scorecardresearchTaking a leaf out of John Templeton's seven rules of investing

Taking a leaf out of John Templeton's seven rules of investing

Updated: 06 Jul 2022, 09:34 AM IST
TL;DR.
Sir John Templeton was not just a name. He was a cult to reckon with in the investment world. Investors looked up to him for his advice, while fund managers emulated and followed his every single investment approach. His investment principles are simple and sound. His eagerness to learn and penchant for open-mindedness defined his investment philosophy and success in the financial markets.  
Sir John Templeton's investment philosophy inspires even today's generations.

Sir John Templeton's investment philosophy inspires even today's generations.

Some investors gain repute, not because of their success stories but owing to their distinctive outlook toward their investments. In the world of stock market investing, wherein people look up to the likes of Warren Buffett, Peter Lynch and Benjamin Graham, few are aware of how Sir John Templeton created a fortune by creating some of the world’s largest and most successful international investment funds.

The American investor relied on continued learning to achieve success in his financial investment decisions. The motto of his foundation “How little we know, how eager to learn,” exemplified his philosophy both in the financial markets and in his groundbreaking methods of philanthropy. Some of his popular investing lessons include:

Focus on returns after inflation

Inflation has a dampening effect on your returns. This explains what you earn today will lose value in the days and years to come. With money losing value over time, the returns earned and contemplated today will fall short of your needs tomorrow. This is why you must invest to earn returns that exceed inflation.

Do not speculate

You do not step into the stock market to gamble away your hard-earned money. You go in there to earn just like in any other profession. Then, why speculate unlike other jobs and professions wherein you put in your mind and heart to learning new things every day. Do not treat the stock market like a casino wherein you put your chips at will, else you will seldom earn only to lose your profits in paying towards transaction fees.

Hustle between investments

You must be ready to park your money into several investment options instead of relying on one alone. The market is always cyclical in nature, which means that not all sectors perform simultaneously. These stocks fire up periodically, which means that we must be willing to wait for some stocks to perform with time. Apart, putting your money in blue chips alone may run you the risk of suffering from unforeseen losses as macroeconomic factors can have a prolonged bearing on the country’s economy. Invest in bonds, bank deposits, debt funds, gold and real estate too to optimise your earnings from your investments. Apart, diversifying your investments serves as an essential hedge against inflation, thus, protecting you from extreme highs and lows in the market.

Buy low

Focus on the value of the stocks than on their prices alone. Do not be in a mad rush to join the herd just because many people are discussing a particular stock. Very rarely, does consensus meet stability. Most investors rely on stock market tips during the bull run, thus, causing them to buy stocks at high prices. It is a common practice that novice investors buy stocks when they are at their peak but are afraid to dabble in the same when their prices fall down. Templeton attributes his investment philosophy to a quote by Benjamin Graham, “Buy when most investors … even experts … are pessimistic. And sell when everyone is optimistic.”

Do not over diversify

The future is always uncertain, which is why you must diversify your investments. However, in a bid to secure it by parking in myriad investments, do not park your money in all asset classes available. Spreading your investment portfolio too thin will do more damage than earn returns in the long run.

Learn your lessons well

Do not speculate is the first rule to achieve success in the stock market, but for that, you must be willing to do your homework. Be aware of which company you invest in. Study its fundamentals well. Look at the company’s balance sheet, profit & loss account statements, and cash and fund flow statements. However, if you are unable to learn and understand the intricacies of investing and consequently the stock market, you must hire a professional for the right advice regarding your investments.

Do not panic

Deciding your next investment move out of fear and panic will not help. It is okay when the market falls causing some stocks to touch their 52-week low prices. Even the prices of some of the best stocks can fall fast at times. Look for value-intensive stocks. Stocks of fundamentally sound companies are bound to go up in the long run. This is because their intrinsic value is still intact, which means that you must continue to hold them in your portfolio until the price meets value again.

Templeton is long gone, but his advice and principles have stood the test of time. His urge to do things differently underscores how different he was from other investors in his lifetime.

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Warren Buffett has often said that the investors should buy stocks when they are available cheaply
First Published: 06 Jul 2022, 09:34 AM IST