As we’ve highlighted in the last several weeks, one of John Templeton’s most successful investing strategies was to buy low and sell high. In Spiritual Investments: Wall Street Wisdom from the Career of Sir John Templeton, Gary Moore highlights this strategy of maximum pessimism:
Every investor knows to buy low. But in actual practice, this isn’t the way the market works.
When prices are high, demand is high. When prices are low, demand is low—investors have pulled back, and people are discouraged.
More often, stocks in only particular fields fall. Industries such as auto making and casualty insurance go through regular cycles, or occasionally stocks of certain types of companies, such as thrift institutions, fall out of favor all at once.
It is extremely difficult to go against the crowd, to buy when everyone else is selling, when things look darkest. And if we buy with the crowd, we will achieve the same results as everyone else. By definition, we can’t outperform the market if we buy the market. Bernard Baruch, adviser to presidents, put this principle most succinctly when he said, “Never follow the crowd.”
Investment decisions contrary to “conventional wisdom” can be the most rewarding.