John Templeton : The best time to buy is when there is blood in the streets

John Templeton

table of contents

• The Core of John Templeton's Value Investment Strategy!
• Investment Opportunities in Market Crashes!
• The Importance of Rational Judgment!
• Confusion Between Stock Prices and Corporate Value!
• The Importance of Long-Term Investment and Buying at the Bottom!

The Core of John Templeton's Value Investment Strategy!

John Templeton's value investment strategy differs significantly from traditional value investing methods.

Value investing generally involves analyzing the difference between a stock's intrinsic value and its market price to buy undervalued stocks.

However, Templeton argued that stock analysis is not as important as it is often perceived. He emphasized an approach that considers the emotions of investors and the market atmosphere, stating, "Analyzing companies is surprisingly unimportant."

The core of Templeton's strategy is to find stocks that can be purchased cheaply. He asserted that to capture opportunities in the stock market, one must understand the overall market psychology, specifically the shifts between fear and greed.

He formulated a theory that "opportunities to buy cheaply always come from the marketplace," indicating that signs of recession can actually present buying opportunities.

Investment Opportunities in Market Crashes!

What opportunities do market crashes provide for investors? John Templeton emphasized the importance of becoming a "Bargain Hunter" during such times.

The concept of bargain hunting, as he described it, goes beyond simply buying stocks at low prices; it involves uncovering hidden value amidst psychological pessimism.

Why is it important to buy stocks cheaply during a market crash? First, most investors react emotionally by selling their stocks when the market is pessimistic. This ultimately drives down stock prices, creating a buying opportunity.

The key strategy for investor success is to buy when pessimistic and sell when optimistic. For instance, during the COVID-19 pandemic, many companies saw their values plummet, but those who remained in the stock market capitalized on these low-price buying opportunities and made significant profits.

In reality, many investors tend to invest when stock prices are rising rather than when they are low. This behavior leads to "buying at high prices," which ultimately results in losses for investors.

The Importance of Rational Judgment!

To succeed in the stock market, having a rational judgment is essential. In reality, many investors experience significant losses due to being swayed by market changes and sentiment.

One solution to this issue is to cultivate a mechanical and rational decision-making process. When emotions dictate investment decisions, the outcomes are likely to be unfavorable.

The most effective way to develop a calm judgment is to control emotions through experience. For example, imagine that after purchasing a stock, its price suddenly plummets.

You might find yourself gripped by anxiety, wondering, "Did I choose the wrong stock? Will it drop further?" However, rather than making such judgments, it is crucial to reaffirm your investment principles and strategies and not be swayed by short-term declines.

Each time this happens, training yourself to fully recall your trading goals is necessary. In Rudyard Kipling's poem "If," the message of "never lose hope even when you have lost everything" is significant. What one gains in the stock market is not merely returns or asset growth.

If an investor can maintain composure and not lose hope even in crisis situations, they can expect returns above average. This mindset greatly contributes to long-term investment success.

Confusion Between Stock Prices and Corporate Value!

John Templeton emphasized the confusion between stock prices and corporate value in stock investing, arguing that contrary to the common belief that stock prices will reflect a company's value in the long run, the process is significantly influenced by investor psychology and market reactions.

Stock prices fluctuate daily, regardless of a company's intrinsic value, and these ups and downs are determined by the emotions and evaluations of buyers and sellers.

This leaves us with an important lesson: when making investment decisions in the stock market, it is crucial to consider the true value of the company and to be cautious not to react emotionally like institutional or individual investors.

For example, there are times when sudden negative news or rumors circulate in the market, causing the stock price of a particular company to plummet.

In such cases, most investors are shocked and sell their stocks, often concluding that "this stock will never recover."

However, Templeton's strategy emphasizes that these "moments of fear" can often present good buying opportunities, highlighting the need to turn others' fears into opportunities.

The Importance of Long-Term Investment and Buying at the Bottom!

In John Templeton's investment philosophy, the significance of long-term investment and buying at the bottom holds great meaning.

His assertion that boldly investing in a stock market dominated by pessimism can lead to substantial profits cannot be interpreted solely from an economic perspective.

It stems from an understanding of how human psychology and the market operate. First and foremost, the stock market inherently contains uncertainty.

For instance, when unexpected events occur, such as the 2008 financial crisis, many investors panic and sell their stocks or cut their losses.

However, Templeton emphasized that such moments are actually opportunities for buying at the bottom. This highlights the fact that market reactions during times of pessimistic rumors can be excessive.

In other words, the market often moves independently of the actual fundamentals of companies.