Most investors may have heard the saying:"the bull market is born of pessimism, longer than doubt, born of optimism, and dies of fanaticism. "

This sentence comes from China Finance Online Co Ltd's legendary figure, John Templeton, who is known as the "father of global investment" and "the top ten fund managers in the 20th century".

John Templeton is famous for his impressive record of "reverse investment" over the years, one of which took place during World War II.

In 1939, while people were still panicking about the depression and war, Templeton used the borrowed $10,000 to buy 100 shares in each of 104 companies, all of which were priced below $1 at the time.

By 1943, the value of Templeton's portfolio had risen to $40,000, with an annualised return of nearly 50%!

John Templeton is also in the vanguard of global investment. He believes that because of different economic ups and downs, countries around the world have opportunities to make profits, and investment should not be limited to a single country.

Exploring investment opportunities around the world can not only spread risks, but also make higher profits.

His Templeton mutual fund has generated billions of dollars for investors around the world. His investment philosophy has also become the eternal wealth of the Templeton Fund Group's investment team and countless investors.

In May 2022, smart investors had the privilege of interviewing Sir John Templeton's niece, Lauren C. Templeton.

Lauren learned to invest from an early age and benefited a lot from her great-uncle.

She once described John Templeton as "strict but very friendly". They would schedule very strange meetings, such as from 2:17 to 2:48 in the afternoon, and the atmosphere was so tense that she could feel that the time she spent with him was limited.

For example, during a meeting with him, he slid across a Lauren-printed slide on the table and said, "I've already read it." Do you have any new news for me? "

The legendary uncle had a great influence on Lauren. Lauren Templeton is one of only a handful of good female investors.

Now Lauren runs with her husband Templeton & Phillips Capital Management, an investment company that focuses on low-priced stocks around the world-similar to the investment style pioneered by Templeton.

As one of the heirs of John Templeton's investment ideas, Lauren also wrote a book with her husband."reverse Investment: Templeton's long-win Investment method" (a new revised version of "Templeton teaches you to reverse Investment")A comprehensive demonstration of John Templeton's investment career and investment principles.

Today, under the interweaving of multiple factors, such as the turbulent global situation, Fed interest rate hikes, high inflation, the epidemic has not been resolved for a long time, insufficient population resources and other factors, the global market was once filled with pessimism.

Ridalio, the bridge fund, said pessimistically last month that the market would then develop as it did in the United States in the 1970s.

But for contrarian investors, pessimism often means opportunities, and it is inevitable and necessary to participate in a bear market.

This interview mainly consists of four parts: about reverse investment rules, about Templeton himself, about Templeton's specific investment strategy and about today's global situation.

Smart investors have compiled and translated the full text of the interview and shared it with you.

How to apply the reverse investment rule in China?

Smart investorWhich part of reverse Investment do you think is particularly suitable for Chinese investors?

Lauren.There are many related discussions in the book that are worth reading, but perhaps the chapter "investing in China: the Dragon Awakens from its slumber" will be particularly helpful.

First of all, we are optimistic about China's long-term economic development since the late 1980s. China has created an economic miracle since the reform and opening up, and there is still considerable room for development, and we believe that it will continue to move forward in the coming decades.

In shortDon't be too depressed by short-term uncertainty or pessimismIn the long run, these factors are less important.

In addition, this chapter also discusses how to implement investment strategies:Make wise long-term investments in short-term pessimism. Bargain buyers must realize that the only way stocks become cheap is through selling from others.。

Pessimism is always temporary, and it will give birth to the best share prices.

Smart investorReverse investment is a very effective strategy, but why do so few people follow it?

Lauren.This is a good question because many investors agree with the strategy but fail to implement it.

We believe that, despite their best intentions, many investors fail to recognize their psychological and / or physical flaws. It is important to recognize these obstacles and find ways to overcome them as needed. All in all, human beings are not born to be good investors.

Most people said they would never sell at the bottom, but gave in. In our opinion, this reason is more physiological.

Neuroscience research shows that the human brain processes up to 1000 million bits of information per second, but only as much as 40 bits of information is processed consciously. If this information stimulates the amygdala, which controls the fight or flight response, it can also affect your decision-making process.

