Outperformance over decades
Extensive share purchases during the Second World War: After the outbreak of the war, the mood on the stock exchange was naturally devastated. It was barely ten years since the crash of 1929 sent Wall Street on the deepest slide in its history. But Templeton was opportunistic even in those dark times. After the German invasion of France in 1940, he called his broker and placed what seemed like a crazy order to put $100 in each of 104 US stocks that cost less than a dollar. Among them were many bankruptcy candidates. But Templeton expected the war could electrify America’s shattered economy and save even the most vulnerable companies. When the war ended five years later and he liquidated the positions, 100 of the 104 trades were in profit. He had roughly quintupled his bet.
Entry into the Japanese market
In the 1950s, hardly any investors dared to venture into the Japanese market. The local economy tumbled and many stocks were trading at P/E ratios of three. For John Templeton, however, this “cheapest market in the world” was another unique opportunity. He bought gems like Hitachi and Fuji Film that no one wanted and invested 60 percent of his fund in a country then ridiculed for producing cheap imitations. But later the tide turned more and more, until 1980, in high spirits, investors rushed into Japanese stocks. Templeton, by then already looking for other, cheaper stocks, had quintupled his stake and almost completely withdrawn from Japan.
counter-cyclical investments
Another unique opportunity was the crash in 1987. Here, too, Templeton was anti-cyclical and stocked up on punished stocks. “He doesn’t get carried away by Wall Street emotions,” said Jay Bradshaw, who ran the trading division of Templeton’s company. The strategy of getting into stocks when they’re going down takes tremendous willpower and a strong personality, agrees Templeton success manager Mark Mobius. “Everyone else runs out of the burning house.”
John Templeton took the buy-low, sell-high strategy to extremes at times. His goal was to invest at the “point of maximum pessimism.” Despite (or perhaps because of) witnessing the Great Depression at a young age, he retained an unwavering belief in mankind’s ability to overcome adversity. He remained confident that this would translate into attractive investment returns when the time came.
But John Templeton wasn’t just a tough bargain hunter. He also knew how to withstand the exuberant euphoria on the market and thus limit his losses in the bear markets that followed. For example, in 1968 the US market skyrocketed. However, Templeton was heavily underweight there for precisely this reason. Between 1969 and 1974, the broad US market fell more than 50 percent. During that time, he achieved a staggering 50 percent positive return on his fund, which was primarily invested in Japan and Canada.