When Sir John Templeton bought $100 worth of shares in every US-quoted company trading below $1 back in 1939, the huge profits he made years afterwards helped to cement his reputation as one of the world’s finest investors. But calling an end to the Great Depression – with investments in 104 cheap stocks – was just a small part of Templeton’s legacy. His mantra that the time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell, became the basis of a value investing philosophy that produced stunning results over many years.
Templeton’s preference for using fundamental analysis to find bargains was inspired by his one-time tutor and value investing legend, Benjamin Graham. Setting up the Templeton Growth Fund in 1954, he was one of the first money managers to look to international markets in the search for opportunities, notably buying Japanese stocks during the 1960s. While his formula was wide ranging and looked for price catalysts and financial strength as potential buy signals, he saw it as essential that shares were cheap on a price-to-earnings basis. They also had to show a track record of earnings growth as well as forecasts that their growth would continue over at least five years. Using that process (you can read more about it here), the Templeton Growth Fund went on to produce an impressive 13.8% annualised return in the 50 years to 2004.
Europe offers more choice
Templeton passed away five years ago this week but his influence as a deeply religious, benevolent and highly successful value investor is in no doubt. Over the past 12 months Stockopedia’s version of Templeton’s Bargain Screen has produced an mightily impressive return of 41.3%, outperforming the FTSE by 26.3% over the period. Interestingly though, the basket of qualifying companies has been, and continues to be limited to around 10. Look further afield to Europe, however, and there are four times as many potential candidates – which is a nod to Templeton’s willingness to go globe-trotting in search for bargains.
Among the British contingent on the list are some familiar names to regular readers of Stockopedia, including Vianet (LON:VNET), the company that makes fluid monitoring systems for pubs and petrol forecourts. News in June that…
