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.....

STOCKMANMARC

Buffett...Berkowitz...Lampert...Pabrai... And Focus Investing

What is Focus Investing? Does it mean staring at your stocks so long that you become cross eyed. No! Focus Investing is a style that has been around for many many years but it is not talked about much in the mainstream, only in value circles do you hear it mentioned. Its concentrating your bets, putting a large amount of your investment dollars or portfolio into your best ideas. Investors Mohnish Pabrai, Bruce Berkowitz, Eddie Lampert, and Warren Buffett have practiced this style, along with many other notable investors. The first three mentioned, Pabrai, Berkowitz, and Lampert practice this method very much today. For example, Eddie Lampert has 50% of his ESL Investments in Sears Holdings(SHLD) and another 20% in Autozone(AZO). Buffet however over the years has become more diversified owning roughly 90 public and private companies, not necessarily by choice but by the growth and success he's had. Both Pabrai (The Dhando Investor) and Joel Greenblatt (You Can Be A Stock Market Genius) mention focus investing in their books. Focus Investing also has to do with position sizing and what percentage you should allocate to each security, 5% 15% 25% or greater. This all depends on ones risk tolerance, and your expectations for upside(downside) potential. Pabrai has stated that ideally he favors putting no more than 10% of his total holdings in one individual security and only buying about 10-15 stocks. Here again this has to do with ones own personal risk level.
If you study many of the master stock pickers over the last 60 years you will see that they have used or use Focus Investing out performing the indexes.

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