It seems likely that many readers, except perhaps for those that knew Sir John, would have been surprised to see only occasional mention of financial analysis, models, investment rules, or so on, but instead a list of well-defined and reasoned character traits.
by Lauren Templeton, principal and portfolio manager of Lauren Templeton Capital Management, LLC, and Scott Phillips, portfolio manager and contributor to The Templeton Touch
The re-release of The Templeton Touch provided us with an obvious occasion to reflect upon another of the great blessings in our lives which was having the privilege to work for a number of years with our mentor, Sir John Templeton. Perhaps what is lesser known about his influence among investors (including ourselves), was that it extended far beyond any passion for investment or security analysis and instead into the realm of one’s set of values and perspective on life. Within the special section that Scott added to this revision, this was a constant theme that naturally took hold—if not dominated—these interview discussions with investment luminaries.
Although Sir John will always be recalled for the specific illustrations he provided for successful investing, such as pioneering global investing, his contrarian-minded purchases, etc., it was his character and example as a human being that left the strongest impressions among the acquaintances that contributed to the book.
Likewise, through the explorative dialogue of these interviews a consensus was reached that Sir John often took an interest in individuals who possessed a certain passion for learning, the joy of life, and upholding a standard of high integrity above all else.
When William Proctor first sat down with Sir John in the early 1980s to write the original version of The Templeton Touch, there was clearly a great effort put forth to reveal the underlying factors to Sir John’s success as an investor. It seems likely that many readers, except perhaps for those that knew Sir John, would have been surprised to see only occasional mention of financial analysis, models, investment rules, or so on, but instead a list of well-defined and reasoned character traits. Admittedly, some of these traits people are born with to some degree, and some others need to be cultivated from the ground up. No matter what the starting position however, the below excerpt from Chapter 1 of The Templeton Touch represents to us a basic template for success, and in this case success can be defined in the field of investment, but also more broadly in “the game of life” so to speak.
For that matter, these are the same ideals that we practice, strive for, and measure ourselves against for progress. In sum, we believe that the standards we maintain in these areas will ultimately define our level of success as investors, which is most appropriately measured by us, you, and other observers as an ability to safely compound returns in the market above what is commonly available through the market indices. Hopefully, you too will find the excerpt below helpful in your own self-examinations as an investor, or otherwise.
We now refer you to the central determinants of the “Templeton Touch” which are listed below from Chapter 1 of the book.
From his earliest youth, Templeton was taught to think and act for himself. He developed a belief in himself, a self-assurance and self-confidence. Invariably, this is a crucial quality in the successful investor, who must ultimately stand alone to make the final decision about where his or her money will be placed.
Most successful investors—and John Templeton is no exception—seem to have a bit of the entrepreneur in them. But even though Templeton is willing to take adventurous risks with big money, he is, above all, a rational and responsible risk-taker. He carefully analyzes all the factors before he puts even a penny on the line.
A sense of stewardship.
This may seem a strange quality to include among those associated with successful investing. But actually it’s one of the most important.
Many outstanding investors, including Templeton, have a feeling that the money they are accumulating represents something of value beyond mere worldly riches, and perhaps even something sacred. This is not to say that they worship money. Rather, it’s a matter of showing great respect for the potential power of wealth and also gratitude for their ability to earn fortunes. In Templeton’s case, this attitude really does approach a sense of stewardship, or an assumption that he has merely been given the privilege of managing assets that have been entrusted to him.
In some ways, Templeton’s attitude is true in a purely worldly sense, in that he does manage great sums for others through his mutual funds and the investment accounts that wealthy individual clients have entrusted to him. But there is also a spiritual dimension to his approach because he believes that even his personal assets were given to him by God.
This sense of stewardship encourages great care in making decisions that involve the disposition of money. And it also engenders a deep commitment to thrift—one of John Templeton’s most apparent personal characteristics.
A drive toward diversity.
The principle of diversity has always been one of the foundations of successful investing: In other words, it’s important to spread your risk by putting your funds into a variety of investment vehicles, so that if one investment has a bad year or goes under, you won’t lose all your capital.
But Templeton goes beyond this traditional interpretation of the diversity principle to search worldwide for good investments. Many pundits who have tried to explain his success have stressed the fact that his diversity is not merely national, but is international as well.
