John Templeton's 16 Investing Principles

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An interesting question to keep in mind is why applying these principles in practice is so difficult for investors. John Templeton, founder of the Templeton Group, has long been regarded as one of the world's most intelligent and respected investors. "Money" magazine called him "the world's greatest stock picker of the 20th century."

Templeton's 16 guidelines are exemplary in their clarity and brevity, and indeed in many ways common sense. An interesting question to keep in mind is why applying these principles in practice is so difficult for investors. The most obvious explanations are human flaws, and the modern institutional investment industry strongly encourages behavior that runs counter to long-term investment success. John Templeton's philosophy on investing is based on the premise that it takes enough courage, self-confidence and effort to avoid being dragged into the "herd" or "herd".

Principle 1: Investing for Maximum Total Return

Regardless of the form in which Sir John's principle or maxim is published, investing for maximum total return is always the first and most important. It makes a point: The only accurate way to measure investment returns is to look at how much income is generated for every dollar invested, net of expenses.

Rule 2: Investing: Don't Trade or Speculate

Based on years of experience, Templeton is convinced that the search for profit by anticipating short-term fluctuations in stock prices cannot consistently generate excellent investment returns. In his view, speculation is only marginally better than gamble — meaningless when there are more scientific ways to invest, and foolish when there is little evidence that it works. Speculation is dangerous not only because its outcomes are unpredictable, but because it is not based on any logic and ignores the fundamental value of everything.

Guideline 3: Be flexible

A "value investor" has traditionally been defined as an investor who only buys stocks that meet certain criteria, such as a minimum return on assets, a maximum price-earnings ratio, or a minimum dividend level. Templeton's approach is entirely different. Within a reasonable logical framework, he is willing to consider any method that will help him identify "cheap stocks." In his research on individual stocks, he found that many companies with both value and growth characteristics are "cheap" in terms of earnings over the next five years. "Never stick to any one class of assets or any stock picking method" is one of his maxims. Market conditions will change, and investors need to "stay nimble, open-minded and questionable."

Rule 4: Buy Low Sir

John 's most famous saying is that the best buy points are at the "most pessimistic" times. This is not simply for us to buy indiscriminately when the stock price is falling. What he means is that the stock price is a discount to the future, and if you are confident in its value, then you should buy when the stock falls out of the normal range. In Templeton's view, a more reasonable approach is to start with valuation and then consider portfolio construction. The less popular the cheapest stocks are, the more different your portfolio will produce results from the industry's "popular" portfolio.

Principle 5: Look for quality stocks among cheap stocks At the heart of

John Templeton's investment philosophy is that sustainability of earnings is paramount when investing in companies. Because you are buying a long-term stream of earnings, there are two basic premises that those earnings are repayable and sustainable. What qualifies as a quality company? Some of the attributes Templeton focuses on are: a strong management team with a proven track record, technological leadership, an industry with sustainable growth prospects, a respected and valuable brand, and low production costs.

Rule 6: Buy for value, not market

trend Another important point of Templeton's approach to investing is that the stock market is simply a sum of listed companies, not an entity in and of itself. He also believes, "The stock market and the economy don't always go hand in hand, and a bear market doesn't always go hand in hand with a recession." He concluded, "Buy a stock, not a market trend or economic outlook." Known as "bull markets" The "Wall of Worry Necessary" is just one example of how stock prices can move in the opposite direction of their reasonable direction.

Principle 7: Diversify Investments

John Templeton has always been clear on the importance of diversification. He will preach to any potential investor the virtues of constructing a portfolio of different kinds of investments. For him, diversification is most important to reduce the risk of mistakes in investment analysis. In his words: “The only people who don’t need to diversify are the investors who can always be 100% right.” The less confident investors are in their approach, the more they should diversify. But in his view, it makes absolutely no sense to buy stocks that are overvalued just because they have some different characteristics or are part of an index.

Rule 8: Do Your Homework

Sadly , investing is a chore, not based on "gut feeling." One of Templeton’s own maxims is, “It takes a lot of research and work to create a great investment record, and it’s a lot harder than most people think.” Hard work is critical in investing The reason is that the work is essentially endless. There will always be more companies to analyze, more details to absorb, more news and major changes in the operating environment to understand. Investors don't have enough time to study the whole thing. At the same time, trying to wait for perfect information to make a buy or sell decision runs the risk of a lag, as the market will already have the research priced in by then.

