Wednesday, November 19, 2008

Sir John Templeton And The Basket Approach?

Many of you value investors out their already know or have heard of John Templeton, but for those of you that have not here is a brief bio: JT grew up with little money  in Winchester Tennessee during the Great Depression. He later founded Templeton Mutual Funds which was later sold/merged with Franklin Funds to create what is now one of the largest Mutual Fund companies there is. However long before this when JT was a young man coming out of the Depression circa 1939, JT called up his stock broker and had the broker buy $100 worth of every single stock that was selling for no more than $1, on both New York & American Stock Exchange.  The broker bought every stock except the ones that were bankrupt, but JT was adamant about buying those as well. You see what I am getting at is that JT was a buyer of stocks during a time when the Whole World was in crisis. He rationalized that stocks in general were so battered  that he did not have to hand pick or study each company but to buy a basket of stocks instead. He new that this so called basket approach would produce some dogs as well as some big winners. It was the latter of course that put him on the wealth track. When stocks as a whole are driven down below their historic averages you don't have to be a professional stock picker to make some above average returns. This was not a get rich quick act, he held these stocks an average of 4 years which gives the bargain stock enough time to be recognized by the market and bid back up to fair value. 

I am not encouraging everyone to suddenly run out and by a basket of beaten down stocks, but merely making a point that when they  are trading at very low valuations that this signals a buying opportunity or very good look.

The Great Investors whom Templeton was one of  are usually buying when you are selling.....


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