Sir John Templeton passes away

One of Templeton’s mantras was “invest worldwide.” He took that to heart by investing in Japan before almost everyone else and making big financial gains there. He later applied his strategies in South Korea, among other foreign markets.

But Templeton’s success did not come solely from investing in growing parts of the world; it was how he invested there. One of the financial guru’s most famous quotes, and one that especially applies to today’s turbulent markets, is “The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell.” In other words, Templeton sought out undervalued companies and sold his stake in them when their value shot up. “Focus on value because most investors focus on outlooks and trends,” he has said.

Don Reed, president and CEO of Franklin Templeton Investments, says Templeton knew from the start that investing in foreign countries made good financial sense. “It was always the case that there are more opportunities if you look globally,” says Reed, who was hired by Templeton in 1989. “He saw advantages of diversifying in those markets. More choices provided more opportunities.”

The British knight — he renounced his U.S. citizenship in 1968 when he was knighted by Queen Elizabeth II — is considered a value investor, though he called his approach “bargain hunting.” Others heralded him as a value-contrarian investor, since his best stock finds were those of companies that other fund managers had no interest in researching.

His investment approach was so successful that more than 50 years after developing his style, the company that bears his name continues to place value over anything else. “We’re value investors,” says Reed. “We look for securities trading at a fraction of the cost of what they’re deemed to be worth.”

Another tenet of Templeton’s investment approach was to ride out the market’s short-term movements to attain long-term gains. “Sir John always believed that holding a security over a five-year period meant that we weren’t looking at day-to-day noise in the markets,” says Reed. “It’s been a very successful philosophy that he put in place.”

Reed speculates that Templeton wouldn’t have flinched in today’s market turmoil. He says the investing giant would have said that just because a stock’s price has dropped, it doesn’t mean its value has evaporated. “As stocks move lower, you take a look at the company, and, provided the thesis is still intact and fundamentals still look good, it’s an opportunity to dollar-cost average your position,” Reed explains.

A Rhodes Scholar and Yale graduate, Templeton started his career on Wall Street in 1937, creating the firm that would become Templeton, Dobbrow & Vance. Templeton was a successful investor right from the beginning of his career. In 1939, at just 27, he invested $100 in 104 companies that were trading below $1. Although 34 of them went bankrupt, he still made $40,000 when he sold the stocks four years later.

In 1992, the now-famous investor sold his company to the Franklin Group for $440 million.

Investing wasn’t Templeton’s only passion; he also took philanthropy and spirituality seriously, creating the £1,000,000 Templeton Prize in 1974, which recognizes “exemplary achievement in work related to life’s spiritual dimension,” according to the Franklin Templeton website.

He established the John Templeton Foundation in 1987 in order to fund scientific research and encourage discussion between scientists and theologians. Currently, the endowment has about $1.5 billion US in assets and awards $70 million in annual grants.

Although Templeton had been out of the mutual fund business awhile, Reed says his passing will still have an “enormous” effect on the industry at large. “He was a pioneer in global investing,” he says. “He looked at everything in the world as a possibility.”

Filed by Bryan Borzykowski, Advisor.ca, bryan.borzykowski@advisor.rogers.com

(07/08/08)