Library / Outstanding Investors
Date of review: September 2019
Book author: Lauren C. Templeton and Scott Phillips
Вook published: 2008
Book author: Lauren C. Templeton and Scott Phillips
Вook published: 2008
Investing the Templeton Way. The Market-Beating Strategies of Value Investing's Legendary Bargain Hunter by Lauren C. Templeton and Scott Phillips (2008)
I found this book after specifically looking for the best book on John Templeton on the internet which is not the typical way books make their way into my library.
John Templeton was an investor of a special calibre
These days I normally get references from various email newsletters, podcasts, Youtube interviews and occasionally I follow Amazon recommendations. But at some point after having read extensively on Value Investing, Warren Buffett and a few other investors I realised that I knew very little about a person who is definitely on the short-list of the best investors ever. Moreover, I had often heard many quotes attributed to Templeton on different occasions which all made me realise that he was an investor of a special calibre and created an urgency to find a proper book to learn more. I have added the famous maxims of John Templeton at the end of this note. Surprisingly, there are not that many books on Templeton as an investor - some books mention him among other investors but don't provide too many details, while others (including those written by John Templeton himself) focus more on the spiritual life and human values.
What is also interesting about this book is that it is written by a practising value investor and a relative of the legendary investor - Lauren Templeton - a grandniece of John Templeton. Lauren and her husband, Scott Phillips, run a value-focused investment firm. This makes the reading even more exciting, although one drawback I should point out is that at some points it looks like the ideas come directly from Lauren, while most of the times it is her review of the investment approach of her granduncle.
What is also interesting about this book is that it is written by a practising value investor and a relative of the legendary investor - Lauren Templeton - a grandniece of John Templeton. Lauren and her husband, Scott Phillips, run a value-focused investment firm. This makes the reading even more exciting, although one drawback I should point out is that at some points it looks like the ideas come directly from Lauren, while most of the times it is her review of the investment approach of her granduncle.
Templeton's principles and method
One of the central principles of John Templeton is buying stocks at a time of maximum pessimism, perhaps it was born from the dark times of 1939 when Templeton started his investment career. Part of the reason Templeton found bad times so fruitful for investing is that he focused on the long-term and the events likely to happen eventually rather than reacting to the current situation.
Since Templeton often bought weaker stocks that would benefit to a larger degree from a macro recovery, he often bought many stocks, not just few to reduce the risk of one or two of his holdings going bankrupt. Templeton's investment style looks way more out of sync than even Buffet's one who is often criticised for being too light on technology. But the book provides quite interesting facts about his investments in companies with frequent losses before 1940 which generated a few hundred percent more returns that quality names with consistent earnings stream prior to 1940.
In terms of the valuation technique, Templeton's most often used method was looking at PE multiple and trying to understand reasonable growth in the medium-term. According to the authors, PEG ratio (PE divided by future growth) was Templeton's most often used valuation yardstick. Lauren specifically highlights that her granduncle should not be classified as a Value investor in a narrow definition (someone looking for cheap stocks and not looking for growth). She insists that Templeton was mostly focused on buying stocks below their intrinsic value which can be estimated with or without growth. Still, I got a sense that he put more emphasis on the price he paid rather than superior growth offered by specific stocks which makes him closer to Value investors in a broader definition (to a degree Buffett can be called a Value investor).
The book covers key periods of Templeton's investment career including his focus on international markets especially Japan which he was one of the first outside investors to discover.
Since Templeton often bought weaker stocks that would benefit to a larger degree from a macro recovery, he often bought many stocks, not just few to reduce the risk of one or two of his holdings going bankrupt. Templeton's investment style looks way more out of sync than even Buffet's one who is often criticised for being too light on technology. But the book provides quite interesting facts about his investments in companies with frequent losses before 1940 which generated a few hundred percent more returns that quality names with consistent earnings stream prior to 1940.
In terms of the valuation technique, Templeton's most often used method was looking at PE multiple and trying to understand reasonable growth in the medium-term. According to the authors, PEG ratio (PE divided by future growth) was Templeton's most often used valuation yardstick. Lauren specifically highlights that her granduncle should not be classified as a Value investor in a narrow definition (someone looking for cheap stocks and not looking for growth). She insists that Templeton was mostly focused on buying stocks below their intrinsic value which can be estimated with or without growth. Still, I got a sense that he put more emphasis on the price he paid rather than superior growth offered by specific stocks which makes him closer to Value investors in a broader definition (to a degree Buffett can be called a Value investor).
The book covers key periods of Templeton's investment career including his focus on international markets especially Japan which he was one of the first outside investors to discover.
Some of Templeton's maxims and other thoughts
- If you want to have a better performance than the crowd, you must do things differently from the crowd.
- Bull markets are born on pessimism, grow on scepticism, mature on optimism and die on euphoria.
- The time of maximum pessimism is the best to buy, and the time of maximum optimism is the best time to sell.
- At the beginning of my sophomore year [1931] my father told me with regret that he could not contribute even one dollar more to my education. At first this seemed like a tragedy, but now, looking back, it was the best thing that could have happened.
- In almost every activity in life people try to go where the outlook is best. You look for a job in an industry with a good future or build a factory in an area where the prospects are best. However, my contention is that if you are selecting publicly traded investments, you have to do the opposite. To buy when others are despondently selling and to sell when others are avidly buying requires the greatest of fortitude and pays the greatest ultimate reward.
- Research shows that a stock portfolio with investments around the world is likely to yield, in the long run, a higher return at a lower level of volatility than a simple, diversified single-nation portfolio.