Investment principles come directly from the wisdom of Sir John Templeton who was one of the most renowned global investors of all time. The Forbes magazine described him as “the Dean of global investing” and “one of the most successful money managers in history”. The Carson Consulting Group has also ranked him amongst the 3 greatest investors of the twentieth century.
The “10 investment principles For Successful Investing” described below are some that Sir John Templeton considered as key for investors worldwide. We include them here to remind us and our investors of the reality behind the daily hype. They are the same principles that we always have at the forefront of our thinking when working with your money.
Principle 1 – Invest For Real Return
The true objective for any long term investor is maximum total return after taxes.
Comment. In planning for this objective, protection against inflation must be a high priority. The portfolios we manage may be different from the typical because we look for a better result and are concerned particularly for the long-term security of clients’ money.
Principle 2 – Keep An Open Mind
Never adopt permanently any type of asset or any selection method. Try to stay flexible, open minded and sceptical. Long term top results are achieved only by changing from popular to unpopular the types of securities you favour and your methods of selection.
Comment. This strong injunction to be open minded and not to follow the crowd applies also, we consider, to the process of asset allocation between geographical and industrial sectors. In assets for portfolios there is a wide range of options with a great variety of choices available through collective investment funds as well as the assets available in direct investment into shares and bonds.
Principle 3 – Never Follow The Crowd
If you buy the same securities as other people, you will have the same results as other people. It is impossible to produce a superior performance unless you do something different from the majority. To buy when others are despondently selling and to sell when others are greedily buying requires the greatest fortitude and pays the greatest reward.
Comment. The portfolios we manage can be different from the typical because we look for a better result and are concerned particularly for the long-term security of clients’ money.
Principle 4 – Everything Changes
Bear markets have always been temporary. And so have bull markets.
Comment. Many investors will remember the euphoria in the investment world, the Goldilocks bubble, that in 1999 led to a leading index moving tantalisingly close to 7,000, actually 6,930.20 on 30 December 1999. That bull market was temporary and bust to 3,287 on 12 March 2003
Principle 5 – Avoid The Popular
When any method for selecting stocks becomes popular, you will need to switch to unpopular methods.
Comment. This is another facet of his recommendation to be different. Other maxims say: “Never adopt permanently any type of asset of any selection method.” OR “If you buy the same securities as other people, you will have the same results as other people.”
Principle 6 – Learn From Your Mistakes
“This time is different” are among the most costly four words in market history.
Comment. You might argue that in every bubble and bust, “this time it is different”. So the causes of bubbles and busts were different ranging from Tulip Mania in Holland around 1637, the South Sea Bubble in England around 1720, technology orientated businesses in the years around 2000 and the credit and derivatives madness leading to the bust in 2008. The common characteristic was a willingness to believe that prices would continue rising forever..
Principle 7 – Buy During Times Of Pessimism
Bull markets are born on pessimism, grown on scepticism, matured on optimism and die on euphoria. The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell.
Comment. In all the principles Sir John is in one way or another saying, “Be different”. He is always emphasising that if you do what everyone else is doing you will just get similar results.
Principle 8 – Search Worldwide
To avoid having all your eggs in the wrong basket at the wrong time, every investor should diversify. When you search worldwide, you find better bargains than when you monitor only one nation. You also benefit from more safety thanks to diversification.
Principle 9 – Hunt For Value And Bargains
Too many investors focus on outlook and trend. Therefore, more profit is made by focusing on value. In the stock market the only way to get a bargain is to buy what most investors are selling.
Comment. Clients know that in the asset allocation of the portfolios we manage we emphasise diversification for both fixed income and for equities. Currently for equities we give equal weight to the main geographical sectors which gives a higher weight to the Far East and to Emerging Markets than in most models. We believe this reflects the reality of the world today and it has produced good results. We like to give our clients an edge but acknowledge that careful monitoring is critical for success.
Principle 10 – No-One Knows Everything
An investor who has all the answers doesn’t even understand the questions.
Comment. We keep on learning. Partly, this is a discipline imposed on us through the requirement to complete hours of Continuous Professional Development (CPD) in various forms every year. Partly, we know that the world and the factors that affect investment are continually changing. We must be aware of those changes if we are to have any chance of protecting the investments entrusted to us by our clients.