In my previous column, I related that Sir John’s predictions had evolved from one of great optimism during the pessimistic years around 1990, when the Dow Jones Industrial Average was around the 2500 level, to periods of pessimism around 2000 and 2007 when the Dow was around the 14,000 level. Yet I also intimated that I thought he might have been buying a few carefully selected stocks during the panic of 2008 when the Dow dropped to around 8,000. I should explain why.
In early 1999, Sir John asked me to co-author an article about why the Dow might probably rise to the one million level during the next century. The article was intended for his friends at Equities magazine, which had interviewed John annually for quite some time. To be quite honest, my initial reaction was to question John’s judgment this time! After all, he had also predicted the Dow would be flat during the coming decade. But I’d learned over the years, often the expensive way, not to question John’s financial insights. So I pulled out a financial calculator and discovered the Dow would only have to rise less than 5% annually for the Dow to reach one million. In essence, it was difficult for even me to believe the Dow might rise at one-half the rate it had during the twentieth century. Yet at the time, everyone around me believed a computer bug would end Western civilization! Many even believed the Second Coming was imminent.
As we talked and worked on the article, I realized John was actually saying that if investors wanted the kind of growth America had experienced last century, they would have to invest in emerging markets, which is what America was a hundred years ago. One of John’s core beliefs was growth tends to be much quicker from lower levels. As a maturing economy, America was more likely to resemble John’s beloved Great Britain during the pre-Thatcher years. In essence, John thought America would likely have more government with more regulation and social programs and therefore slower growth.
Equities only summarized that article as it again printed an extensive interview with him, probably as John predicted a 40% decline in the market before the advance to the one million level would begin. After that decline occurred during 2001 and 2002, John did indeed buy some stocks in developing markets, profiting quite nicely, before turning decidedly bearish in late-2005.
Now that the markets have fallen to their levels of late 2002, would Sir John again tell you to invest in developing markets? I think he might. Yet he would also remind you that even America experienced a Great Depression, many recessions, two world wars and several lesser ones, inflation, presidential assassinations, oil embargos and so on during the last century. He’d also tell you that at one of the very best times to buy his mutual funds during the early nineties, his old friends at Forbes magazine did a cover story about how he had “fallen off the mountain.” His next year was one of his best ever. And even his friends at the Morningstar mutual fund service wrote a review at the end of the century about how “Templeton has lost its luster.” At a time everyone was speculating in expensive technology and worthless Internet stocks, the Templeton funds were completely avoiding them. So Morningstar wrote: “the family’s commitment to bargain hunting is at the root of its problems…they tend to be more penurious and less flexible than their rivals.”
In essence, like Forbes, Morningstar made a very expensive mistake by counseling it was unfortunate the Templeton philosophy and discipline did not chase every new fad on Wall Street. Perhaps that is a mistake for publications that gauge success by monthly sales. But Sir John had a more eternal perspective, one that was far more rewarding for investors. So we will long remember him fondly, even lovingly, while we have long ago forgotten those men who authored those articles. It would be a most appropriate memorial to John if this century is not only one in which the Dow rises to one million but the one during which we finally learn that much more valuable lesson about true success.
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.