In Brief
A contrarian approach with a global outlook based on the search for bargain companies around the world offering low valuations and an excellent long-term outlook.
"Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria. The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell”.
Background
John Marks Templeton was born in the USA in 1912. He attended Yale University and went on the Oxford University in the UK as a Rhodes Scholar and earned an M.A. in law. While in college, Templeton studied under one of the forefathers of value investing, Benjamin Graham. In 1937, Templeton co-founded an investment firm that became Templeton, Dobbrow & Vance.
He is most famous for his controversial investment in 1939, when he bought $100 of every stock trading below $1 on the New York and American stock exchanges. He invested around $10,400 in 104 companies. In spite of 34 companies going bankrupt four years later, he sold the portfolio for more than $40,000.
His investing style can be summed up as looking for value investments, what he called "bargain hunting,"by casting a wide net, one that spanned the world. In 1954, he launched the Templeton Growth Fund, based in Nassau in the Bahamas. The Templeton Emerging Markets Fund was the first emerging markets fund available to U.S. investors. In 1992 he sold his company Templeton Growth Funds to the Franklin Group.
Templeton believed that there were no simple formulae to finding good stocks, with over 100 factors that can be considered at times. However, Templeton did have four criteria which he considered particularly important.
- P/E ratio
- Operating profit margins
- Liquidating value
- Consistency of growth rates
Definition of a Templeton Screen
Templeton placed a great deal of importance on qualitative factors: quality products, cost controls, and the intelligent use of earnings by management. However, some indicative quantitative metrics for a John Templeton Screen might be:
- Price-earnings ratio below the 5 year average - "Purchase only when you can pay less than it is worth today, and only if you believe that it will be worth more tomorrow."
- Price-book ratio below the industry average
- EPS growth positive for the last year and the last 5 years - "Search for bargains amongst quality stocks". …
