Lauren Templeton and Scott Phillips, coauthors of Investing the Templeton Way, analyze John Templeton’s 1953 letter on keeping clients happy:

In 1953, John Templeton penned the letter “How to Keep a Client Happy.” Of course, the simplest answer to this question is to make a client incredibly wealthy through wisely managing his or her assets. Aside from strong performance in their investment portfolios though, the memo underscores several of the psychological challenges to investing. In this case, however, Templeton addresses these psychological challenges from the perspective of an investor who has placed some portion of his or her savings in the trust of an outside investment counselor. In doing so, he discusses the notion that a great deal of decision making (around 90%) is owed to subconscious influences versus logic.

To begin, Templeton emphasizes a direct appeal to the typical 10 percent of investment decision making that is owed to logical thinking. In this instance Templeton discusses the importance of stressing the investment process, which is dictated by a strict adherence to a disciplined investment regimen. Also, he mentions that it is important to display a strong command of knowledge surrounding the investments of the portfolio in order to instill added confidence in the counselor’s ability and the prospects of the holdings (including their superiority to other selections, programs, etc.). Interestingly though, following Templeton’s emphasis of displaying investment expertise, he then addresses the importance of appealing to the remaining 90 percent of human decision making, which he thought may be owed to subconscious influences. In this regard, Templeton discusses the importance of instilling confidence in investors from a multitude of observational perspectives. He describes the important influence of professionalism in appearance, mannerisms, marketing materials, and physical assets such as office space. In this discussion Sir John reveals that investor biases are strongly influenced by the appearance of proven success and prosperity. This phenomenon is also readily seen among professional investors themselves who often prefer to own stock in the companies who have already shown their success. Problematically though, professional investors tend to own these glamorous stocks without paying closer attention to their higher-than-average prices. In other words, investors will likely always be influenced in their decision-making process by appearances that may or may not be an accurate reflection of an investment’s return potential. Clearly, the investment manager that can combine the strongest mix of high returns, sound process, and professional appearances will keep their clients happiest.