As Templeton gradually withdrew from the over-hyped Japanese market of the 1980s, he scoured the globe for neglected, under-rated stocks; and these were not all in the emerging economies. He had already made a 15-fold return by buying General Public Utilities after the Three Mile Island nuclear disaster in the late 1970s and was becoming increasingly intrigued by the low valuations of US stocks.
Amid the demoralised market of June 1982, when the Dow Jones was at 788, he astonished commentators by his statement that he thought there was a good chance it would hit 3000 by 1988 (it did not reach quite such heights, but it did almost treble).
He bought into a depressed Mexican market in the early 1980s and snapped up Union Carbide shares the day after the Indian plant had caused the deaths of almost 2,500 people in Bhopal.
Investors dumped the shares on fears that legal suits could put the company out of business. The shares nosedived from $50 to $33. Seven months later (July 1985) the one million shares bought rose to $52.
He told the 750 people gathered for the 1985 annual meeting of the Templeton funds that he buys shares when they are cheap. This sometimes means making mistakes, but, in most cases, you can sell for a profit when the bad news is over.
Principle: Buy sound businesses when cheap. This means avoiding buying when the analysts issue “buy” recommendations because, by then, the shares are no longer a bargain.
At this point Templeton had identified so many bargains in the North American markets that he had 40% of the Templeton Growth Fund invested in the US, with another 14% in Canadian stocks. Australian securities accounted for almost 12%.
When others are fed up….
Another wave of pessimism drove markets down in 1990, which led to a characteristic response from Templeton. He said that he had never seen so many shares, particularly emerging market growth companies, so undervalued by the market.
He found plenty of bargains in industries where there was great pessimism. He spent the early 1990s finding bargains in far flung places such as New Zealand, Indonesia, Pakistan, Brazil and Peru.
The breadth of his country knowledge was astonishing; for example in 1996 the TGF held securities in over 30 countries.
However, by then there was an indication that he was already starting to become nervous of the exuberance of the late nineties because he had allocated 25% of the fund to cash.
When others are exuberant…
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