Sir John Templeton is one of the investment gurus of our time and is regarded as the founding father of overseas investing. Templeton amassed a fortune by investing in overseas markets and his Templeton Mutual Funds (now Franklin Templeton Funds) produced an annualized return of 13.8% (compared to just 11.1% on the S&P), causing Money magazine to dub him “arguably the greatest global stock picker of the century.”
Templeton lived by a set of 16 rules. If you want to have international investing success, you’d be smart to follow these rules, too. Over the next few days, I’ll recap Templeton’s 16 investment rules in a four-part series. Here’s Part I, recapping Templeton’s Investment Rules No. 1 through No. 4:
No. 1: Invest for maximum total ‘real’ return
This means the ROI after taxes and after inflation. These fees add up. So smart investors plan ahead to protect their investments. One of the biggest mistakes people make is putting too much money into fixed-income securities. As we enter a new era of higher inflation and higher taxes, this advice is more important today than it’s ever been.
No. 2: Invest – don’t trade or speculate
Don’t think of investing as short-term gambling. Rather, patiently invest for the long haul to avoid seeing your profits eaten up by broker commissions and other emotion-driven mistakes.
No. 3: Remain flexible & open-minded about types of investments
Don’t get hung up on just stocks or bonds. Many different types of investment vehicles are available. And each could have a place in your portfolio given the right circumstances. Exchange-traded funds (ETFs) weren’t around in Templeton’s day. But these are great, low-cost ways of investing in overseas markets.
No. 4: Buy low
Easier said than done. This is the fundamental part of Templeton’s investing success. He believed you should “invest at the point of maximum pessimism.” This is when an investment was dirt-cheap and no one wanted it. When prices are high, a lot of investors buy a lot of stocks. It’s very difficult to go against the crowd – to buy when everyone else is selling or has sold, to buy when things look the darkest and so many experts tell you that stocks are risky right now. The pioneer of stock analysis, Benjamin Graham said, “Buy when most people…including experts…are pessimistic, and sell when they are actively optimistic.” Bernard Baruch, was even more succinct: “Never follow the crowd.”