When you see the green on the screen, your amygdala has increased your heart rate, causing shortness of breath and even sweating. Your mind will consciously investigate these lightning symptoms and conclude that something very real and terrible is happening.

Many investors find it hard to bear these situations and sell them almost in a knee-jerk reaction.

Sir John Templeton has two solutions.

First, he often stays in good shape until the stock is 20% below the market. In a market sell-off or panic, he will make the right purchase decision with a rational state of mind.

Second, he always keeps a "wish list" of stocks he wants to own in his desk drawer, but he thinks they are too expensive.

During the market sell-off, he already knew what he wanted to buy and was actually looking forward to the opportunity. He always said, "trouble is opportunity".

Is the reverse investment strategy effective in countries all over the world?

Smart investorReverse investment may not be as effective in other countries as it is in the United States. What do you think of the application of this strategy in other countries, especially in times of "crisis"?

Lauren.Sir John will become one of the greatest investors of the 20th century, relying on him to apply reverse investment methods in markets outside the United States. These decades of experience is also evidence of the success of this strategy in countries around the world.

A simple fact is thatAll financial markets are subject to human nature, whether in the United States, Europe or AsiaPeople's behavior will be similar and predictable.

The contrarian strategy may sound esoteric, but as Sir John explains, it is a matter of common sense.

Sir John says the only way for stocks to become a bargain is to sell from others, and the most common reason for investors to sell stocks is pessimism.

If the goal of investors is to achieve higher-than-average returns, then accepting to buy shares at low prices is part of the process, and low prices will only occur in corporate or economic hardship, or both.

What is Sir John Templeton like?

Smart investorCan you tell us some interesting stories about you and Sir Templeton? How does he affect your investment philosophy and life trajectory?

Lauren.One of my favorite stories was early in my career when I was visiting him in the Bahamas. That year was 2000, and the US market was nearing the top of the tech bubble.

I naively asked him what technology stocks he was buying, and instead of rejecting my question, he took the opportunity to compare what is happening in technology stocks to another thing he has seen many times in his life.

He started with one of his childhood stories, when he and my grandfather were little boys living in their hometown of Tennessee.

In the evening, he and my grandfather would go to a house near the town square, where many other neighbors would gather. A man would come out of the house, wave to everyone, and then go back to the house and turn on the lights. This is the transmission of electricity.

(note: this is a description of human nature and why people gather in one place. And the light will go out and turn on again. )

He said he had studied the incident, and then he took me through similar market guesses in radio, television, cars and air travel.

He showed me that the market we see today has happened many times in the past, and the result in the market is the same.

Smart investorDescribe Sir Templeton in your heart in three words?

Lauren.Purposeful, rational and far-sighted.

Smart investorYou and John Templeton grew up in Tennessee. Can you describe your hometown? What kind of local culture and what characteristics of the Templeton family helped John Templeton succeed?

Lauren.Winchester is a small town in Tennessee at the foot of the Cumberland Plateau.

When I grew up there, and of course when he grew up there, the town was so small that most people knew each other.

In terms of family culture, I think the important thing is that the status of most people is related to their character. People with honesty and professional ethics will have the wealth and wisdom to match them.

My great-grandparents instilled a sense of purpose in Sir John and my grandfather early on.

Sir John thinksEveryone is endowed with certain talents, and people have a responsibility to cultivate them and share them with the world.He believed from an early age that he had a gift for investing, so he spent most of his adult life investing in global stock markets to help people accumulate wealth.

So, I think he's very smart and a talented investor, but he also gives a deeper spiritual meaning to his career, because that's the way he helps people-that's his ultimate goal.

Later in his life, he renewed his commitment to helping people spiritually, and his efforts are still carried out through the foundation he founded, the John Templeton Foundation.

What beliefs do you have to be a great global investor?

Smart investorWhat do you think is the milestone in John Templeton's investment career? What beliefs made him a great global investor?

Lauren.He has long recognized the role of human nature in financial markets and how common factors of human behavior affect securities prices.

