Patron Saint of the Mutual Fund:
The Templeton Legend

© 1996 Sarasota Herald-Tribune
By Matthew Sauer
STAFF WRITER

A $10,000 investment in the Templeton Growth Fund in 1954 would now be worth more than $3 million. Numbers like that make you a Wall Street legend.

    Sir John Templeton explored new territory in the 1950s, making large investments in foreign stock markets long before it was fashionable. He invested in Japanese stocks in the 1960s when the Nikkei average was about 1,500; it has climbed now to more than 21,000. In the 1980s, he went into Mexico before the mania for Mexican equities hit.

    By being one of the first in, his funds made a killing when the rest of the world plowed in.

    Templeton has predicted that during the next 40 years, common stocks will continue to be the best investment. He has noted Sir John Templeton that within his lifetime the standard of living had increased by four times.

    Templeton told Forbes in 1995 that the key to his success was buying stocks at the time of "maximum pessimism."

    "In almost every activity of normal life people try to go where the outlook is best," Templeton told the magazine. "But my contention is if you're selecting publicly traded investments, you have to do the opposite. You're trying to buy a share at the lowest possible price in relation to what the corporation is worth And there's one reason a share goes to a bargain price: Because other people are selling. There is no other reason.

    "To get a bargain price, you've got to look for where the public is the most frightened and pessimistic." Templeton, 84, has come a long way from Winchester, Tenn. He wanted to be a missionary when he was a child, but while attending Yale and as a Rhodes scholar at Oxford, he decided to do something else with his life.

    He is now retired to his hilltop mansion, 'White Columns,' in Lyford Cay, the Bahamas. Templeton sold his funds and their $35 billion in assets to the Franklin Group in 1992.

    Now, Templeton stresses spiritual pursuits and has written several books. He believes someone managing money is more likely to be successful if he applies spiritual principles to his work.

    Templeton contributes heavily to religious causes; more than $10 million in 1994. In 1982, he endowed the Templeton Prize for Progress in Religion to honor religious research and practice much as the Nobel Prize honors advances in the physical sciences.

AT 86, THE MASTER INVESTOR STILL DISPLAYS THE TRAITS THAT HAVE MADE HIM A STOCK-PICKING LEGEND.

    Dapperly attired in a pale yellow sports jacket, Sir John Templeton is guiding me through his Colonial-style house in the Bahamas. Here, in a second-floor study, he points with quiet satisfaction to a portrait of himself at Buckingham Palace on the day the queen of England awarded him a knighthood. He pauses for a moment, contemplating his extraordinary success. "It's like winning a game," he confides. "This year I received my 22nd honorary doctorate, and that did give me some feeling that maybe I was not too foolish."

    A short, lean man with courtly manners and a soft Tennessee drawl, Templeton is certainly no fool. Indeed, he's arguably the greatest global stock picker of the century.

    A pioneer of foreign investing, he founded the Templeton Growth Fund in 1954 and proceeded to rack up unsurpassed returns of 15% annually for 38 years. In 1992 he sold his fund company, personally pocketing some $400 million. The money he manages now belongs solely to him and his charitable foundations (see "How Sir John Invests Today," page 105).

    Templeton remains a towering figure, one of the few enduring masters from whom every investor can learn even though his own focus these days is primarily on spiritual matters. He's made it his mission to promote his ardent and deeply unusual belief that science can teach us "100 times" more than we now know about spirituality. While we understand the human body better than our ancestors did, he argues, we've learned little in 2,000 years about God and the soul. Passionate about mankind's need for ìrapid spiritual progress," he funds scientific research at institutions such as Harvard University into mysteries like the healing power of prayer and forgiveness."Does the prayer work only if the person who is sick does the praying?" he asks."Or can it be done by somebody else? Those things have not been scientifically studied" Templeton says he gives away $30 million a year to fund his spiritual programs, including a $1 million prize for "Progress in Religion." His goal is to "help hundreds of millions, maybe billions, of people to have spiritual wealth. It's the most fundamental need that humanity ever had."

    While this may seem an odd departure for a celebrated stock picket; Templeton has always been startlingly differentóand his idiosyncrasies are precisely what made him such a successful investor. He always went his own way, hunting for busted stocks at what he called the "point of maximum pessimism" when no one else would touch them. As a spiritual missionary, he's equally unconventional and convinced of his unorthodox wisdom. And perhaps that's the point. Great investors, like great artists, are not like the rest of us. By studying Templeton, in all his strange and brilliant glory, maybe we can gain insight into just what it is spectacular investors possess that the rest of us don't.

