diversification“Diversification should be the corner stone of your investment program.  If you have your wealth in one company, unexpected troubles may cause a serious loss; but if you own the stocks of 12 companies in different industries, the one which turns out badly will probably be offset by some other which turns out better than expected.”  July 1949

“It seems to be common sense that if you are going to search for these unusually good bargains you wouldn’t just search in Canada.  If you search just in Canada you will find some, or if you search just in the United States you will find some.  But why not search everywhere?  That’s what we’ve been doing for forty years.  We search anywhere in the world.”  November 1979

“The only investors who shouldn’t diversify are those who are right 100% of the time.”  The Templeton Touch, 1983

“To avoid having all your eggs in the wrong basket at the wrong time, every investor should diversify.  If you search worldwide, you will find more and better bargains than by studying only one nation.  You will also gain diversification.”  March 1994

“Research shows that a stock portfolio with investments around the world is likely to yield, in the long run, higher return at a lower level of volatility than a simple, diversified, single nation portfolio.  This is what we have always done, as the results of the Templeton Growth Fund, Ltd. have shown.”  July 1994

“If you are diversified among different forms of wealth, nations and industries, you’ll be safe in the long-run.”  May 1995

As you can see from the selection of quotations above, Sir John Templeton was a proponent of diversification. Before the launch of the Templeton investment funds and persisting at least until a few decades ago, there was a sentiment in investing that the only stocks worth buying were in the United States.  There were any number of reasons why this was the investing paradigm. Uncle John always remarked that he found that mindset both arrogant and shortsighted. 

Over the many years some of that original arrogance among U.S. investors has become less outspoken, but biases against foreign investing have still lingered. Today you will often hear weak foreign accounting standards as justification for avoiding global diversification. Whatever the arguments against global diversification, this collective set of biased reasoning represented the majority wisdom for many decades over Uncle John’s career.  Not that he minded too much.  Trust me; he was unflinching when he saw  the opportunity to take advantage of human ignorance or misconceptions in the stock market.  To Uncle John, investing in bargain stocks from other nations was only common sense.

The notion of investing globally today is taken for granted, and the mutual fund world is now full of managers buying stocks in Europe, Asia, South America, and just about everywhere under the sun. If you investigate these funds, it should not come as a surprise that many carry the Templeton name. The point is that even back in the first half of the twentieth century, when no one else bought foreign stocks, Uncle John was comfortable investing in other countries because he had taken the time to become knowledgeable rather than be guided by biases. Perhaps it was harder or a bigger challenge to research a stock in Japan in the early 1960s. It also carried a bigger potential reward to investment analysts willing to undertake the task.

The truth is that Uncle John became knowledgeable about foreign countries because he was taught at an early age to pursue knowledge without regard to boundaries.  Unfounded biases and prejudices lead to ignorance, and ignorance is a handicap in every walk of life.

Uncle John often remarked that he thought his investment analysis was wrong approximately 1/3rd of the time.  This is an extraordinary comment.  Sir John Templeton, coined “the world’s greatest stock picker of the century” by Money magazine was only right 66 percent of the time.  So if the greatest stock picker in the world needs to be diversified to protect against losses,  the average investor can surely benefit from the practice of diversification too.

Lauren Templeton is coauthor of Investing the Templeton Way and is founder and president of Lauren Templeton Capital Management, LLC.