In past posts, I’ve gone out on a limb and suggested Sir John Templeton may have been taking a closer look at some high quality stocks since the market bottomed last October. I was pleased last week to read a report by Gary Motyl—the current Chief Investment Officer of the Templeton funds who was hired by Sir John twenty-five years ago—who seemed to agree with me. Mr. Motyl compared today’s markets with two previous periods during his time with Templeton. He noted each time that Sir John was early, as he always seemed to be, and suffered short-term under-performance, but was vindicated in the long-run by his legendary out-performance.
The first period Mr. Motyl referenced was Japan from 1987 to 1992. He wrote:
Sir John Templeton first began investing in Japan in the 1960s when it was considered an emerging market. By 1985, Japan had exploded onto the economic landscape . . . Although Japan’s growth rate soared in the mid-1980s, by 1986 we believed valuations in Japan were too high. Templeton Growth Fund subsequently trailed its benchmark during the height of Japan’s stock market rise from 1987 to 1989. However, over the cumulative six-year period from 1987 to 1992, the fund also outperformed its benchmark by over 33%.
In the late 1990s, the rapid ascent of popular Internet companies fueled massive speculation, record-setting company valuations and rising stock prices. Templeton’s disciplined Bargain List process, which is value driven, prevented us from participating in the technology sector. Similar to its performance in the late 1980s, Templeton Growth Fund lagged its benchmark at the height of the technology boom, from 1997 to 1999. Yet the fund returned 36.84% over the six-year period covering 1997 to 2002 verses 6.33% for its benchmark.
Where we are now identifying value is, ironically, in the formerly high flying technology, telecom and media industries. Templeton’s Bargain List of undervalued securities has recently included large cap companies such as Microsoft, Pfizer, Newscorp, Siemens and General Electric. The interesting aspect about today’s market environment is that some of the least-expensive companies are also of the highest quality.
Mr. Motyl concluded with these words, which I heard over and over from Sir John:
Our experience has taught us that investors who exercise patience and a long-term view during uncertain markets are often the ones who are rewarded over those who chase hot markets or jump in and out with each market quiver.
In Sir John’s beloved religious terminology, patience and a more eternal perspective are indeed virtues.
Gary Moore is author of Faithful Finances and founder of Gary Moore and Company.
Editors’ Note: “What Would John Templeton Say?” is not a site dedicated to giving investment advice. Rather, it is a resource to share the wisdom of John Marks Templeton and provide historical and current perspectives on economic issues.