1. How legendary investor John Templeton learned to put his eggs in different baskets

How legendary investor John Templeton learned to put his eggs in different baskets

According to John Templeton: “The only investors who shouldn’t diversify are those who are right 100% of the time.”

By: | Published: September 9, 2017 3:28 PM
John Templeton is often quoted as saying, “To avoid having all your eggs in the wrong basket at the wrong time, every investor should diversify.” (Image:Reuters)

John Templeton’s name is synonymous with globally diversified mutual funds. His investment philosophies and achievements in the field of investing need no introduction. In 1999, Money magazine said that he is “arguably the greatest global stock picker of the century.” He is often credited for pioneering the idea of diversification. In his own words, “Diversification should be the cornerstone of your investment program. If you have your wealth in one company, unexpected troubles may cause a serious loss; but if you own the stocks of 12 companies in different industries, the one which turns out badly will probably be offset by some other which turns out better than expected.” In case of John Templeton, these words are amply backed with personal experience. How did John Templeton pioneer the idea of diversification?

At the time of World War II, John Templeton purchased $100 worth of every stock which was trading below $1 per share on the New York and American stock exchanges. John Templeton believed that WWII would bring great benefits to American companies and drag the economy out of the Depression. So, he purchased $100 dollars worth of shares in about 104 different companies for an initial investment was $10,400. However, due to the war, 34 of these companies turned out to be “rotten eggs” as those went bankrupt after the war. But the remaining companies, a larger part of his portfolio was unaffected. Four years later, John Templeton managed to sell those shares for nearly four times the money he had initially invested.

The doyen of diversification once said, “To avoid having all your eggs in the wrong basket at the wrong time, every investor should diversify.” According to him, “The only investors who shouldn’t diversify are those who are right 100% of the time.”

In his latest blog another reputed veteran investor Mark Mobius, the executive chairman of Templeton Emerging Markets Group, shared the life lessons he learnt from the iconic John Templeton. Mark Mobius wrote, “Sir John was quite a personality. The thing that impressed me the most about him was that, first of all, he was very frugal. He was very patient, very even-tempered.”

Mark Mobius further shared an incident highlighting John Templeton’s far-sightedness. “I remember when he was 70-something years old, he bought a whole warehouse of amethysts (a quartz used in jewellery), which at that time were not worth much. Somebody asked him: “How long do you think it will take for this to increase in value?” He said about 20 years. This is when he was 70 years old!” Mark Mobius observes.

Further, Mark Mobius says that John Templeton had a very flexible approach to investing. Recollecting the lessons in investing he writes, “He (John Templeton) said no one way of investing will always work. You’ve got to be willing to change and adjust. And unfortunately, a lot of times we didn’t pay attention to that.”

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