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Investing Principles of John Templeton

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August 07, 2008 – Comments (0)

I have not been on CAPS for a while, because my long term strategy doesn’t require me to :) Once every quarter is enough. I might add some more blogs and maybe add some new companies to my portfolio, but only if I can find the time and motivation for it. 

 Anyway, here is a new blog from me, for you: 

Principals of John Templeton; guidelines which can help you beat the market! 

Principle #1: FOCUS ON RETURNS AFTER INFLATION 

Money is losing value all the time. You don’t get any richer if your stocks grow 10% with an inflation rate of 15%. 

Principle #2: STOP SPECULATING! 

The stock market is not a casino where you put your chips on ‘red’ today and on ‘black’ tomorrow. Before you know your profits get washed away by transaction fees. 

Principle #3: INVEST WITH AN OPEN MIND

There is a time for blue chips, cyclical shares, bonds, cash… Do not think that there is one investment that will always work, be ready to adapt to changing circumstances. 

Principle #4: BUY LOW 

Sounds obvious, but a lot of investors do not follow this principle. They bought shares in 2007 when the stock markets where at their peak…but are afraid to buy some more now  that they have fallen to far lower prices.  Templeton even refers to a quote of Benjamin Graham: “Buy when most investors…even experts…are pessimistic. And sell when everyone is optimistic.” 

Principle #5: DIVERSIFY 

No matter how careful you are, the future always uncertain. There can always be completely unexpected things which you could never have foreseen. That’s why it is important to spread your wealth across different sectors and countries, although you should absolutely not exaggerate the diversification.

Principle #6: DO YOUR HOMEWORK 

A thorough investigation of a company, their results and balance sheet are crucial in order to get a correct view of what you are putting your money into. If you do not have the time or expertise to do this homework yourself, you should let either a professional help you or you could subscribe to something like Motley Fool Stock Advisor service. 

Principle #7: DO NOT PANICK! 

If you do not sell your stocks soon enough when they get way above their intrinsic value, you can get stuck with them for quite a while when they drop down again. Stocks can fall quite fast at times, but panick is a bad advisor. No use in selling your shares only because their prices have dropped; if their intrinsic value is still intact you should just hold them in your portfolio until price meets value again.

 Principle #8: THERE IS NO SUCH THING AS CERTAINTY 

Investments in IPO’s are rarely a good idea. Most of these shares show to not be able to beat the market. The only reason they are brought into the market is because investors are willing to pay a premium price for them.  

These are only a few examples of Templeton’s advice to us, but I’m sure your investment returns will increase if you follow them consequently. 

Templeton’s advice is of great value in today’s markets. While investors fight each other to dump their shares first…analysts get more negative by the day…and the recession hits company after company…we can find more great bargains then at any time since the turn of the century!  

Translated from a www.smartcapital.be newsletter     

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