Source: Minority Investment
Author: John Templeton

Contrarian investing, from 0.01 million USD to 22 billion USD

In 1937, the lowest point of the Great Depression, Templeton founded his company — Templeton, Dobbrow & Vance (TDV). In 1939, at the age of 36, Templeton purchased 100 shares of 104 companies with a loan of 0.01 million USD, and a few years later, the success of these 100 companies brought him his first pot of gold.

The company achieved considerable success, and its asset scale rapidly grew to hundreds of millions, owning 8 mutual funds. When it was first established, he managed assets of 2 million USD, but by 1967, when he sold the company, he was managing 0.4 billion USD. In the following 25 years, Templeton founded the largest and most successful mutual fund group globally, and his fund company never employed sales staff, relying entirely on investment performance to attract customers. In 1992, he sold the Templeton Fund again for 0.44 billion USD to the Franklin Group, by then managing assets that had reached 22 billion USD.

From the 1960s to the 1970s, Templeton was one of the first American fund managers to invest in Japan. He bought Japanese stocks at low prices, seizing opportunities ahead of other investors, and after he invested, the Japanese stock market skyrocketed. Later, he realized that the Japanese stock market was overvalued and found new investment opportunities — in the USA. In fact, Templeton told shareholders as early as 1988 that the Japanese stock market would shrink by 50% or more. A few years later, the stock index — Tokyo Stock Exchange Index fell by 60%.

In a career spanning 70 years, Templeton founded and led the most successful mutual fund company of his time, making profits of up to 70 million USD each year, using operating methods that dazzled Wall Street, becoming a renowned investor alongside George Soros and Peter Lynch.

After retirement, he became active in various international charitable activities through his John Templeton Fund. Since 1972, the Fund has awarded annually to individuals who have made outstanding contributions to the humanities and scientific research, which includes the Templeton Prize, the most generously funded award in the world.

On July 8, 2008, Templeton passed away in Nassau, Bahamas, where he had long resided, at the age of 95. According to a spokesperson for the Templeton Foundation, he died of pneumonia.

Investment method: invest during the 'maximum pessimism' phase.

As the most famous contrarian investor of the last century, Templeton's investment method is summarized as, 'Buy at the lows of the Great Depression, Sell at the highs of irrational exuberance, and navigate expertly between the two.' He sought countries and industries worldwide that had already bottomed out but had excellent prospects, with investments focused on companies overlooked by the masses.

He often took low buy-high sell to the extreme, investing during the 'maximum pessimism' phase. As a contrarian value investor, Templeton believed that stocks that are completely ignored are the most tempting bargains—especially those stocks that have yet to be researched by investors.

Classic case: In 1939, amidst the dual terror of the Great Depression and war, he borrowed to purchase 100 shares each of companies listed on the New York Stock Exchange and the American Stock Exchange whose prices were below $1. Among these 104 companies, 34 were in bankruptcy, with 4 later becoming worthless; however, the overall portfolio's value rose to $0.04 million four years later.

When is it time to Sell Stocks?

When is it time to Sell Stocks? This is a question every investor wants to know. Templeton stated that stocks should only be replaced when a new stock has been found that is 50% better than the original. In other words, if we hold a stock that has performed excellently, and it is now trading at $100, and we believe its value is also $100, then we need to buy a new stock that is undervalued by 50%.

For example, we may have found stocks with a trading price of $25, but we believe their value is $37.50. In this case, new stocks at the trading price of $25 should replace the original stocks at the trading price of $100.

Templeton's approach stems from his investment philosophy. His main goal is to buy things at prices far below their true value. There are two points to note: it does not matter if the purchase means limited growth potential; it is better if it means double-digit growth over the next ten years. The key lies in the company's development. If ideal Low Stock Price stocks can be found in developing companies, they can continue to bring us substantial returns for years. Therefore, it is important to pay attention to the extreme dislocation between stock prices and value, rather than getting entangled in simple trivial details.

John Templeton is regarded as the father of investing because he made Americans aware of the benefits of investing overseas, pioneering Global investing. Although Sir Templeton has passed away, his investment insights are still worth studying and learning from.

Editor/rice