Sir John Templeton, creator of the Templeton Growth Ltd. fund, was a pioneer in both investments and philanthropy. In the 1950s, he provided advice on how to invest worldwide when Americans rarely considered foreign investments.
Much of what he espoused more than a half-century ago remains just as valid today. Here are some of his rules which may help investors today:
• Learn from your mistakes.
• The only way to avoid mistakes is to not invest. This may end up being the biggest mistake of all. So forgive yourself for your errors.
• Don’t become discouraged and certainly don’t try to recoup your losses by taking bigger risks. Instead, turn each mistake into a learning experience.
• Determine exactly what went wrong and how you might avoid the same mistake in the future.
The investor who says, “This time it’s different,” when in fact it’s virtually a repeat of an earlier situation, has uttered the four most costly words in the history of investing.
Successful people learn from their mistakes and the mistakes of others.
Invest for maximum total return. This means the return on invested dollars after taxes and after inflation. This may be the only rational objective for most long-term investors.
Any investment strategy that fails to recognize the insidious effect of taxes and inflation fails to recognize the true nature of the investment environment and, thus, is severely handicapped. Protecting your purchasing power is vital. One of the biggest mistakes people make is putting too much money into fixed-income vehicles which don’t keep up with inflation.
• Invest – don’t trade or speculate.
• The stock market is not a casino. It takes research and knowledge.
• Buy low.
Of course, you say, that’s obvious. Well, it may be, but that isn’t the way the market works. When prices are high, a lot of investors are buying a lot of stocks. Prices are low when demand is low. Investors have pulled back, and people are discouraged and pessimistic.
Heed the words of the great pioneer of stock analysis, Benjamin Graham: “Buy when most people, including experts, are pessimistic, and sell when they are actively optimistic.”
Bernard Baruch, adviser to presidents, was even more succinct: “Never follow the crowd.” So simple in concept – so difficult in execution.
Buy value, not market trends or the economic outlook. A wise investor knows the stock market is really a market of stocks. While individual stocks may be pulled along momentarily by a strong market, ultimately, it is the individual stocks that determine the market, not vice-versa.
The stock market and the economy do not always march in lock step. Bear markets do not always coincide with recessions, and an overall decline in corporate earnings does not always cause a simultaneous decline in stock prices.
• Aggressively monitor your investments.
• Expect and react to a change. No bull market is permanent. No bear market is permanent. And, there are no stocks you can buy and forget. The pace of change is too great.
Sometimes to get ahead you have to look back.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial adviser prior to investing. No strategy can assure success or protect against loss.
• Mike Piershale, ChFC, is president of Piershale Financial Group. Send any financial questions you wish to have answered in this column to Piershale Financial Group Inc., 407 Congress Parkway, Crystal Lake, IL 60014. You may also fax them to 815-455-6453 or email Mike.Piershale@PiershaleFinancial.com