Templeton was one of the earliest investors in post-war Japan…and one of the first investors to sell Japanese stocks in the mid-1980s
On Wednesday, I went through the first eight of Sir John Templeton’s 16 Rules to Investment Success. (For those of you who missed this issue, you can find it here.)
Templeton – who died at the age of 95 in 2008 – is the most successful overseas investor ever to have lived. And he had one of the longest and most successful investment records of all times.
Templeton was a trailblazer, which is why we like him so much here at International Living Investor. He was one of the earliest investors in post-war Japan…and one of the first investors to sell Japanese stocks in the mid-1980s (before the real estate bubble burst there in 1989.)
Some emerging markets investors pride themselves on their gung-ho attitude. And they rarely stop to think about what they’re doing .
But it’s vitally important that we learn from the past. As Templeton put it himself: “The four most dangerous words in the world are ‘this time it’s different.’”
Today, I’ll go through the final eight of Templeton’s rules. Together these make up one of the best roadmaps I know to becoming an emerging markets millionaire.
1) Aggressively monitor your investments
The big takeaway here is that no investment is forever. Economic circumstances change. Business models change. Bull markets turn to bear markets. If you want to hold on to your money, you need to constantly evaluate your portfolio. That’s not to say you should be trading in and out of the market on a hair trigger. You just want to make sure you’re not complacent.
2) Don’t panic
During the course of your investing career, the market will correct. Stocks will fall. This doesn’t matter. What counts is how you react. When everyone else is panicking, successful investors calmly look over their holdings and think: “I wanted to own this stock before it crashed. Has anything changed now that it’s cheaper?” If you’ve done your research, chances are nothing has changed. Panicky markets just put the stock “on sale” – creating an even better buying opportunity.
3) Learn from your mistakes
Learning from your mistakes is the only way to become a better investor. Figure out what went wrong. And learn from it. Stay away from advisers who tell you “this time it’s different.”
4) Begin with a prayer
The Presbyterian Church played an important role in Templeton’s life and career. He believed that “if you begin with a prayer, you can think more clearly and make fewer mistakes.” Of course, you don’t have to be a Christian to follow Templeton’s advice. You just have to find some calm in your day. This will help you focus on what’s really important.
5) Outperforming the market is a difficult task
There are thousands of highly paid investing experts out there. Each one is trying to beat the overall market. But it’s mathematically impossible for everyone to outperform the market. That’s why you need think hard before you commit a dime to the stock market. Ask yourself: “Have I covered all the angles? Do I know more than the investment professionals?” If the answer is no, don’t invest.
6) An investor who has all the answers doesn’t even understand the questions
There are no 100% certainties in the investing game. Anyone who tries to tell you otherwise is deluded. Successful investors constantly reevaluate their assumptions and seek answers to new questions.
7) There’s no free lunch
Templeton believed this was true in life as in investing. He said you should never invest on sentiment, never invest in an initial public offering (IPO) to save on a commission and never invest solely on a tip.
8) Do not be fearful or negative too often
Over the past 100 years, investment optimists have beaten investment pessimists by a wide margin. That’s because the average bull market gain is much higher than the average bear market loss. Optimism isn’t always easy. But it can pay off big time.
