John Templeton's Real Legacy Is Not His Fortune

By Nicholas Vardy, Liberty Through Wealth, Wednesday, January 13

More than a decade after Sir John Templeton’s death in 2008, his name remains synonymous with global investing.

I vividly recall picking up a book on Templeton in the early 1990s in Amsterdam.

The combination of Templeton’s global outlook and his contrarian streak hooked me instantly.

No one can question Templeton’s contribution to the profession of global investing.

Yet I now believe it was his philosophy on life – what the author Matt Ridley calls “rational optimism” – that is Templeton’s most lasting legacy.

The Modern-Day Pioneer in Global Investing

Today, you can buy a Brazilian, Russian or Chinese stock at the click of a mouse.

But the world was a very different place in the 1930s, when Templeton started investing in foreign stocks.

Born in 1912, Templeton hailed from the tiny town of Winchester, Tennessee.

He graduated from Yale in 1934 near the top of his class and won a Rhodes Scholarship to Oxford.

After studying law in England, Templeton embarked on a grand tour of the globe that took him to 35 countries in seven months.

This journey exposed him to the enormous investment opportunities outside of the United States.

Ever the contrarian, Templeton embarked on an investment career on Wall Street during the depths of the Great Depression.

In 1939, Templeton borrowed a then-princely sum of $10,000 to buy shares of 104 European companies trading at $1 per share or less.

This was the same year German tanks rumbled into Poland, launching World War II.

Templeton held on to each stock for an average of four years and made a small fortune.

In 1940, Templeton bought a small investment firm that became the basis for his money management empire.

In 1954, he launched the Templeton Growth Fund.

A $10,000 investment in the Templeton Growth Fund at inception grew to roughly $2 million, with dividends reinvested, by 1992.

That works out to a 14.5% annualized return.

Templeton was best known for investing in Japan in the 1950s. That was when investors associated “Made in Japan” with cheap toys found in cereal boxes.

At one point in the 1960s, Templeton held more than 60% of the Templeton Growth Fund’s assets in Japan.

But Templeton also had the savvy to exit markets when they got expensive. He sold out of Japan well before the stock market peaked in 1989.

Templeton’s investment philosophy was simple. Buy superior stocks at cheap price points of “maximum pessimism.”

As Templeton noted in a Forbes interview in 1995:

People are always asking me where the outlook is good, but that’s the wrong question. The right question is “Where is the outlook most miserable?”

This advice is simple to understand – but not easy to implement.

My favorite Templeton anecdote is his bet against the U.S. dot-com bubble in 1999.

Templeton famously predicted that 90% of then-new internet companies would be bankrupt within five years. He very publicly shorted the U.S. tech sector in December 1999, just three months before its collapse.

So Templeton made his biggest fortune investing in Japan over decades.

But he made his quickest fortune by shorting U.S. dot-com stocks.

Templeton the Philanthropist

Templeton took his company public in 1959 when it had only five funds and $66 million under management.

He eventually sold his Templeton Investments to Franklin Resources for $913 million in 1992.

Cashing out allowed Templeton to focus his final years on philanthropy.

He endowed Templeton College at Oxford.

And his Templeton Foundation distributes $150 million annually to study “what scientists and philosophers call the Big Questions.”

He also established the Templeton Prize in 1972. It recognizes achievement in work related to science, philosophy and spirituality.

Past winners include Mother Teresa, Billy Graham, Desmond Tutu and the Dalai Lama.

Templeton’s Rational Optimism

What I find refreshing about Templeton is his rational optimism.

And this applies to financial markets as well.

Barton Biggs, the former global strategist for Morgan Stanley, interviewed Templeton in 2001.

Templeton predicted that the Dow would hit 1 million by 2099.

At first, Templeton’s prediction sounded crazy.

The Dow was trading at just around 10,000 at the time.

But Templeton made a serious point.

He calculated that the Dow would have to rise only about 4.8% per year to hit 1 million over the next 97 years.

And that stocks would have to rise only 5.5% over that period to hit 2 million.

A goal that at first seemed absurd suddenly seemed inevitable.

And that kind of attitude is the key to wealth of all kinds.

It turns out that if you share Templeton’s rational optimism, you’re far more likely to be financially well-off.

Michelle Gielan, a positive psychology researcher, found optimism and financial well-being are closely linked:

We surveyed 2,000 adults nationwide and found that optimists are seven times more likely to experience high levels of financial well-being. They feel better about their money, no matter how much they make or have, and they’re significantly more likely to make positive choices about it.

So yes, Sir John Templeton was a global investing pioneer.

And he paved the way for generations of global investors after him.

But I believe Templeton’s “rational optimism” is his most lasting legacy.

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