A bargain-hunting mentality.
Searching for bargains is part of John Templeton’s basic approach to life: This orientation affects the way he buys furniture, cars—and stocks. Part of his bargain-basement style with stocks involves looking at low price-earnings ratios and other traditional investment techniques. But, as we’ll see, his approach is much broader than that taken by most of his fellow investors.
A broad social and political awareness.
The present and future value of stocks and other investments is always dependent to some degree on the nature of local social movements, laws, and government regulations. Even the basic nature of the political system may have a dramatic effect on how well a given investment will do in future years. For example, Templeton steers clear of investments in countries that are characterized by what he calls “socialization”—or various forms of socialism and other concerted governmental influence in business.
There’s no ironclad formula or doctrinaire, rigid rules that guide the top investors. These experts are always willing to “roll with the punches,” always flexible when new situations and challenges confront them.
A willingness to devote large quantities of time to studying potential investments and developing sound moneymaking strategies.
This key quality of the best investors may not be particularly glamorous. On the contrary, it is a rather ordinary characteristic. But at the same time, it’s an absolutely essential ingredient for investment success. A willingness to work hard for relatively long hours and to do in-depth analyses of specific stocks and investment situations is a sine qua non for making profits in this field.
John Templeton doesn’t waste many of his free minutes when he travels in airplanes, waits for business appointments, or finds himself in situations that most people would consider “dead” or wasted time: Instead of sitting for minutes or hours staring out into space, he reads articles and studies by security analysts on various companies that interest him. As a result, he is one of the best-prepared investors in the world when it comes to knowing the facts about a variety of potentially profitable opportunities.
An ability to “retreat” periodically from daily pressures.
The retreat concept is a religious notion that has direct application to effective investment strategy. Templeton found that when he moved from Wall Street to his present home in the Bahamas in the 1960s, his success as an investor improved markedly. The hours he spends in solitude help him to get a perspective that was impossible in the hullabaloo of the New York financial markets. These times of reflection also give him the courage to make decisions counter to prevailing market fashions—and often enable him to make money even as the majority of other investors are losing theirs.
An ability to develop an extensive friendship network.
One of Templeton’s most endearing qualities is his ability to make and keep friends in a wide variety of fields and geographical locations. As it happens, many of these friends are in influential positions in the business and investment community, and they are invaluable contacts when he needs advice or information about a particular investment possibility.
One of the “fruits of the Spirit” listed in St. Paul’s letter to the Galatians (5:22) is patience. And this personal quality is just as important in successful investing as it is in authentic spirituality. John Templeton has learned to be patient and persistent as he selects a certain stock and then waits calmly for it to start an upward climb. The wait may be months or years, but Templeton takes the long view—and his patience has proven him right more often than not.
This quality may at first seem rather ominous, because thought control may be associated with control from the outside, as happens in some religious cults or political brainwashing situations. But Templeton’s approach to thought control is just the opposite. He advocates and practices imposing, from within, a discipline and restraint on the direction of one’s thoughts and emotions. In other words, his thought control is really a form of self-control or self-discipline. He has learned over the years to focus his mental powers only on the task at hand and to block out all extraneous influences that might distract him from his main purposes in business and life. The result has been an ability to achieve great things in the worlds of investing and philanthropy.
This is a form of thought control that Templeton practices, but it has a “life of its own” and therefore must be listed as a separate quality. He believes that negative thoughts are a kind of psychological poison that tends to sap a person’s energy and distracts that person from accomplishing important goals. He certainly recognizes poor or negative investments when he sees them, but he doesn’t dwell on them. Instead, he moves on quickly to those investments that offer the positive promise of greater profits.
Although there is a great deal of intricate analysis involved in evaluating many of the companies and special investment situations that Templeton considers every week, a major feature of his investment decisions—and of his entire life for that matter—is simplicity.
After all the complex elements in an investment decision have been considered, he tries to boil them down to their essential components. But even though the final statement of the solution of a problem may reflect classic simplicity, it still takes a genius of sorts to get to the true essence of an investment problem—just as it took a genius like Einstein to state the simple form.
This is an excerpt from the December 27, 2012 issue of the Maximum Pessimism report issued by Lauren Templeton Capital Management, LLC.