The period from the collapse of the Berlin Wall in 1989 to our credit crisis of 2009 has been one of watching Sir John’s evolving predictions—from anticipating “the twenty most prosperous years in history” to “financial chaos,” as he predicted in 2005—come true. Clearly, he was a prophet among us.
Unfortunately, as the Bible relates about old Ezekiel (Chapter 33, verse 31), people always “crowd in” to listen to men like Sir John but few do even a “single thing” they say as they only realize they were listening to a prophet “after all your words come true” (verse 33), which is too late to do them any good. After thirty years on Wall Street, I’ve grown to understand that’s usually due to there being so many “false prophets” around, wildly making predictions about that of which they know little and often saying the opposite of what true prophets are saying. I’ve also realized the most financially impoverishing ones are religious leaders who know little about economics but assure us they are speaking for God. The unsophisticated usually take them far more seriously than the secular prophets of Wall Street, who are always taken with a grain of salt.
Anyway, it’s pretty easy to know what Sir John said during that period as, unlike those talking heads who rarely want only the few correct predictions scrutinized, John liked to put his in print. It is far more difficult to know what he might say today. But the place to begin might be with his favorite saying about the markets: “Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria. The time of maximum pessimism is the best time to buy and the time of maximum optimism is the best time to sell.” So Sir John was not only selling but actually shorting, or expecting to profit by anticipating a decline in prices, during both the euphoria of 1999 and 2006.
Yet I expect he might have been selectively buying a few quality stocks last November. The media, who Sir John considered a very reliable contrary indicator, was full of talk about another Great Depression, even though a recession had not been officially acknowledged. Even Jim Cramer, whose slogan is “there’s always a bull market somewhere,” couldn’t find one and told investors who might need their money within five years—and most investors would during a depression–that they should sell their stocks. So for one of the few periods in history, investors were pulling more out of equity mutual funds than they were investing, which is another reliable contrary indicator. It is during such periods of gloom that Sir John grew most happy as he knew there would be bargains out there. When I wrote my first book about Sir John, his successor as chief investment officer at the Templeton funds told me the crash of 1987 was the happiest he had seen Sir John. If you do not understand contrary thinking, you’ll never understand Sir John!
Yet one of the most valuable things I learned from John is that there are always other people who are as smart, if not smarter, than you are. John went to great lengths to find those rare individuals and listen to them. So when I stopped pestering Sir John about markets several years ago out of respect for his limited time on earth, I began listening to another “grumpy old man” by the name of Jeremy Grantham, founder of the GMO funds. He sounded remarkably like Sir John, and even Old Testament prophets, anticipating huge economic problems due to speculation and debt. Mr. Grantham is also known for his insights into global investing. That indicates he, like Sir John, likes to see the biggest picture possible, which is why the prophets always went to mountain-tops.
Mr. Grantham saw things clearly. He told Barron’s magazine in February 2006 that “housing is a classic bubble” and “this feels like the end of a cycle.” The S&P 500 index peaked around 1500 in 2007 but Mr. Grantham maintained “fair value” was in the one thousand range. He also cautioned that during bear markets, markets often fall further than fair value, suggesting it might fall to the 800 range. And that’s almost exactly where the S&P 500 bottomed in November, and Mr. Grantham began buying some stocks.
Should you? I have no idea. But as for me, I’ll forever treasure the moral and financial principles Sir John taught us. But as I’m not an economist or stock analyst, I’ll continue to update those principles by reading Mr. Grantham’s current thinking. Blessings.
Gary Moore was senior vice president of investments with Paine Webber before founding Gary Moore and Company: Counsel to Ethical and Spiritual Investors, which provides investment counsel to banks, churches, and individuals. He is the author of several best selling books and currently lives in Sarasota, Florida, with his wife, Sherry and son, Garrett.