Thursday, May 04, 2006

Personalities: John Templeton 0 comments

(P.S: Sorry for any disturbances the advertisements above may have caused you)
Templeton Funds has just taken a placement stake in Asiapharm, and some might remember what happened following its takeup of a stake in Celestial Nutrifoods in December last year: the show of confidence in that stock sent it soaring and triggered a rally in the entire China stock sector. Templeton Funds today goes under the Franklin Templeton group following the acquisition of Templeton Growth Funds by Franklin Group in 1992; the hard work in building up the fund then had already been done by Sir John Templeton.

Templeton Growth Funds was started in 1954, Sir John Templeton's second startup from scratch after he had sold his original investment firm. He was at the ripe old age of fifty-six then, proof that age does not wear down the spirit of entrepreneurship. Each $100,000 invested then with distribution reinvested grew to total $55 million in 1999 --- a 15% CAGR over 45 years, an impressive long-term record by any measure (though he was less involved after 1992).

Great investors tend to have defining characteristics and ideas; for Sir John it is about searching for value in different markets. He is a value investor, no doubt about it, but the relentless search for value among different markets requires a commitment to value creation, contacts to provide relevant information, and above all a prodigious understanding of various global markets and the processing and analytical ability to sift out the key factors driving the buy decision. In this respect the man is not lacking: he was a Rhodes scholar with a degree in law from Oxford.

In his global search for value, Japan was a key country where Sir John concentrated his investment funds for much of his career, a consequence of his global search of value. PEs, for example, were one-third of that for comparables in the US and the West (the US has never been a favourite of Templeton). Given his global bargain-hunting style, it is important to single out countries that he is comfortable with, in order to scope down the search. In this respect, he looks for open economies with low socialistic tendencies and pro-investments (in this respect, he likes Singapore, incidentally). It is interesting to note how he determines value: to him , there are a hundred or so factors that can be considered in making an appraisal, but most of these are industry-specific; yet four are always present: (1)PE; (2)Operating profit margins; (3)Liquidating value (ie. NTA); (4)Growth rate (particularly its consistency). Most of us know the above four; it is probably the other hundred-odd factors that determine the degree of success....

The other key investment philosophy of Sir John is his emphasis on flexibility. In a sense this is perfectly understandable given his investing style of comparison-shopping (hence always ready to ditch one stock for a better one), and the confidence engendered by a wealth of knowledge (such as the above hundred-odd factors). This is contrast to technical analysts who follow "trading rules": it is as if they need to set OB markers to articifically manage their emotions and discipline. Flexibility is also a defining characteristic of George Soros; the whole idea is to be mentally alert and neither be complacent nor be wedded psychologically to the stocks/securities in one's portfolio. Don't trust rules and formulas, just use them as a guide.

Bargain hunters are often contrarian. Hence there are shades of Warren Buffett in Sir John's moves in the market (actually that would be unfair to Sir John, for he was operating before Buffett came onto the scene). Some examples of his moves: In 1939 he bought $100 worth of every New York Stock Exchange listed stock that was trading under $1 per share, on news of Hitler invading Poland (his motto: never sell on war news).In 1978, when Ford was near bankruptcy, he was a buyer. When everyone else piled into tech in 2000, he was a seller.

Signature moves from one of the Hall of Fame fund managers. We end with a half-joking quote from the man: "Help people. When people are desperately trying to sell, help them and buy. When people are enthusiastically trying to buy, help them and sell."

(1) Money Masters of Our Time (John Train)
(2) John Templeton Foundation: Biography of Sir John Templeton
(3) 1 Apr 2004 SmartMoney interview with Sir John Templeton




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