    At 86, Templeton remains dauntingly sharp and vigorous. Every morning he stands in the ocean up to his neck and propels himself rapidly for 45 minutes against the resistance of the water. Relentlessly driven, he derides the very notion of retirement, which he says produces legions of "idle people, useless people." His house-gated by an automated recording of a viciously barking dog-overlooks a golf course, but he refuses to be seduced by such hedonistic temptations: "I've never found time for pleasure. My neighbors go out golfing and yachting, but my own viewpoint is that it's fir more important to be useful"

    Templeton rarely thinks like the rest of us. And that has been one of his greatest strengths. In 1939, he called his broker with a characteristically eccentric order. He wanted to invest $100 in each of 104 U.S. stocks, all trading at less than $1 a share; 37 were in bankruptcy, but he bought them anyway Hitler had just invaded France. Templeton, then only 27, thought a world war would electrify America's shattered economy, saving even the feeblest companies. He was so sure of himself that he borrowed $10,000 ($117,000 in today's dollars) to make the investment. "Five years later, when I liquidated those holdings, I had a profit on 100 out of 104 of them," he recalls. "I made roughly five times my money."

    It was a remarkably plucky gamble. The only reason he could pull it off, he says, was that even then, "I had enough self-confidence to think that most of the people called experts could make big mistakes." He credits his discipline-free child-hood in Winchester, Tenn.: "I don't remember either my mother or my father ever telling me, 'Do this' or 'Don't do that.' They thought it would help me to become self-reliant and self-confident if I had to do everything myself."

    Whatever its origin, Templeton's profound belief in his own judgment is a quality he seems to share with other famed investors. Michael Lipper of Lipper Analytical Services says that Templeton, Warren Buffett and George Soros all display "the willingness to be lonely, the willingness to take a position that others don't think is too bright. They have an inner conviction that a lot of people do not have." Of course, there's no better example of Templeton's willingness to be lonely than his devotion to unusual spiritual ideas. "I'm one of the few people in the world who don't hesitate to say that spiritual information will multiply one hundredfold," he declares. "Hardly anybody in the world wall dare say that."

    Templetonís attitude toward money has always been distinctive. Gary Moore, a friend who advises religious investors, quips: "John is what we call a Calvinist. He believes it's okay to make money so long as you don't enjoy it. He's still pretty tight." Templeton calls tithing the "single best investment" anyone can make and claims to give away $10 for each dollar he spends on himself. Obsessively thrifty, he boasts that he still flies coach: "I've got a lot better ways to spend my money than on a bigger seat." As a fund manager; he was famous among his employees for writing notes on scraps of used paper, which he'd staple together into notepads: "I never thought it was wise to waste anything. After my education I had absolutely no money, and neither did my bride. So we deliberately saved 50 cents out of every dollar."

    Templeton employs the same philosophy when he invests, says Mark Mobius, manager of the Templeton Developing Markets fund. It was Templeton's miserly eye for a bargain that led him into foreign markets other Americans spurned. In the 1950s, when Japan's economy was reeling and many Japanese stocks were trading at a PIE of three, he figured it was the world's cheapest market. He snapped up unwanted gems like Hitachi and Fuji Film, betting 60% of his fund's assets in a country ridiculed for producing cheap knockoffs. By 1980, exuberant investors were piling into Japanese stocks, and Templeton, looking for cheaper buys, had almost entirely cashed out. He'd quintupled his money.

    Underlying Templeton's compulsive cheapness is his belief that we don't possess our own money; we're merely "temporary stewards" of God's wealth and must shepherd it with appropriate care.

    Templeton has similarly quirky notions about time. "John won't engage in small talk," says John Galbraith, who marketed Templeton's funds. "The minute you're through with your common business, he's onto something else."

    He's beyond punctual. His friend Gary Moore recalls: "The first time I met John, he said, 'Be here at 4:02. I've got another appointment at 4:13.'"" His determination to use every minute productively gave him a major edge in researching stocks. Most investors, he says, "don't really understand what it is they're buying. You have to be very industrious and very persevering so that your information wall be better than that of other people." He's now equally relentless in analyzing spiritual matters. "What we need," he insists, "is more facts, much more scientific research." Nor does he plan to slow down: "You're only on earth a small time. Don't waste a minute of it."

    When the U.S. Market crashed in 1987, Templeton loaded up on stocks that had been slaughtered. "He doesn't get carried away by the emotions of Wall Street," says Jay Bradshaw who ran Templeton's trading desk. "He said, 'Well, if we paid that much for Ford Motor before and it was good value then, it's even better value now.'" "This habit of diving in when stocks are getting crushed requires "tremendous willpower and strength of personality," says Mobius."Everybody else is running out of the burning building."

    Templeton has always been just as immune to euphoria. In 1968, when the U.S. market was surging to breathtaking heights, he was massively underweighted in U.S. stocks. The bubble burst, and many stocks fell 70% between 1969 and 1974. In those terrifying years, his funds largely invested in Japan and Canada-boasted a positive return of 50%.

    Templeton finished top of his class at Yale and was a Rhodes scholar at Oxford. But a superb intellect is worth little in investing if you have the wrong temperament. "Most investors get led astray by emotions" he says. "They get excessively care-less and optimistic when they have big profits. They get too cautious and pessimistic when they have big losses.... I've always worked on having more self-control."

    His secret weapon? His unerring ability to stay calm as an investor is bolstered by his religious faith, which seems to free him from fears and doubts that paralyze others. Convinced he's a beloved child of God and that "spiritual wealth is vastly more important than monetary wealth," he's never been rattled by the market's plunges. Even when he took a beating, says Templeton, "I never was depressed or despairing."