In recent weeks, the stock market has been more volatile than in previous months, due to a feared European debt crisis, mixed job reports, and other factors.

Today, we finish¬†posting ¬†John Templeton’s September 21, 1948, letter in which he focuses on the silver lining of a down market.

If the market continues to decline the long-range programs will call for purchasing more stocks at successively low levels. Of course, if there were any way to know for sure that the stock market would decline to 128 we would wait until then to make any purchases. In fact, we would go further than that and sell out the stocks now held in order to repurchase at the bottom. But the fact is that no one can possibly know for sure what the stock market will do. It is also possible that a long bull market may start immediately. If there were any way to know this for certain, we should immediately buy common stocks on margin at once. Here again, no one can possibly be sure what the stock market will do. The prudent and conservative policy is to follow a long-range program designed to profit from stock market cycles without the need for predicting either the timing or extent of such cycles.

Because the stock market declined yesterday and is now 9 percent below its level three months ago, investors generally are unhappy. Even for those investors who have not yet adopted a long-range program this emotion is illogical, if such investors are still in the stage of accumulating their wealth. Low market prices work to the advantage of an investor who makes it a practice to reinvest dividends or an investor who makes annual savings from his business or salary. For more than two years stock prices have been remarkably low in relation to earnings. In fact, today stock prices are lower in relation to earnings than in any peace-time year as far back as records are available. This means simply that a person with new money to invest can obtain unusual bargains. He can buy shares in some of America’s largest and soundest enterprises for less than five times current rate of earnings. If the current rate of earnings is maintained, the net worth of his shares plus the dividends received will cause the value of his investment to double in less than five years. Even if future earnings were only one-half of current earnings, his purchases would still represent attractive bargains.

This memorandum is not written merely to point out the silver lining of a cloud. It is intended as a part of the long educational program to persuade more and more investors to adopt sound and long-range investment programs.