He told me that when he was at Yale, his classmates and friends only invested in American stocks, which he thought was harmful, whether out of arrogance or ignorance.

At that time, he decided to start his investment career, focusing on finding investment targets on exchanges around the world, not just in the United States.

For him, ‍The important belief is intellectual humility and exploring opportunities that most people don't see, which is the basic principle of good investors.

After building his career on Wall Street, he became an early pioneer and believer in the promotion of mutual funds. His company has launched a number of mutual funds, which he believes are vital to the U. S. economy, so that the middle class can also accumulate wealth through the stock market.

He firmly believes that the power of free markets can promote human progress and prosperity, while mutual funds can attract more participants. These two insights also make him known as the "father of global investment".

As for what makes him a great global investor, he knows about human behavior.And regardless of the region, all financial markets behave the same.

It is true that different countries have different economies, different property rights, and different accountants, but the role of human behavior in the market is unchanged, and he knows this very well. occasional shortsightedness, impulse, emotion, etc., can be used to make wise investments and produce excellent returns.

How to choose a company?

Smart investorHow did John Templeton choose a company? What are the similarities and differences between you and him in this respect?

Lauren.He's a.from belowStock pickers, focus onLooking for a bargain。

The basis of his search for bargains is mainly quantitative and methodological.He focused on finding stock prices that were too low relative to the company's possible long-term earnings.He wants to buy stocks with a price-to-earnings ratio of less than twice over the next decade.

Since I learned from him, our process is basically the same. We look for bargains and start with the quantification process. One possible difference is that I will analyze the financial statements in addition, but the core principles are the same.

How to make a good global value investment?

Smart investorYou all focus on global value investment. How do you think to make a good global value investment? How to avoid the value trap?

Lauren.A successful value investment should focus on finding a bargain, and in order to implement it well, the current stock price should be compared with the company's earnings and cash flow.

The best opportunity to find a bargain is always born in short-sighted pessimism, where people sell because of pessimism and the future value of the company is ignored.

To find real bargains and avoid value traps, it is important to identify the stocks of companies with a reasonable long-term future.

At the corporate levelInvestors must distinguish between temporary and permanent problems。

Value traps often have lasting or even permanent problems. If the managers of a company reward themselves at the expense of shareholders, this can be a thorny problem and will continue into the future.

If a company's products are at risk of becoming obsolete, it is also a lasting or even permanent problem. Companies that are heavily in debt may fail to meet their future obligations and face bankruptcy.

How do asset management companies deal with large redemptions when the market panics?

Smart investorUsually when the stock price is cheap, customers will panic and tend to redeem, rather than increase the investment of more money.

In this case, asset managers have to sell rather than buy more shares. Can you share some experience on how to implement reverse investment in these situations? And if the customer is in a panic to invest more, how to carry out position management?

Lauren.Yes, you described a common problem with human nature. For professional bargain hunters, this is undoubtedly difficult to manage.

In our view, the first solution is Benjamin Franklin's suggestion, that is,"an ounce of prevention in advance is worth a pound of ex post treatment."。

(Franklin coined this classic phrase in 1736 to remind Philadelphia residents to be alert to fire awareness and prevention.)

Therefore, we are very careful to communicate our investment process and market views and strive to ensure that our investors are aware of the transaction. Fortunately, we have a customer base that has a long-term vision and understands the need to participate in a bear market.

However, in order to solve your problem at a deeper level, we have a mechanism that can guide us to sell when the market is overvalued and buy when the market is undervalued. This is the bottom-up decision-making process and the focus on how well the stock price matches the intrinsic value.

In other words, this is a self-correcting mechanism that increases cash levels through bottom-up-driven processes, which is consistent with our philosophy.

That is, even when we find ourselves in a market environment where we can invest 100%, we will continue to look for better opportunities than our existing portfolio.

Sir John thinksWhen you find something 50% better than what you have, it makes sense to change your current stock holdings.

This guide is very helpful to us, and we can continue to focus on finding better bargains.

How to judge that the market panic is to the extreme?

Smart investorHow to judge that the market panic is to the extreme? Or will you not consider this when investing?

