In this article, Michael looks at two of the best trades of the 20th Century by Sir John Templeton.
Sir John Templeton was an American-born British investor, philanthropist, and fund manager. He was born in 1912 in Tennessee in the United States and passed away in 2008 in Nassau, Bahamas. American-born British because he gave up his US citizenship and ended up being knighted by Queen Elizabeth II.
Templeton is widely regarded as one of the most successful investors of the 20th century and was known for his global investment approach and contrarian investment strategies. His flagship Templeton Growth Fund achieved an average of 14.5%. Not hugely impressive until you consider the fact that it was over four decades. He was a pioneer in overseas investing. But that’s not why I’m writing about him. This man arguably placed the two best trades of the entire 20th century.
Templeton began his career on Wall Street in the late 1930s and made a name for himself by taking advantage of the opportunities presented by the Great Depression. In 1954, he founded the Templeton Growth Fund, one of the world’s first mutual funds, which became known for its international investment focus. He believed that investors could find attractive investment opportunities worldwide and that diversifying across countries and sectors could yield superior returns.
His investment philosophy focused on the importance of value investing and buying stocks when they were undervalued or overlooked by the market. He looked for companies with strong long-term growth potential, focusing on factors such as financial health, management quality, and market position.
However, it’s the two trades that stand out as an example of the man’s investing prowess.
Templeton’s first trade
Back in 1939, Germany invaded Poland and war broke out (although I would argue that the war actually started in 1931 as Japan invaded Manchuria, and was active in combat right until 1945, but that’s a different topic). Investors are fleeing the market. But Templeton goes out and buys $100 of every NYSE listed stock that traded under $1 a share.
The reasons for this were simple.
Germany invading Poland meant that a global war was coming.
And global war meant that everything surplus and unprofitable suddenly becomes scarce and profitable.
It was a risky strategy. But it paid off.
Three years later John had a profit on 100 out of the 104.
And the $10,000 had quadrupled to around $40,000 when he sold near the end of the war.
The beauty of this trade is its simplicity. There’s no fancy discounted cash flow analyses or swathes of suits crunching every transaction.
Just one cause and one consequence. And a stomach prepared to lose everything in search of a higher payoff.
But as great as this trade was, the second one eclipsed it.
Templeton’s second trade
It’s now January 2000 and Templeton is an old man.
Templeton believed that the Dotcom bubble would pop and that internet stocks would collapse.
So, he decided to short 80 of the most overvalued NASDAQ stocks.
However, rather than blanket shorting them he timed his positions at a specific point: just before the post-IPO lockups expired.
The thesis here again was simple: he knew that newly-minted millionaires would rush to sell and cash in their stock, and this would cause a selloff in the stock.
By shorting just ahead of this, Templeton was getting in right before a catalyst to spook the market in the stock and drive the price lower. And with the overvaluation, his downside was protected. This meant that he was getting excellent risk/reward on every trade he took in this theme.
Despite being more than 60 years apart, both trades were simple in execution but yielded incredible payoffs. They were timed to perfection.
Of course, these trades are easy to see in hindsight.
But sometimes great trades are simple.
Michael Taylor
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