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On This Day - 5 JUNE 2018
Templeton's Tricks for Spotting the Best Bargains in the Market

Taha Merchant, Research Analyst

Everyone is trying to buy low and sell high in the stock market.

Only a rare few actually manage to do it though - consistently and reliably.

US investor and fund manager John Templeton was one of them. His stock picking skills, and timing, were legendary to say the least.

Templeton made his first investment on the eve of World War 2.

With US$ 10,000, he invested US$ 100 dollars in every stock selling for a dollar or less. Within 4 years he sold them for US$ 40,000 - and has been a bargain hunter ever since.

So, through a wildly successful career spanning decades, how did he manage to do it so consistently, over and over again?

Well, Templeton did have a few tricks up his sleeve.

One, he left New York and ran his funds from the Bahamas. He felt it improved his stock picking, and thus his funds' performance.

Wait! Did I say Bahamas?

What in the world is it that he could do from a place like the Bahamas that he couldn't from Wall Street?

Templeton Ran His Mutual Funds from the Bahamas.
He Felt It Improved the Funds' Performance...

Templeton's logic for this was wise and full of insight.

For a while he did try to manage money from financial capital New York. But he quickly realized that he was going to the same meetings as the other analysts and the people who typically spoke at such company and analyst meetings sounded so sensible and convincing that he couldn't help being influenced.

'It's much easier to be odd when you're a thousand miles away', felt Templeton.

And moving to the Bahamas was Templeton's trick to getting the independence of mind needed to pick the juiciest bargains. After all, you can't do what everyone else is doing and get significantly better results.

But that wasn't Templeton's only trick...

He was famous for espousing selling when the herd is happiest and buying when the herd is gloomy.

But how did he know when the herd is gloomiest?

That takes us to an interesting story.

Around 1985, by far the largest holding in his mutual fund was oil major Royal Dutch.

The stock was selling for only four times what Templeton estimated it would earn that year. And he estimated that in the long run, it would earn more. Further, it was selling for less than half of what it could liquidate for, and only about three times its annual cash flow and paid a good dividend.

To Templeton, it looked like the best bargain in the energy industry.

Only problem was, at the time everybody was expecting oil prices to see a big fall.

Didn't it bother Templeton his mutual fund's biggest position was a company staring at the prospect of a steep fall in product prices?

Most investors would be a scared silly by the thought of this.

But not Templeton.

His response is quick and direct - 'The low point for share prices is when most investors are expecting bad news, not after the bad news comes out'.

And understanding this was Templeton's biggest trick to scooping out the deepest, most lucrative bargains in the stock market over and over again.

The next time all else looks good with a stock but the fear of short term bad news is preventing you from pouncing on the opportunity, remember these words.

Like Templeton, they can help you actually 'buy low and sell high' while other investors fall by the wayside.

Happy bargain-hunting,

Taha Merchant
Taha Merchant
Research Analyst, Microcap Millionaires

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