Buy Low, Aim High

“I never ask if the market is going to go up or down because I don’t know, and besides it doesn’t matter. I search nation after nation for stocks, asking: ‘Where is the one that is lowest-priced in relation to what I believe it is worth?’ Forty years of experience have taught me you can make money without ever knowing which way the market is going.”–A 1978 Forbes cover story on Sir John Templeton

In Memory of Sir John Marks Templeton

I’m a big believer in heroes.  They remind us that something can be built from nothing, that victory can be snatched from the jaws of defeat, that we should aim high, and that we should never give up.

One of my heroes passed away last week.  His name was John Marks Templeton.  He was 95 years old.  And he was a Knight Bachelor, earning that recognition from Queen Elizabeth II for his philanthropic efforts.

Sir John’s life began simply enough, in the town of Winchester, Tennessee.  He graduated from Yale with a degree in economics, top of the class.  He was a Rhodes Scholar at Balliol College, University of Oxford.  And he was a first-class investor, starting on Wall Street in 1937, founding the Templeton Funds and eventually selling them to Franklin Group for $440 million.

John was a pure value investor, with a very long-term perspective and an appreciation of global markets.  The legend is that in 1939, when John thought the market had fallen far enough, and many good stocks were dirt cheap, he borrowed money and bought shares of every stock trading under a dollar.  There were 104 of them; 37 were already in bankruptcy.  Three years later, he had a profit on 100 out of 104!

The key to that success, like his others, was in daring to look where others feared to look, and to invest when others feared to invest.  He was the first major U.S. investor to go global; he prospered by investing in the most bargain-priced economies, and then waiting patiently for prices to rise.  And he was always optimistic about the future.

Remaining Optimistic

In fact, when I first met Sir John 21 years ago, when he was inducted into the Academy of Distinguished Entrepreneurs at Babson College, the most striking aspect of the man was his profound optimism about the future of human society.  Using statistics about mortality, education, longevity, literacy, scientific discovery, and more, he showed both how far we had come and how much farther we could go.  To this day, I remain impressed–and optimistic–because of what I heard at that meeting.

In his later years, Templeton turned his attention to philanthropy, spending his time and money supporting inquiry into the questions regarding progress in religion.  His Templeton Prize, established in 1972, is an annual award of £1,000,000 sterling ($1,998,049) that “honors a living person who has made an exceptional contribution to affirming life’s spiritual dimension, whether through insight, discovery, or practical works.”  By design, it’s bigger than the Nobel Prize.  Templeton explained, “Alfred Nobel left a blank spot when he wrote his will giving prizes in chemistry, mathematics, and medicine.  So I started to give an annual prize larger than Nobel because I wanted to say to the world that progress in religion is more important than progress in all other areas combined.”

Now, for many people, particularly people in concrete, non-fuzzy disciplines like investing and economics, “progress in religion” is an oxymoron.  But not Sir John.  Open-mindedness was his guiding light.  Just as it steered him to invest in foreign lands, and to buy beaten-down stocks when others were throwing them away, it steered him to support the idea of progress in religion.

My opinion is that he’s early on this one, but I’m optimistic that his efforts will bear fruit.  At the same time, and getting back to the subject of investing, I’m thinking that right now Sir John would be checking his Watch List, looking at stocks trading under $1, at companies in or near bankruptcy, and at stocks that have fallen s 90% this year.  And I’m thinking he’d be finding some bargains.

It’s not our style at Cabot to simply buy cheap and then hold for three years, but if you wanted to do that, the present time–when Americans are beginning to fear the stability of their financial institutions and the economy appears to be going to hell in a handbasket– looks like a good time to pull the trigger.

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The Cabot editor who comes closest to Templeton’s style is J. Royden Ward, editor of Cabot Benjamin Graham Value Letter.

Year-to-date, Roy’s Classic Value Model is up 1.0% while his Wise Owl Model is down 4.3%.  The Dow, meanwhile, is down 16.5%, while the Nasdaq is down 15.1%.

In his July issue, Roy recommended Archer-Daniels-Midland (ADM), saying, “ADM is a leading processor and seller of agricultural commodities including corn, wheat and oilseeds [and] the second largest U.S. producer of corn-based ethanol. … Recently, commodity prices for corn skyrocketed because of extensive flooding in the U.S. Midwest. Higher corn prices would hurt ADM’s earnings, but now, prices have moderated because of higher crop estimates. … ADM shares declined from a high of 49 and are now undervalued at 10.5 times current EPS. Increasing demand for food in third world countries will likely push ADM’s share price to our Minimum Sell Price of 54.75 within one to two years.”

I look at Archer-Daniels-Midland and I see a big, well-managed company that has grown revenues and earnings extremely consistently … and that’s very impressive considering it’s in a business that’s somewhat at the mercy of the weather.  In the first quarter, revenues grew 64% to $18.7 billion, while earnings grew 43% to $0.80 per share.

Looking at the chart, I see a long uptrend, temporarily interrupted by a 41% decline.  This decline could go even further … but not much.  If you’ve got time and patience, I think a buy today, while both the market and this particular stock are deeply oversold, will work out well long-term.

Editor’s Note: Cabot Benjamin Graham Value Letter’s time-tested value-investing methodology can bring long-term profits to any investor with the courage to buy low and the calm nature to hold patiently until stocks reach their Minimum Sell Prices, which are provided for every stock recommended.  The newsletter is especially valuable for investors who want to beat the market but who don’t have the time or inclination to watch the market every day.  To get started with a no-risk trial subscription, simply click the link below.

Yours in pursuit of wisdom and wealth,

Timothy Lutts
Cabot Wealth Advisory


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