Investing Lessons from John Templeton (1912-2008)

John Templeton, the philanthropist and legendary investor, died today. It’s difficult to take a comprehensive look at a man who squeezed a lot of life into 95 years, so I’ll focus on Templeton the investor:

1. Templeton’s historic legacy

Many obituaries focus on Templeton’s philanthropy. But I think this is because Templeton lived so long that few now remember his most significant role in history, as a popularizer of the mutual fund.

When Templeton started his career, Americans hated Wall Street. After the 1929 crash and the Great Depression, the stock market’s recent performance justified many of these suspicions. The market seemed to operate for the benefit of insiders and the very wealthy.

Templeton didn’t invent the mutual fund, but he made it popular and reputable.

“It’s fair to say that the evolution of the mutual fund has completely changed the investing landscape,” said Stephen Horan, head of private wealth at the CFA Institute, when I asked him about Templeton’s legacy. Mutual funds now feel like an obvious and indispensable part of the investing landscape. But before the 1950s, the vast majority of stocks were held directly by individuals, most quite wealthy. Templeton “helped popularize [mutual funds] and put [stocks] in the hands of the individual investors,” Horan said.

2. His gutsy investing style

With typical investors wary of Wall Street ripping them off, I’m sure that one thing that reassured investors in Templeton’s mutual funds was his staid, religious persona. But the main selling point was certainly his investing record. The Wall Street Journal obituary says:

A $10,000 investment in the storied Templeton Growth Fund in 1954 would have grown to $2 million by 1992, when Sir John sold his company to Franklin Resources, the San Mateo, Calif.-based fund giant, for $913 million. That translates to an annualized 14.5% return.

Templeton was a value investor, meaning he was great at picking unfavored stocks and holding onto them long term for great returns. Like another investor in the next generation, Warren Buffett, Templeton was great at ignoring the conventional wisdom.

In his New York Times obituary, this sentence caught my eye:

In 1939, when World War II began in Europe, the 26-year-old investor borrowed $10,000 and bought 100 shares each in 104 companies that were selling at $1 a share or less, including 34 in bankruptcy. A few years later, he made large profits on 100 of the companies; four turned out to be worthless.

Wow, I can’t imagine a scarier time to be investing in stocks than 1939. Still dazed from a worldwide financial depression, the world was embarking on the bloodiest war in its history, and yet Templeton made a big bet on beaten-down stocks — using borrowed money.

3. His worldly outlook

Wall Street has a reputation for conservatism, but the greatest investors are the often the most open-minded. They also often stay far away (either geographically or philosophically) from Manhattan, where the Wall Street herd mentality can obscure your judgment. Templeton embodied these traits, to the benefit of his investing track record. Horan called Templeton one of “the great contrarians of the investment world.”

He renounced his American citizenship and lived in the tax haven of the Bahamas. From the NYTimes:

Sir John said his investment record improved after he distanced himself from Wall Street and no longer worried about the tax consequences of his decisions. He was an early investor in Japan in the 1960’s and later in Russia, China and other Asian markets. He sold large holdings before the technology bubble burst in 2000, and warned several years ago that real estate prices were dangerously high.

Still, maintaining independence from Wall Street groupthink is very difficult, especially as all investors read the same newspapers, magazines and (now) watch the same web sites and cable channels.

I wonder if Templeton’s deep interest in religion — in which he was also famously open-minded — helped him keep a sense of distance and perspective. Templeton was a master investor, but he didn’t allow investing to dominate all aspects of his life.

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