Investing is a tricky game, particularly for the rookies. Those who are just starting out are recommended to learn from the doyens of investing. One such legend is Sir John Templeton who was a British investor and philanthropist.
In 1954, he created the Templeton Growth Fund, which gave an average return of over 15 per cent per year for 38 years.
Although he gave numerous investing lessons, we share seven lessons here.
Seven key investing lessons given by John Templeton
1. Investing is not gambling: He recommended against day trading and batted for long term investing. He said investing should not be done like gambling in a casino. If investors are influenced every time the market moves a few points here and there, the market will be your casino. And in gambling, most gamblers lose, and lose often.
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The most relaxed investors are the ones who are better informed.
2. Investing in value stocks not market trends: He used to advocate for investing in individual stocks and not in market trends. This means the market is a combination of stocks but one invests in the individual stocks which may buck the market trend. So, there could be stocks that rise in the bear market and the ones that fall in the bull run.
3. Remain open minded: Templeton used to say that investors should be open minded about the type of investment one makes. There could be times when one should buy blue-chip stocks and there are occasions when it is appropriate to buy cyclical stocks or corporate bonds.
Also, there could be times when it is advisable to preserve cash because it enables you to leverage the investment opportunity.
4. Buy low: Although it appears simple in theory, it is difficult to practise. It is not easy to outperform the market when you do what everybody else is doing. So, one should buy when everyone else is selling and sound optimistic. Instead, what most investors do is the opposite.
They buy only when there is a positive outlook on the stock by experts. This is not rational advice because in that case, your behaviour wouldn’t be much different from the rest of the investors.
5. Diversify: Regardless of how careful investors are, the future of the economy and that of the company are highly unpredictable. There could be unanticipated factors such as strike by labour, government-imposed recall of products and even a natural disaster that could cause massive damage to the organisation.
So, it is advisable to diversify across industries, geographies and risk factors. Either way, you can’t eliminate the risk but can minimise, or at least manage it.
6. Do your homework: It is vital to do your homework before you invest. He said that investors should remember that they are either buying assets or earnings.
A stock price should reflect the earnings posted by the company or assets it owns. For instance, when you want the company to grow in future, you are valuing the stock on its future earnings. And when you want it to be acquired at a premium valuation, you are buying the assets.
Accordingly, one should make the investing choice.
7. Learn from your mistakes: He said that the only way to avoid mistakes is not to invest, which is the biggest mistake of all. It’s alright to make mistakes but one should not get too discouraged by them.
One should turn each mistake into a learning experience. One should assess what went wrong, and avoid the same in future.
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Published: 26 Feb 2024, 02:00 PM IST