INSIGHTS INTO THE MINDSET OF SUPER TRADERS – Part 17
“A main focus for us is showing traders how to reduce
risk with three important tools. The first is the proper use of protective stop
orders, the second is proper position size and the last, but maybe most
important tool is to keep losses small.”
– Sam Seiden
Name: Sir John Templeton
Date of birth: November 29, 1912
Nationality: British, Bahamian (and formerly American)
Occupation: Investor, businessman, researcher,
philanthropist
Website: Templeton.org
Life and Career
Sir John Templeton was born in Winchester, Tennessee, USA.
He went to Yale University (where he was an assistant business manager for
campus humor magazine). He financed his own education by playing poker – with
fine results. He graduated with outstanding performances. As a Rhodes Scholar,
he was able to attend Oxford University,
bagging an M.A. in law.
He became a billionaire by being the first person to take
advantage of globally diversified mutual funds.
H established Templeton Growth Fund, Ltd and was among the first persons
to invest in Japan in the 1960s (some of the world's largest and most
successful international investment funds).
His website reveals that he took the strategy of "buy
low, sell high" to an extreme, picking nations, industries, and companies
hitting rock-bottom, what he called "points of maximum pessimism."
When war began in Europe in 1939, he borrowed money to buy 100 shares each in
104 companies selling at one dollar per share or less, including 34 companies
that were in bankruptcy. Only four turned out to be worthless, and he turned
large profits on the others.
Again, he’s noted for, during the Depression of the 1930s,
buying 100 shares of each NYSE listed company which was then selling for less
than $1 a share ($17 today) (104 companies, in 1939), later making many times
the money back when USA industry picked up as a result of World War II (as
mentioned in Wikipedia).
He’s been identified as one of the most generous
philanthropists in the history of the world, donating more than $1,000,000,000
USD to charities. He relinquished his US citizenship in 1964, which enabled him
to save $100 million in US income taxes when he sold his international
investment fund. That money was used for philanthropy. He’d dual naturalized
Bahamian and British citizenship and lived in the Bahamas.
He wrote many books, including:
- Riches for the
Mind and Spirit: John Marks Templeton's Treasury of Words to Help,
Inspire, and Live By (2006)
- Golden Nuggets
(1997)
- Buying at the
Point of Maximum Pessimism: Six Value Investing Trends from China to Oil
to Agriculture (2010)
- Investing the
Templeton Way: The Market Beating Strategies of Value Investing Legendary
Bargain Hunter (2007)
- Worldwide Laws
of Life: 200 Eternal Spiritual Principles (1998)
And some other books
As a philanthropist, Sir John established the John Templeton
Foundation, a library, a prize, and a college under the University of Oxford.
He donated a sizable amount of his assets to the John Templeton Foundation,
which he established in 1987. That same year, he was created a Knight Bachelor
by Queen Elizabeth II for his many philanthropic accomplishments.
A Chartered Financial Analyst (CFA) charter-holder, Sir John
received AIMR's first award for professional excellence in 1991. Money magazine
called him "arguably the greatest global stock picker of the
century." in 1999. In 1996, he was inducted into Junior Achievement US
Business Hall of Fame, and in 2003, he was awarded the William E. Simon Prize
for Philanthropic Leadership. He was
named one of Time magazine's 100 Most Influential People in 2007.
Being a lifelong member of the Presbyterian Church, he
served in various positions of high responsibilities in the church.
Sir John was married twice, blessed with children. He first
got married to Judith Folk, who died of a motorbike accident in 1951. He then
got married to Irene Reynolds Butler, who died in 1993.
Sir John Templeton passed on to rest on July 8, 2008, in
Nassau, Bahamas, aged 95.
Insights
- Humility is
important to us as traders; and so are good mood, absence of anxiety and
discipline.
- Bull markets
arise from pessimistic moods, they thrive on uncertainties and become
mature on optimism and confidence, and then they die on euphoria. When the
public go mad about a stock, it’s time to sell.
- Avoid the herd
mentality. What most people think, believe can’t help you. This will
remain forever true in the world of trading and investing. Invest at the
point of maximum pessimism. Stocks are excellent ‘buy’ candidates when
people don’t want to buy them because they’re terrible. Please read Sir
John’s career above again. Think about how he made his money. He invested
in Japan when most people thought that idea was crazy. He sold his stocks
when the public showed excessive confidence in them, when values and
expectations were high. There are investment opportunities all over the
world, not in the US alone. Sir John himself said: “The other boys at Yale
came from wealthy families, and none of them were investing outside the
United States, and I thought, 'That is very egotistical. Why be so
shortsighted or near-sighted as to focus only on America? Shouldn't you be
more open-minded?”’
- If you want to
have a better performance than the crowd, you must do things differently
from the crowd. Since most traders lose, you need to do what most traders
don’t do to be successful.
- It’s possible to
make money solely from fundamental analysis (just as it’s possible to make
money solely form technical analysis). Sir John didn’t do technical
systems; he based his investment decisions solely on fundamentals. Those
using technical analyses only shouldn’t criticize those using fundamentals
only: and vice versa. Any trading approach is good, no matter how weird,
as long as it makes money.
- Sir John -
though a generous giver – never spent too much money on himself.
Uninterested in consumerism, he drove his own car, never flew first class
and lived year-round in the Bahamas. Being rich doesn’t necessarily mean
we should live an extremely flamboyant, ostentatious, and expensive life.
Warren Buffet is another good example.
- Sir John, who
was also interested in spiritual matters, said: “We are trying to persuade
people that no human has yet grasped 1% of what can be known about
spiritual realities. So we are encouraging people to start using the same
methods of science that have been so productive in other areas, in order
to discover spiritual realities.”
Conclusion:
James Altucher quotes Marilyn Monroe as saying "Imperfection is beauty,
madness is genius and it's better to be absolutely ridiculous than absolutely
boring." He also says you should be embarrassed by what you do. Give
yourself permission to be imperfect. Out of that messy soup of shame and
imperfection will come art.’ No matter how many periods of discouragement you
face, know that a good state of the mind, a sensible strategy and lack of
expectations are what you’ll ultimately need to succeed. That’s the only method
for survival in the world of uncertainties.
This article is concluded
with a quote from Sir John:
“In my 45-year career as an investment counselor,
humility did show me the need for worldwide diversification to reduce risk.
That career did help me to become more and more humble because statistics
showed that when I advised a client to buy one stock to replace another, about
one-third of the time the client would have done better to ignore my advice. In
other endeavors, humility about how little I know has encouraged me to listen
more carefully and more wisely.”
Further reading: Advfnbooks.com
