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.
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