“The four most dangerous words in investing are: This time it’s different.”
If investors are taught not too buy high and not to follow the crowd, why then they still do it? It is because they say that this time it’s different. If you buy an asset far above its intrinsic value, you are likely to lose or suffer from very mediocre returns. Even a stock of a great company can be a lousy investment if it’s priced way too high. Don’t rush. Wait for the price to come down, or look for another great company. (There are exceptions to this rule, but usually they apply to the greatest companies with great franchises.)
“An investor who has all the answers doesn’t even understand the questions.”
If you find yourself looking at a “perfect” investment, question your assumptions. There may be something you’re not seeing. If a stock is down 90%, ask why. Dig deeper. Perhaps, there’s a good reason for it. Not all stocks recover.
“Sell when you find a much better bargain to replace what you are selling.”
Why sell an investment if the current value of the stock you're holding is still good? Many investors do it because they get greedy or bored. If you’re not sure, consider selling half of it. If there’s a downturn, you still got some money back. If the stock continues to rise, you’ll still have some of it left. Problem is, many investors sell their winners and keep their losers. However, if a stock seems to be overpriced, taking a profit may be a good idea. But, as an investor, you need to determine if it’s overpriced. Here, fundamental analysis comes handy.
Much of John Templeton’s investment philosophy can be summed up in this quote:
“Bull markets are born on pessimism, grown 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.”
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In 1950s, Templeton established Templeton Growth Fund. Then, he created various industry-specific and international mutual funds, which made him billions. Now, these funds are part of Franklin Templeton Investments, a company with over 200 mutual funds. They also provide other investment vehicles such as closed-end funds and ETFs.
Here are some of the best investing quotes by Mr. Templeton as well our commentary.
“If you want to have a better performance than the crowd, you must do things differently from the crowd.”
Since there are superior performers in the market, it means that there are plenty of underperformers at the same time. But unlike short-term trading, which is a zero-sum game (one gains at the expense of the other), when it comes to investing, many participants benefit from rising markets. Still, following the crowd brings mediocre results. At times, following the hype a crowd has bought can lead to financial ruin.
Don't follow the crowd, said John Templeton
“Focus on value because most investors focus on outlooks and trends.”
Watching trends can be profitable, especially for experienced traders and investors. Technical analysis, which includes looking at past trends, is one of the tools. However, if everyone follows the same rules (such as buying at support and selling at resistance), it becomes very had to make profits. Also, looking at trends can lead to speculative mania and buying at the top just before downfall. On the other hand, looking to buy stocks and other assets below their intrinsic values can be a very profitable strategy for those who are patient and have skills at finding out what the value is. One of the ways of doing it is with fundamental analysis, which we’ll cover in later sections.
“To buy when others are despondently selling and to sell when others are avidly buying requires the greatest of fortitude and pays the greatest ultimate rewards.”
This relates to a previous quote about not following the crowd. However, it is hard to do so for many individuals. If an inexperienced investor sees a price of an asset trending higher, he or she may want to jump in because of the fear of missing out. Too many naïve investors bought assets at the top only to be left with pennies on the dollar after profits were taken out of speculative positions.
“Invest at the point of maximum pessimism.”
That’s a great quote. In the early 2009, after the previous year’s financial collapse, stocks were selling cheap. Those who bought at that time, at the point of maximum pessimism, have made great returns over the following several years.
John Templeton was among the greatest investors and investment managers of the 20th century. He passed away in 2008 at the age of 95. He became known for rather contrarian views, which included not following the crowd and buying after major market declines.