Lauren.I can't find it. Unfortunately, you won't know where the bottom is until the panic is over.

But our experience is that"where is the most panicked position in the market" is not as important as most investors think.。

During the 2008 financial crisis, we started buying in August 2008, but the market did not hit bottom until March 2009, more than six months later. During that time, we kept looking for new or even better bargains, which was tantamount to regularly upgrading our portfolio.

We didn't wait until the bottom to buy, but it also brought a strong return on investment for many years. In the final analysis, we have not been hurt by our inability to predict the bottom of the market.

No one can seize the timing of the market, Sir John always said"the best time to invest is when you have money.". He knows.Trying to seize the timing of the market will cause most investors to make the wrong decision.。

What do you think of Chinese stocks?

Smart investorWhat are the opportunities and challenges of global value investment now?

Lauren.Opportunity comes from casting a bigger net.But investors also need to recognize the challenges posed by different accounting standards and investor protection levels.

In cases where the latter is unattractive or opaque, diversification or smaller exposures may be appropriate.

Smart investorWhat do you think of US-listed Chinese stocks and Sino-US relations? How can China integrate into the next stage of globalization? What are the opportunities and challenges?

Lauren.The inherent danger of US-listed ADR is the lack of ownership and property rights among US investors.

ADR represents a variable interest entity of offshore domicile and does not represent the actual ownership of the underlying company. They actually track stocks.

(ADR is a stock instrument listed in US dollars. Its full name is American depositary receipt in English and translated into American depositary receipts. Generally speaking, Chinese concept stocks in the US stock market are all ADR.)

We have always known about these structures, but in mid-2020, we were nervous about the geopolitical situation between China and the US and sold the rest of BABA's ADR we had held since mid-2015.

The opportunities brought about by globalization are huge and obvious. Innovation in a free economic system promotes human progress, and we can all benefit from it.

Today, the middle class in the United States enjoys a standard of living that John Rockefeller did not have, while today's Chinese enjoy a standard of living that was unimaginable 40 years ago.

However, the challenge is also daunting.

Because from a Western point of view, property rights is a component, and this is the fundamental key to the western free enterprise capitalist system.

Property rights are crucial because they support corporate trust, encourage risk-taking and the entrepreneurial spirit that leads human progress. When these incentives fail, competition weakens, progress slows, and living standards may stagnate.

Is value investment dead?

Smart investorIn the past decade, growth stocks (Tesla, Inc., Microsoft Corp, Alphabet Inc-CL C, etc.) have outperformed value stocks, and people are saying that value is dead.

Investors chasing momentum have made handsome returns, while contrarian investors have struggled. What is the main driving force behind this phenomenon? Do you think this phenomenon will continue in the next ten years?

Lauren.Sir John always said:"the most successful stock and stock selection methods of the past decade tend to be unsuccessful in the following decade. "

The two main factors for the success of technology stocks over the past decade may be persistently low interest rates and economic evolution biased towards intangible assets (that is, the use of new technologies to develop services).

Intangible assets have unique attributes, and one of their most important qualities is that they can expand rapidly when they are successful. The difference is that the rapid expansion of these assets leads to winner-takes-all, or the winner's most competitive form.

As a result, companies like Alphabet Inc-CL C or Amazon.Com Inc can grow exponentially and dominate their service market with little competition.

The role of low interest rates is also crucial because it means that investors have little choice but to invest in them to achieve comparable returns or growth rates.

This, in turn, has prompted investors to continue to fund the growth of these companies, even if there are recent losses on the company's income statement.

Today, we are faced with higher interest rates and more dynamic investment options.

In addition, traditional companies have learned and successfully applied cloud and artificial intelligence technologies, which are driving economic development, and the COVID-19 epidemic has accelerated the adoption of these services.

The competition between Walt Disney Company and Netflix is a good example.

Basically, traditional companies have found ways to expand opportunities, and the potential for further growth in long-term earnings and cash flows will attract investors' capital. this may hurt the companies that have dominated the investment landscape over the past decade (that is, the dominance of growth stocks will gradually disappear).