Investment principles of John Templeton

[Suwandy]

Sir John Templeton was an amazing investor and a great human being, so let's see what he can teach us.

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 is 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 stocks are unable 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, and there is a good chance your investment returns will significantly increase if you follow them consequently. Let us finish with my favourite quote from Sir John Templeton:
 

"If you want to have a better performance than the crowd, you must do things differently from the crowd."

John Templeton in an interview with SmartMoney (2004)