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Secrets of world's best global stock picker - I

Oct 9, 2012

What is the first name that comes to mind when you think of the world's most successful value investor? Warren Buffett, isn't it? What about the world's most successful fund manager? Peter Lynch it will be we guess. Now, what about global stock picking? Who do you think is the biggest name here? If you aren't closely clued into the world of stocks, chances are that you may be unable to answer this question.

Allow us to tell you. We believe it will be none other than the late Sir John Templeton. Yes, that's correct. Sir Templeton is certainly the foremost name in global stock picking. In fact, he was officially anointed by the Money Magazine as arguably the greatest global stock picker of the century in 1999. Today, John Templeton is no more but his legacies endure.

Prominent among his legacies is a set of investment rules, 16 in all, that he religiously stuck to at all times and that played a very important role in his investment success. Over a series of articles starting today, we would like to take our readers through each one of them so that even they benefit from the wisdom that lies in these rules. Understanding their significance will certainly help them a great deal in navigating the world of stock investing.

Since Templeton was a value investor at heart, a few of his rules could sound similar to those followed by other great investors like Warren Buffett and Benjamin Graham. But they are still worth going through we believe. If not for anything else for the fact that they will further reinforce your belief in the art and efficacy of the discipline of value investing.

With this in mind, let's set the ball rolling with the first of Sir John Templeton's rules:

Rule # 1: Invest for maximum total REAL return

At say 6% inflation, how much do you think Rs 1,000 would be worth 20 years down the line? You will be shocked to know that only Rs 312. In other words, your hard earned money will lose nearly 2/3rd of its value in a matter of two decades. Assume inflation higher by just one more percent and be ready to lose nearly 75% of your money's worth today.

Put it another way, Rs 1,000 could buy only 1/3rd of what it could have bought around 20 years ago with 6% inflation and only 1/4th with an inflation of 7%. And can you wish away this beast of inflation? Certainly not we believe. Inflation is an ever present threat. Infact, taxes and inflation are alleged to be the only certainties in life after death of course.

So, is there a way to beat inflation and also taxes? Yes there is. And this is perhaps Templeton's way of making a case in favour of stocks. Invest for the maximum total REAL return. Please note the operative word, REAL. Other investment avenues like fixed income securities do give returns but most of the times, they can come up well short of inflation in a real world scenario. Stocks, on the other hand, if bought with a good amount of due diligence, can give one's portfolio that extra edge that enables an investor to beat the twin devils of inflation and taxes over the long run.

So, if you want to beat inflation and preserve or even improve purchasing power, stocks are the way to go. We will cover rule number 2 in the next article in the series.

Secrets of world's best global stock picker Article Series - Next Article

Rahul Shah

Rahul Shah (Research Analyst), Managing Editor, Microcap Millionaires has led the team from the front in developing some of our most stringent and rewarding research processes. As per his own admission, the turning point in Rahul's life as a financial analyst came a few years back when he got introduced to the works of Warren Buffett and Charlie Munger. From Buffett, he understood the value of investing in good quality business with powerful moats and strong management teams. Charlie Munger on the other hand inspired him to be a lifelong learner and use mental models in order to arrive at the crux of matters across most disciplines. Rahul firmly believes that in order to be successful at investing, you have to do the big things right and possess a great temperament and a contrarian streak.


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