This article was posted in the New Haven Register on May 13, 2017.
Editor’s note: Second of four parts on legendary investors.
Investors today understand the need for a global outlook: Investing worldwide offers both diversification and a wider selection of assets with growth potential.
It wasn’t always that way, however, and the foremost pioneer of global investing was a man named Sir John Templeton (1912-2008). He became one of the first international investors in 1954 when he started a mutual fund that bought securities from throughout the world, and he went on to become one of the world’s most successful and celebrated investors.
Templeton was born into a poor family in Tennessee and earned a degree in economics at Yale University and then a law degree at Oxford University as a Rhodes Scholar. He became a naturalized British citizen in the 1960s and was knighted in 1987. He founded the Templeton Prize, whose first recipient was Mother Teresa in 1973.
Opening the door to a worldwide menu of securities was only one aspect of Templeton’s investing philosophy: He made his fortune as a bargain hunter, a stock picker with a contrarian outlook and a “value investing” strategy.
“It is extremely difficult to go against the crowd — to buy when everyone else is selling or has sold, to buy when things look darkest,” Templeton wrote in a 1993 article for World Monitor: The Christian Science Monitor Monthly. “But, if you buy the same securities everyone else is buying, you will have the same results as everyone else. … And chances are if you buy what everyone is buying you will do so only after it is already overpriced.”
Templeton was careful to invest in companies located in countries with a free enterprise system, avoiding socialist regimes where governments interfered with entrepreneurial activity. Here are some other tips offered by Templeton:
• Invest for the Long Term. Templeton searched for bargains worldwide but invested in “quality” companies with excellent long-term prospects, adopting a “buy and hold” strategy while remaining flexible and ready to sell if the stock price rose too high too fast. He defined a quality company as one that is a sales leader in a growing market with a strong management team, among other attributes.
• Invest in Value, Not in Market Trends. Concentrate on finding quality companies whose stock is priced low based on the company’s long-term value. Avoid following market trends or investing based on the economic outlook. “Individual stocks can rise in a bear market and fall in a bull market,” he wrote.
• Diversify Your Portfolio. Investments can go south for any number of reasons: Your research may have been flawed, or a competitor may develop a better product, or a natural disaster could strike. It’s vital to diversify, not only by type of assets such as stocks and bonds but also by industry and by country.
• Protect Your Purchasing Power. In putting together an investment portfolio, the overall goal should be to maximize total real return, meaning your return after taxes and after inflation. Every investment should take into account these two factors that can slash your returns. Always keep in mind; investing involves risk. Depending on the types of investments, there may be a varying degree of risk. Investors should be prepared to bear loss, including total loss of principal. Diversification and asset allocation strategies do not assure profit or protect against loss.
Next: Peter Lynch
Eric Tashlein is a Certified Financial Planner professional and founding Principal of Connecticut Capital Management Group LLC, 67 Cherry St., C-2, in Milford. He can be reached at 203-877-1520 or through www.connecticutcapital.com. This is for informational purposes only and should not be construed as personalized investment advice or legal/tax advice. Please consult your advisor/attorney/tax advisor. Registered Representative, Securities offered through Cambridge Investment Research Inc., a Broker/Dealer, Member FINRA/SIPC. Investment Advisor Representative, Cambridge Investment Research Advisors Inc., A Registered Investment Advisor. Cambridge Investment Research Inc., and Connecticut Capital Management Group LLC are not affiliated.