Templeton, Buffett & their tenets have attracted many but the best way to benefit from their teachings lies in discipline to stick to those principles
JOHN Marks Templeton, arguably “the greatest global stock picker of the century,” passed away this month at the age of 95. His investment tenets — simplicity and universality — attracted investors across the globe. Yet he remained an unknown figure among Indian investors. One of the reasons, according to a industry analyst, is that Indian investors don’t believe in role models. For them, investment gurus’ principles work more like “a fitness regime where most know that it is important to be fit and healthy but are not able to work out the discipline for the same.” The basic psyche of an Indian investor still remains to invest in stocks on the advise of friends, colleagues or a local broker. If their portfolio is eroded, the tendency is to immediately shift gears and keep their future possible savings in the form of yellow metal or fixed deposits. SundayET provides you an insight into why you should follow rules of investment gurus such as John Marks Templeton and Warren Edward Buffet to reap success on Dalal Street.
VALUE RATHER THAN INVEST
This is one of the core principles to investing. The success of individuals like Buffett and Templeton shows that how a focused approach to investments can help you post healthy returns from the equity markets over the long-term. Chetan Sehgal, director (equity research) of Franklin Templeton Investments, believes that this is precisely the reason for the basic investment tenets withstanding the test of many decades. “Their advice has always been — focus on fundamentals and value rather than invest based on sentiment and short-term expectations of price movements. Of course for investors, this is the hardest to implement as we are surrounded by lots of information and news which affects sentiment and there is a feeling that in equity markets you can make a quick return,” says Mr Sehgal.
CONTRARIAN APPROACH
Never follow the crowd. Great investors always follow the contrarian approach. In his 16 rules for investment success, Templeton underlines that if you buy the same securities everyone else is buying, you will have the same results as everyone else. “By definition, you can’t outperform the market if you buy the market. And chances are if you buy what everyone is buying you will do so only after it is already overpriced,” he wrote. He quotes an example of the great pioneer of stock analysis Benjamin Graham: “Buy when most people…including experts…are pessimistic, and sell when they are actively optimistic.”
UNDERSTAND RISK-REWARD RELATIONSHIP
All investments have a certain amount of risk, and normally, the rewards are commensurate to the risk taken. You should be able to judge an investment with reference to two parameters — risk-reward relationship and cost-benefit analysis. For instance, equity funds do have the ability to provide good returns over the long-term, but the question you should ask is — are you comfortable with the ups and downs of the markets? “There is no point investing all your money in equities and then spending sleepless nights due to short-term volatility. At the same time, you need to ensure that investments provide returns that will be adequate to meet longterm goals,” says Sehgal. The importance of diversification among assets is one of the tenets of Templeton.
KEEP YOUR EMOTIONS AT BAY
According to investment gurus, emotions tend to overwhelm us whenever there is a significant shift in market conditions or when faced with unforeseen circumstances, be it good or bad. Thus, while making decisions during such situations, you should be even more careful. “An objective and deliberate analysis of the situation, taking into consideration the investment objectives and time frame is an absolute must,” feels Sehgal. Anup Bagchi, ED of ICICI Securities, says successful investing is a culmination of view of the future and psychological make up of the investor and thus each individual must do what one is comfortable with. “This is why decisions of even the legendary investors are not the same. It is important to stick to basic principles but not be stuck with any particular paradigm,” he says.
STAY FLEXIBLE, OPEN MINDED AND SCEPTICAL
Volatility is an inherent part of stock market investing and investors need to keep in mind that market gyrations tend to be more pronounced over the short-term. Thus, during times of negative sentiment, often quality asset prices are available at attractive bargains and you can benefit from them. “There is an important lesson in Templeton’s investment tenet — never adopt permanently any type of asset or any selection method. Always try to stay flexible, open minded and sceptical. Long-term top results are achieved only by changing from popular to unpopular types of securities you favour and your methods of selection,” says Bagchi. He says the starting point of investing is to have a point of view of the future of economy and then the sector and then the company, or it can be individual stock picking if there are compelling reasons. “In this changing world the view of the future can change rapidly and the original assumptions of investment may undergo a change. It is critical to have an open mind about being wrong and to do course correction,” he says.
