Tuesday, 1 December 2009

Book Review: Investing the Templeton Way by Lauren Templeton and Scott Phillips

Reading a book about the investing methods of enormously successful legendary investor Sir John Templeton makes one simultaneously inspired and depressed. Inspired, because the exploits of any exceptional practitioner show that it is possible to succeed through skill, even in a field as notoriously difficult as the quite efficient investing markets. Depressed, because one realizes that such success requires a combination of hard unrelenting work and judgement in being able to separate essential from non-essential, noise from signal in the information over-load era where it is easy to get over-whelmed and confused.

This ability of Templeton to identify the correct piece of information struck me most in the account of his success in exploiting the tech bubble. Unlike many others who saw the tech bubble and tried to profit by short-selling, only to be squeezed out at big losses when, in that lovely phrase of Keynes, the market stayed irrational and kept going up longer than an investor could stay solvent, Templeton figured out the trigger that would finally cause the bubble to burst. At least as instructive is that he was 88 at the time - one of the book's lessons is that Templeton never stopped looking for bargains. I wonder if he lay on his deathbed in July 2008, thinking something like "shucks, there's a whole lot of easy money to be made very soon."

Investors looking for a detailed step-by-step investing manual filled with rules and checklists will be disappointed. This book is a high-level guide, more about the bargain mindset, the willingness to be different, to be ridiculed, to stick with a stock for years if necessary till its value is recognized, to be curious and questioning, digging through and beneath financial ratios.

However, it does include some of his rules of thumb:
  • look for countries with debt/GDP ratio of under 25% to avoid the risk that a country will have inflation and currency problems that will cause net investment losses
  • a rising/high level of takeovers in the market is an indicator of value - when competitors are taking each other out, they obviously feel they are getting a bargain
  • a high/rising level of IPOs suggest over-valuation as insiders decide to stick the public with the company at maximum price
  • sell a stock when there is an alternative available to buy that is 50% better price relative to intrinsic value
The book is filled with Templeton success stories. Yet is often said that one learns most from mistakes. I would have liked to see some discussion of his blunders and what was learned, or perhaps a longer review of one case, with its mis-leading data to be ignored and why it merited being ignored. Though it is certainly worthwhile and instructive as it is, the book ends up insufficiently analytical for my taste.

The text reads well and quickly. The smattering of charts and tables support the points being made without being overwhelming. It is a bit strange to find a few pages of Templeton family photos at the back, that probably being the doing of co-author Lauren Templeton, who is a niece (warning, there is a lot of reference to "Uncle John" in the text) and the owner of an investment firm. ... One wonders if niece Lauren is on the way to becoming ultra-successful and rich by Investing the Templeton Way.

Best quote: "... the most successful investors are defined by their actions in a bear market, not a bull market." i.e. they are buying by the truckload when everyone is terrified and the market is plummeting.

My rating: 3.5 out of 5

Many thanks to the publisher McGraw Hill for providing me with a review copy

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