John Templeton manages the Templeton Growth Fund and is profiled at StreetStories
October 08, 2005
Market Wizards Index: +16%
Compound annual over 20 years
Fund or affiliation
Templeton Growth Fund
Methodology
Flexibly adapting his investment style (which has elements of both growth and value) to fit different times, countries, and investment climates.
Research Techniques Employed
The best bargains will be in stocks that are completely neglected, that other investors are not even studying.
His selections range over many markets: at home with Japanese, Canada, and American; and knows Switzerland, Germany, Holland, Belgium, Australia and South Africa.
Conditions an investor should avoid: inflation and socialism [or government regulations].
Banks are natural candidate for regulations; Newspapers are regulation resistant, freedom of speech!
Supermarkets are good inflation hedges.
The population of Lyford Cay is made up of successful industrialists from many parts of the world. It became Templeton’s network of sources. He is also founder of Young President’s Organization.
He studies the portfolio’s of his peers, he tracks about 20. He cosiders Harry G.A. Seggerman of Fidelity Pacific Fund to be skillful in foreign companies.
Early in his career he visited hundreds of companies, his standard questions are:
Do you have a long range plan?
What will be your average annual growth rate?
Why should the future be different from the past? What are your problems?
Who are your ablest competitor? Why?
If you couldn’t own stock in your company, which of your competitors would you want to invest in... and why?
Makes extensive use of The Value Line Investment Survey for figures, and Wall Street Transcript as an aid. He makes wide use of brokers, but only to establish facts, not recommendations.
Trading/ Valuation Techniques Employed
Transaction pattern: insisted on buying only what was being thrown away, and he held the stocks for an average of 4 years.
He admits he makes constant mistakes, but because he is heavily diversified, the damage is limited.
He buys into small companies that his clients never even heard of, and is prepared to buy almost all the stock available.
Once a stock moved up and no longer a bargain, then if he finds a much better buy, out goes the first one.
Templeton’s analytical approach to determine the intrinsic value of companies, 6 factors:
P/E ratio.
Operating profit margins.
Liquidating value.
Growth rate, in particular the consistency of earnings growth.
Flexibility.
Don't trust rules and formulas.
Philosophy and beliefs
Everything has its seasons, which does not last forever. The world changes its spots, and the investor must change his. After his interest in small "soecial situations" and growth stocks, he favored Japan (which reached a peak of 60% in 1970) and other foreign countries, then later, big multinationals like Ford and Royal Dutch.
Search among many markets for the companies selling for the smallest fraction of their true worth.
Flexible viewpoint [open mindedness] is the professional investor’s greatest need, and will be increasingly in the future.
History and other facts
He won a Rhodes scholarship to Oxford.
We worked as a trainee for Fenner & Beane, one of the predecessors of Merrill Lynch.
At 56 years of age, he moved to Nassau, Bahamas, and built his house on Lyford Cay Club grounds. Supposedly, he can escape from news and opinion, and the surge and ebb of the passions of the crowd.
Due to the small size of Templeton Growth Fund, he can be very flexible, like moving 50% to cash, and does not need to stick to familiar names.
Templeton endowed a prize for progress in religion.
Examples
One day in 1939, he bought every single stock on both major exchanges which were selling for under $1.00, bankrupt or not. He held for 4 years on average and got $40,000- 4 times his cost.
Buys Ito Yokado at 10 x P/E and 30% growth, rather than Safeway at 8 x P/E and 15% growth.
He considers Real Estate as a field of perennial interest in inflationary era, and bought a package of Canadian RE companies that no American investors have heard of.
Performance Record
16% over 20 years: "Over the 20 years ending 1978, a $1,000 investment in his fund became worth about $20,000, if all distributions had been reinvested..."
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