Sir John Templeton's 16 rules for investment success

The late and great Sir John Templeton was a man who pulled himself up by the bootstraps and never forgot where he came from. He had a strong concept of thrift and calmly tackled obstacles and adversity.

Whether he was confronted with the possibility of having to drop out of college after his father’s unfortunate bet on cotton futures, or whether he was grappling with uncertain markets, or criticism about the choices he made in his investments or his philanthropy, he faced life with a can-do attitude and a calm, clear head. As part of his daily exercise routine he would walk a mile in waist-deep water along his favourite beach in the Bahamas.

As he  used to say, “If you want to have a better performance than the crowd, you must do things differently from the crowd.” Sir John was famous for being both a contrarian value investor and a global investor, looking for opportunities that others were too scared to touch or just didn’t know about. Price was always the most important consideration in any investment decision he made. 

“When buying stocks, search for bargains among quality stocks.” – Sir John Templeton

Among his 16 Rules for Investment Success are, “When buying stocks, search for bargains among quality stocks” (my underlining), and “Buy value, not market trends or the economic outlook.” The last of his 16 rules was the warning, “Do not be fearful or negative too often.”

He also coined the phrase, “The investor who says, ‘This time is different,’ when in fact it’s virtually a repeat of an earlier situation, has uttered among the four most costly words in the annals of investing.”

Another of his quotes was: “To buy when others are despondently selling and to sell when others are greedily buying requires the greatest fortitude and pays the greatest reward.”  - His advice is simple, but not easy to implement. He recommended that you initially take a small position in your investment ideas before rushing in. If it really is a great bargain, there is no need to hurry.

In an interview with Forbes in 1988 Sir John said, “People are always asking me where the outlook is good, but that’s the wrong question. The right question is, ‘Where is the outlook most miserable?’ ”

Where might that apply today? He would probably be looking for quality companies in emerging markets or elsewhere trading on low valuations because they have been heavily sold off.

Sir John’s 16 rules for investment success are:

1. Invest for maximum total real [after-inflation] return

2. Invest – don’t trade or speculate

3. Remain flexible and open-minded about types of investments

4. Buy low

5. When buying stocks, search for bargains among quality stocks

6. Buy value, not market trends or the economic outlook

7. Diversify. In stocks and bonds, as in much else, there is safety in numbers

8. Do your homework or hire wise experts to help you

9. Aggressively monitor your investments

10. Don’t panic

11. Learn from your mistakes

12. Begin with a prayer

13. Outperforming the market is a difficult task

14. An investor who has all the answers doesn’t even understand all the questions

15. There’s no free lunch

16. Do not be too fearful or negative too often

More detail on each of the 16 rules can be seen here. 

To give the last word (almost) to Sir John, “Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria.” There is not much to be euphoric about at the moment … but maybe this time really is different?