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Legendary investor, Sir John Templeton – who died at the age of 95 in 2008 – is the most successful overseas investor ever to have lived. He had one of the longest and most successful investment records of all times. He was also a trailblazer. He was one of the earliest investors in post-war Japan…and one of the first investors to sell Japanese stocks in the mid-1980s (before the real estate bubble burst there in 1989).
Some emerging market investors pride themselves on their gung-ho attitude. And they rarely stop to think about what they’re doing. But it’s critical that we learn from the past. As Templeton put it:“The four most dangerous words in the world are, ‘this time it’s different’.”
Here’s Part II of my four-part series, recapping Templeton’s 16 Investment Rules No. 5 through No. 8:
No. 5: Search for bargains among ‘quality’ stocks
It’s not enough to just buy cheap stocks. You need to buy cheap quality stocks. According to Templeton, “Quality is a company strongly entrenched as the sales leader in a growing market. Quality is a company that’s the technological leader in a field that depends on technical innovation. Quality is a strong management team with a proven track record. Quality is a well-capitalized company that is among the first into a new market. Quality is a well-known trusted brand for a high-profit-margin consumer product.” Think Apple!
No. 6: Buy value – not market trends or economic outlook
Templeton believed in the principles of value investing. This means always looking for stocks or ETFs that are “out of favor” with the market. A good way to spot value is to look for stocks — or stock markets — with low P/E ratios. Individual stocks can rise in a bear market and fall in a bull market. The stock market and the economy do not always march in lock step. So buy individual stocks, not the market trend or economic outlook.
No. 7: Always diversify
You’ve probably heard this before, but don’t put all your eggs in one basket. Diversification is a smart strategy for every investor. So you diversify – by industry, by risk and by country. If you search worldwide, you’ll find more bargains – and possibly better bargains – than in any single nation.
No. 8: Do your homework or hire wise experts to help you
Before you place a single dollar in the market, it’s absolutely necessary you investigate thoroughly. Make sure you understand the macro forces acting on your investments. Pour over company balance sheets. Read shareholder letters. Understand exactly what a company does and what’s made it so successful in the past. If you don’t understand what you’re investing in – don’t invest! Remember, in most instances, you’re buying either earnings or assets.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.