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22 Investment Maxims from Sir John Templeton

By JLP | July 30, 2009

Looking through Peter Krass’ The Book of Investing Wisdom*, I came across a 22 Investment Maxims from Sir John Templeton. For those of you who don’t know, Sir Templeton was a successful international investor and founder of Templeton Funds. As you’ll see from his maxims, Sir Templeton was an active manager (my thoughts in italics).

1. For all long-term investors, theres is only one objective— “maximum total return after taxes.”

2. Achieving a good record takes much study and work, and is a lot harder than most people think. Many people doubt that this is even possible on a consistent basis. I’m on the fence on this one. I see proof that it can be done but realize that most people won’t be able to do it.

3. It is impossible to produce a superior performance unless you do something different from the majority.

4. The time of maximum pessimism is th ebest time to buy, and the time of maximum optimism is the best time to sell. Sounds like something Warren Buffett would say.

5. To put “Maxim 4″ in somewhat different terms, in the stock market the only way to get a bargain is to buy what most investors are selling.

6. To buy when others are despondently selling and to sell wehn others are greedily buying requires the greatest fortitude, even while offering the greatest reward. This is so true.

7. Bear markets have always been temporary. Share prices turn upward from one to twelve months before the bottom of the business cycle. Bull markets are temporary too.

8. If a particular industry or type of security becomes popular with investors, that popularity will always prove temporary and, when lost, won’t return for many years. Interesting. The NASDAQ Composite Index comes to mind.

9. In the long run, the stock market indexes fluctuate around the long-term upward trend of earnings per share.

10. In free-enterprise nations, the earnings on stock market indexes fluctuate around the replacement book value of the share of the index.

11. If you buy the same securities as other people, you will have the same results as other people.

12. The time to buy a stock is when the short-term owners have finished their selling, and the time to sell a stock is often when short-term owners have finished their buying. Not quite sure how you’re supposed to know when this is.

13. Share prices fluctuate much more widely than values. Therefore, index funds will never produce the best total return performance. I always thought that this was true because the goal of the index is to capture the market’s return, minus fees.

14. Too many investors focus on “outlook” and “trends.” Therefore, more profit is made by focusing on value.

15. If you search worldwide, you will find more bargains and better bargains than by studying only one nation. Also, you gain the safety of diversification. Unless of course the nation you are studying is heavily dependent on exports to another country that is in trouble.

16. The fluctuation of share prices is roughly proportional to the square-root of the price.

17. The time to sell an asset is when you have found a much better bargain to replace it.

18. When any method for selecting stocks becomes popular, then switch to unpopular methods. As has been suggested in “Maxim 3,” too many investors can spoil any share-selection method or any market-timing formula.

19. Never adopt permanently any type of asset or any selection method. Try to stay flexible, open-minded and sekptical. Long-term top results are achieved only by changing from popular to unpopular the types of securities you favor and your methods of selection.

20. The skill factor in slection is largest for the common-stock part of your investments.

21. The best performance is produced by a person, not a committee. Interesting that he would say this.

22. If you begin with prayer, you can think more clearly and make fewer stupid mistakes. Sir Templeton was a religious man and started each meeting with a prayer.

RELATED: 12 Laws of a Successful Life

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Topics: Books, Investing | 7 Comments »


7 Responses to “22 Investment Maxims from Sir John Templeton”

  1. LOL Says:
    July 30th, 2009 at 3:27 pm

    Wasn’t he the guy who coined: “Buy low, sell high”. Sounds nice doesn’t it?

    But I think he was missing the point. When you ‘buy’ you are paying more than anyone else is, since the market is basically a large open auction. On the other side, “sell high” is just as impossible, because to sell a stock you were the one who parted with it for the lowest price.

  2. The Dividend Guy Says:
    July 30th, 2009 at 4:34 pm

    My favorite is #14: “Too many investors focus on “outlook” and “trends.” Therefore, more profit is made by focusing on value.” In other words don’t try to predict what the market is going to do.

  3. Stacey Says:
    July 30th, 2009 at 5:28 pm

    #16 was interesting…I had never heard of that rule of thumb.

    #17–of course! How simple, but really never thought of that way :)

  4. kitty Says:
    July 31st, 2009 at 11:17 am

    “When you ‘buy’ you are paying more than anyone else is, since the market is basically a large open auction. On the other side, “sell high” is just as impossible, because to sell a stock you were the one who parted with it for the lowest price.”

    He is not telling you that you can sell at the very top and at the best price at this moment or buy at the very bottom and at the cheapest price.
    But this is not what you are trying to do.

    Sure, at this moment in time when you buy, you are paying more than others — but if you look at the spread between bid and ask you’ll see that the difference is quite small. But you aren’t planning to sell at this moment in time, you buy because based on the business, earning potential, P/E, you expect the value to be higher at some point in future. Similarly, if you sell it at this point — sure it may be for the lowest price at this moment of time, but it is can still be higher than what you bought it for. So I don’t understand your point.

    Plenty of people, for example, bought in March this year when everyone was selling. I bought a few things here and there – less than I would’ve wished, but it’s really hard emotionally to go against the sentiment. I sold a couple of things I bought in March. Yes, it was below top, but I still made money. In fact I made a mistake with one stock and sold too early. So? I still made almost 50% in one month. Plenty of average people were smart enough to sell certain tech stocks around the internet bubble burst – I know several personally. Sure those who bought in March didn’t buy at the lowest point, much as many of those who sold in 2001 or 1999 didn’t sell at the very top. But you aren’t trying to predict exact top or bottom, you are just trying to maximize your returns over a period of time.

  5. Esko Kiuru Says:
    August 2nd, 2009 at 5:36 pm

    JLP,

    Don’t run with the herd, says #3, if you seek superior performance. That’s a worthy piece of wisdom. In other words, be something of a contrarian to find value before most others find that value. Stay ahead of the stampede and profit.

  6. TFPeditor Says:
    August 4th, 2009 at 11:02 am

    Great post! We just linked to you on our site, WhatWouldJohnTempletonSay.com. Our site is committed to preserving the legacy of Sir John’s financial wisdom, and we’re always happy to see others out there doing the same!

  7. LOL Says:
    August 4th, 2009 at 11:20 am

    kitty: yes I understand all of that completely. The phrase would be:

    “Buy High today, Sell Higher (hopefully) tomorrow”.

    It’s the ‘bigger sucker’ mentality. When you buy, you are potentially someone else’s ‘sucker’ though…

    I think what Templeton was doing was determining a companies value based on his own measurements and only buying stocks relative to his own ‘value’ (not the current market price). So, in his mind ‘Buy low’, meant buying shares for less than what he thought they were worth — value investing. That would change the phrase to be:

    “Buy for lower price than what you think it is worth, Sell for higher price than what you think it is worth”

    For anyone not doing their own calculations — it really is just ‘bigger sucker’ investing…

    Nice gains BTW!

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