Principle 9: Actively monitor your

investments It is important to monitor them closely after investing. Later in his career, Templeton summed up a rule: If you can find another stock that is fundamentally at least 50% cheaper than your current stock, you should sell your stock. It is important that we review our portfolios regularly and be prepared to act decisively when the market creates new opportunities. The reason is, as Templeton likes to say, "When sentiment changes, it's usually very sudden, and if you don't invest in it, you're going to lose more than half of what you could have earned."

Rule 10: Don't panic

John Templeton said, "Sell before the crash, not after." If you've had a rapid market downturn, then if you had a good reason to hold these stocks before the downturn, sell them after the downturn. Should have more. If you can't find a more attractive stock, stick to an existing position. One of his favorite tricks is to determine at what price he is willing to buy stocks and pass those orders to the intermediary to buy when the stock falls and is very cheap from a 5-year perspective. Using this method allows him to be sure that his decision is not an emotional reaction to a large market movement and that he will buy when others are being controlled by fear.

Principle 11: Learn from Mistakes

Investment analysis is an evolving process because the world itself is constantly evolving. It is necessary to acquire the methods of how to assess the absolute value of stocks, and the necessary knowledge and history to understand how a company's environment may affect its future profitability Experience, these all take time. Anyone who works for Templeton will find that he is always looking for new perspectives on how the world evolves. Hindsight is an excellent teacher, but in many investment houses, the need to learn lessons after doing something wrong is often overlooked in the scapegoating process.

Rule 12: Begin with a prayer Sir

John started a meeting with a prayer. Even to those who are not religious, there is nothing against what Templeton says. All he prays for is to be able to serve his clients best. "We don't pray that a stock that we bought yesterday will go up today because it doesn't work," Templeton said of his biographer William Proctor, "but we do pray that the decisions made today are wise , our views on different stocks are smart.” Even if nothing else, starting with a prayer helps Templeton create an atmosphere conducive to calm, which is incredibly important for making the right investment decisions.

Principle 13: Beating the Market is Difficult

Although Templeton's personal track record as a consultant and fund manager by the time he sold his fund management business to Franklin was evidence that the market could be beat The obstacles to consistently outperforming the market are all too clear. When Templeton first laid out his investing motto in the early 1980s, there was no mention of the difficulty of outperforming the market.

Principle 14: Success is a constant search for answers to new questions Sir

John once commented: “Investors who have answers to everything do not even understand the question itself. An overconfident approach to investing may be soon - not too late — will bring disappointment (if not outright tragedy). Even if we can find a few constant principles, we cannot apply them to the same investment horizon, or the same economic and political environment .Everything is constantly changing, and smart investors will find that success is a constant search for answers to new questions."

Principle 15: There is no such thing as a free lunch

"Everyone should know about modern portfolio theory, but let's be honest , they have a hard time making money using this theory. I rarely see anyone who can create long-term outperformance using only modern portfolio management.” Templeton always goes to great lengths to tell his colleagues that overtness needs to be avoided as much as possible. or implicit bias in the way they invest. In his view, there are no shortcuts. A good relationship with the company, analyst advice, friend advice, and use of the company's products are all poor reasons to own a stock; he believes investing should only be made after exhaustive due diligence.

Principle 16: Be Positive

Almost every speech John Templeton gives focuses on the positive side of life, and he has written a series of books encouraging others to share this philosophy through life planning. He is a firm believer in the human ability to overcome adversity, but is equally concerned about the tendency of many to be negative. He believes that economic progress has accelerated since the Industrial Revolution, and we enjoy the fruits of economic development while being pessimistic about the future. This is a paradox deep in the human heart. Illustration/Liu Fei

[Excerpted from Chapter 4 of "John Templeton's Way of Investing", author: (US) Jonathan Davis, Alasdair Nairn, Machinery Industry Press, with abridged content, title Added for the editor, organized by Ai Jingwei]