One on One with Sir John Templeton

By Paul Kangas
1/1/2005
SciVest: Where Science Meets Investing

Nightly Business Review

NBR co-anchor Paul Kangas interviews the legendary creator of some of the world’s largest and most successful international investment funds. In this interview, Sir John Templeton shares his outlook of the global economy and his passion for religious research.

PAUL KANGAS, CO-ANCHOR, NIGHTLY BUSINESS REPORT: Sir John, among your many memorable observations about common sense investing, is this one and I quote, “Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria.” Where in this sequence do you think the US stock market is now?

SIR JOHN TEMPLETON, : In dangerous ground, Paul. Let me put that in slightly different words. Usually God favors the people who try to do good. So, when you find that the crowd is desperately trying to sell, help them and buy. When you find that the crowd is overenthusiastically trying to buy, help them and sell. It usually works out.

KANGAS: (laughs) It certainly has for you over the years, that’s for sure. So, you don’t think the US stock market is particularly attractive right now. Are there are foreign markets where you do see value?

TEMPLETON: Not really. This is the period to play safe. Usually, there are great differences between markets in different nations, and you can find remarkable opportunities somewhere. But more than any time in my 91 years, I find more uniformity and less opportunity by going into different nations or different industries.

KANGAS: What is an investor to do if he’s not to be investing anywhere in the world right now? What should he do?

TEMPLETON: Play safe. But you can’t play safe by doing nothing. If you take your money out of high-priced stocks you have to put it somewhere, so probably put it into US treasury bonds. But even better than that, maybe a new thing that didn’t exist until a few years ago called market-neutral funds. These are not usually SEC-registered, but there are a dozen or more now, where the managers try hard to be always equally long and short. So it doesn’t matter whether the stocks go up or down. You make a profit depending how wise the manager is.

KANGAS: Well now, you’ve said that trouble is opportunity.

TEMPLETON: That’s right.

KANGAS: And you see trouble around the world a lot.

TEMPLETON: Oh yes!

KANGAS: How about China? What are your thoughts on this emerging power?

TEMPLETON: Wonderful! Honest, I’m delighted to have people more prosperous. My guess is that within as short a period as 20 years, China, which has been poor for all centuries, will become the dominant…well not the dominant but have the largest gross national product that any nation ever had. So, that’s something we should all rejoice about. One of the great blessings we don’t fully appreciate.

KANGAS: There are many Chinese-American Depository shares trading in this country. You see no value there?

TEMPLETON: There aren’t many.

KANGAS: They’ve had big runnups, of course.

TEMPLETON: Yes, I have been investing in those few available, but they’re up 100%. So, yes, they’re about the same valuation now as the rest of the world’s shares.

KANGAS: Ok, but the gold stocks have been surging. Does this indicate trouble down the line? And wouldn’t they make good investments, or do you think that that bull market is over for gold?

TEMPLETON: No one ever knows when the market’s over, but the great boom in gold is more than half over. Let’s put it more broadly, Paul, that all currencies – not only the American dollar but all currencies – always go down, mainly because of democracy. The voters will vote for the person who is going to spend too much, and so you have to expect all currencies to go down. And just recently, America has started to spend too much, and the currency has already gone down a lot. But other nations now realize that, and they don’t want to lose out to America, so they let their money go down too.

KANGAS: The Bush administration has not shown too much concern about the falling dollar. Do you think that they are doing right by not being concerned?

TEMPLETON: Yes I do. The American dollar became so high that people tried to smuggle themselves into the United States in order to benefit from it. That will be less of a problem if the American dollar comes more into line with world currencies.

KANGAS: But there comes a point, does there not Sir John, when it becomes a danger.

TEMPLETON: Well, not to America. No. It becomes a danger in the sense that other nations will have to compete; other nations will have to reduce the value of their money too. But I don’t think it’s anywhere near being a danger to America. I don’t see how it would cause enough danger to America.

KANGAS: It helps exporting companies.

TEMPLETON: That’s right.

KANGAS: All right. That’s an interesting observation. We’ve heard a lot of scared rumors about the dollar falling too quickly; it could lead to a currency disaster around the world. Not true?

