeton had decided to set up his growth fund in the tax-friendly British Bahamas. In 1968, he renounced his U.S. citizenship, moved to Nassau and became a naturalized British citizen. The move served two purposes; Templeton wanted to work away from the trends of Wall Street, and moving spared him the tax costs of repatriating money.

When Templeton reached the age of 80 in 1992, he decided to retire from professional management. He sold his management company to Franklin Resources Inc., which added his name and became Franklin Templeton Investments. Templeton remained an active investor, regularly speaking at conferences and giving interviews about his view on the economy. He died in Nassau in 2008 at the age of 95.

Templeton on Investing

"I never made money for clients by buying anything expensive."

Like many other great investors, Templeton focused on finding value stocks. He also believed that sentiment and popularity caused pointless swings in prices; a fearful economy would cause profitable stocks to be ignored, creating opportune pricing for the cool-headed investor.

“Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria. The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell.”

Templeton often liked to operate as a contrarian. He avoided investing in places that were receiving a lot of Wall Street attention. He enjoyed working from the Bahamas because it kept his analysts from being swept up by the opinions flying around New York. His goal was to find the investments where others were most pessimistic. By the time people felt a company’s future was secure, the opportunity to find value was already lost.

 “An investor who has all the answers doesn’t even understand the questions.”

Templeton’s ability to keep an open mind about foreign businesses was another key to his success. During his exploration of Japanese markets in the 1960s, he found that that many Japanese companies were trading at extraordinarily low price-to-earnings ratios. Templeton immediately began scooping up investments, eventually putting more than half of his Templeton Growth Fund in Japanese equities. The bid paid off; Japan’s economy grew quickly in the ‘70s and then exploded during the ‘80s.

 “People are always asking me where is the outlook good, but that’s the wrong question…. The right question is: Where is the outlook the most miserable?”

After retirement, Templeton still paid attention to the market and managed his own investments. He recognized the stock bubble of the late ‘90s and sold off his shares in early 2000. After the burst, he recognized a growing problem in the housing market and the financial sector. Though he lived to see the housing bubble burst in 2007, he died before he saw his last prediction of a financial crisis come to pass.

“…success is a process of continually seeking answers to new questions.”

Philanthropy

The only thing that Templeton did better than invest money was give it away. He had a boundless love of helping others and fostering moral and religious tolerance for the future. Templeton believed that spirituality, in all its forms, could help people improve their lives.

By the time Templeton left for the Bahamas, he had already made his fortune. He turned his attention toward philanthropy and improving the world. In 1972, he created the Templeton Prize, an annual award and prize money given out to those who have progressed “spiritual realities” and have improved the interaction between spirituality and the modern world. (Members of all religious philosophies are eligible.)

In 1987, Templeton created the John Templeton Foundation. The foundation’s goal was to provide financial support and awards to those pursuing the “big questions” and their impact on human life. It provides awards for exceptional work in a variety of fields, including personal virtue, applied genetics and free enterprise. The same year Templeton created the foundation, he was knighted for his accomplishments in business and philanthropy.

Though Templeton donated much to charity himself, his foundation will ultimately out-give him. In total, the John Templeton Foundation provides tens of millions of dollars in support and awards across the world every year. Templeton made sure that his legacy would be one of charity, not investing.