Oct

10

TempletonFollowing his recent death, there has been much written about John Templeton. Most stories emphasized two aspects of his life: his most recent views on the market (very bearish) , and how he made his first big score.

It's this second aspect that interests me. To recap, in 1939 Templeton borrowed $10,000 and bought 100 shares of every Big Board stock selling for less than $1.00. There were 104 of them at the time and 34 of them were in bankruptcy. Four years later, only four of the 104 proved worthless, and his initial stake had increased by approximately 400%.

I have no idea where the market is heading from here but as I have read recently, were someone to have invested a given sum every month beginning in late '29, and continued to do so through '32, he would have realized a very nice return and one which would have continued to appreciate nicely throughout the Depression years. I don't believe many would argue that the current market is healthy but might argue that there are some excellent values for those courageous enough to take the risk. Maybe it's time to "Templeton" the market.

Could the same strategy work again? With a few modifications, I believe it's worth a try. The first adjustment I made was to calculate today's equivalent to '39s one dollar stock. The calculator I used determined that a dollar back then is $14.78 through 2007. It's no big deal to find equities that currently trade at or below that figure; however, unless you possess huge amounts of capital buying 100 of every equity below $14.78 would be awfully expensive.

Now, I have many, many watch lists — several of which go back a decade. Last evening I went through them and quickly found 17 which met the price threshold. Some I have owned, some I have not. Some treated me well, others poorly. Some are relatively new, some are very old (e.g, CX was purchased in '99 and sold in '01 — until last night I had not even remembered its existence). But all are flawed in that, at one time or another, I felt they'd be a good buy or interesting speculation. Their prices today when matched against the prices I recorded when adding them to one of my watch lists indicates, in most cases, I was wrong.

Alice Allen adds:

$3I was glad to be reminded of Templeton's strategy after yesterday morning (10/10) when I bought 100 shares each of six stocks under $3 that I had owned earlier at higher prices. For two stocks, industry experience gives me an edge to think these companies will survive. For two stocks, excellent customer experience makes me willing to take a chance. The last stock is a small oil company with all the potential for unexpected movement. Tierney's post has encouraged me to explicitly track how this strategy works out. I'm considering each position as simply a call option with delta=1 and no decline from theta, certainly among my least risky trades in this market. Now if I can just resist increasing position size on random positive fluctuations…

Kim Zussman Reflects:

'39 was 10 years after the crash, and fortuitously near the end of the Depression. Presumably by that time, with the main worry survival and the start of WWII, the few who had money were more disposed to buy stocks of food than stocks of companies in bankruptcy.

That the above question is being asked suggests we aren't there yet.


Comments

Name

Email

Website

Speak your mind

1 Comment so far

  1. Leonardo on October 10, 2008 8:20 am

    With the level of debt that the US is having to take on, if you really believe that all this mess will clear-up in four years then good. All good things must come to an end eventually….

Archives

Resources & Links

Search