TEMPLETON: No. No, because in order for it to lead to a disaster, the word usually means that it would down. But it has to go down in relation to something, and there’s nothing to go down in relation to. So, all currencies do tend to go down. They go down in terms of purchasing power, and that is likely to continue.

KANGAS: So it is a time for the investor to go for safety.

TEMPLETON: Yes. Well, your time (inaudible)… If we’re talking the next two, three, four years, I would certainly advise your audience to play it safe as we just spoke about.

KANGAS: How serious an impact will the recent mutual scandal have on the investing public and the fund managers?

TEMPLETON: Almost nothing, Paul, almost nothing. Look at the proportion; look at the arithmetic. If everything proved to be true that has been put in the media about the mutual funds, the total loss would be less than 1% of the amount of money that Americans have in mutual funds. Now, that’s not good, but it’s certainly not going to be a major influence on anybody. In fact, I want to take this time to say that I think the mutual funds are one of the great blessings that people don’t fully appreciate. For the first time in world history, over half the families in the world have a chance to own shares. It’s mutual funds that made it possible, and I believe within 20 years you will find over half funds on earth… families on earth investing in common stocks through mutual funds.

KANGAS: Very interesting observation there. I want to ask you; did you ever entertain any thoughts of doing anything else in the business world than what you chose to do.

TEMPLETON: (laughs) Oh sure! The world is so full of opportunities. In the business world, I considered many things, but everyone should look at what talents God gave them. If fact, when I was a student at Yale that I watched the… for the first time in my… I had come from a poor farm in community(???) in Tennessee. The first time I met people who own stocks. But I didn’t find anybody who owned stocks outside one nation, and it seemed to me that that was just short-sighted, or small-sighted, that surely they could do better if they had invested everywhere. And there was no investment counselor anywhere in America offering advice on how to invest worldwide, so I undertook to prepare myself to do that. And having prepared myself to do that, I did that until twelve years ago, when I sold out everything I had of any financial nature in order to devote my life to something vastly more important.

KANGAS: And we know what that is, and we compliment you on your activities in providing religious information.

TEMPLETON: That’s right.

KANGAS: You’re educating the world as to the existence of different religions, and how do you find it? Are you well received?

TEMPLETON: No. (laughs)

KANGAS: Why is that?

TEMPLETON: It’s a failing of human nature. No religion that we’ve been able to find has ever welcomed new concepts. The originators of the religion did, but within a century after the originator, the bureaucracy clamped down and just did not welcome new discoveries. So if you’re not looking, you don’t find. And consequently all religions are becoming obsolete. It’s like my grandfather was a medical doctor. He had never heard of a germ. If medical people had taken that viewpoint now, we’d still wouldn’t know any more about your body than my grandfather knew. But medical people had a viewpoint, let’s make discoveries, and they spent vast billions of dollars making discoveries. So we know a hundredfold more about your body than my grandfather knew. If we get that idea into the minds of religious leaders… not just the leaders but the top 30 million people on earth that could get that mind to where the world would spend just 1/10th as much on spiritual discoveries as they spend on other science discoveries, the benefits would be even greater than it have been in all the sciences.

KANGAS: And you’re helping along that cause in a very, very excellent manner I might say.

TEMPLETON: That’s why I’m the busiest I’ve ever been. The most enthusiastic, the most joyful I’ve ever been, because I think it’s a wide open opportunity to do something good for centuries to come.

KANGAS: If you knew what you know now and were just starting out in the business world, what sector would you choose if you were just starting now?

TEMPLETON: (laughs) Well, you’re limiting me to the business world.

KANGAS: Well, no. Let’s go anywhere. If you were to do anything, choose any profession anywhere, what would it be?

TEMPLETON: Science research about aspects of divinity. That’s the most neglected area.

KANGAS: But can we make a living doing that?

TEMPLETON: Yes. The amount of money devoted to all religions today is enormous.

KANGAS: Good point.

TEMPLETON: So if you could take 1/10th of that – what is devoted to religions all over the world – and devote it to try to make new discoveries about spiritual realities, the benefits could be enormous. And from a career standpoint, you could become more famous than the great scientists who developed in other areas.

KANGAS: Very well taken point. Sir John Templeton, I want to thank you once again for giving of your time to Nightly Business Report. Thank you so much.

TEMPLETON: Thank you, Paul.