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Salute to those who like to break someone else's account, John Templeton (1912-2008) - one of the most famous investors in the stock market of the second half of the XX century. Templeton made billions of dollars in the stock market and was the first to use diversified mutual funds. In the 1930s, he made money by buying stocks that fell in price as a result of the Great Depression (they later grew due to the outbreak of World War II, which Templeton had foreseen), and in the 1960s he was one of the first to invest in the booming Japanese economy. In 1996, he was inducted into the American Business Hall of Fame, and in 1999, Money magazine named him "Possibly the greatest stock collector of the 20th century." What can you learn from him?
Templeton has formulated 15 principles of investing:
1. Invest with the expectation of maximum REAL return
Long-term investment should take into account taxes and inflation. By investing in fixed income instruments (bonds), you run the risk of remaining in the red if you do not properly calculate taxes and inflation. $ 100,000 with an average inflation rate of 4% will turn into $ 68,000 in just 10 years.
This means that in a decade you need to grow your portfolio by at least 47% - up to $ 147,000. And this does not include taxes.
2. Don't trade or speculate. Invest.
The stock market is not a casino, but if you trade too often, using options and futures, then the market becomes a casino for you. And, as in any casino, you will lose. Your profits will eat up your commissions. Or the market will go in an unexpected direction and destroy your short positions.
Lucien Hooper, a Wall Street legend, once said: “ I've always been amazed at how much better relaxed long-term investors are at managing their portfolios than high-frequency traders. The relaxed long-term investor is usually more informed and better at understanding. and commissions. And he does not overload his head with unnecessary thoughts . "
3. Remain flexible and open to new ways of investing
There are times when it is best to buy blue chips. There are times when it is best to buy cyclical stocks. There are times when it is best to buy bonds or treasuries. And there are times when it's better to sell everything and sit on the money, waiting for new investment opportunities.
There are no perpetual and / or perfect investments. Any investment is temporary.
However, it should be noted that most of the time the most profitable investments are in stocks. For example: the Standard and Poor's 500 index from the 1950s to the 1980s grew by an average of 12.5% per year. Average inflation in the same period was 4.3%, interest on US government bonds - 4.8%, and on corporate bonds - 5.4%.
4. Buy cheap
Seemingly the most obvious advice. But the most difficult one to execute. When the market rises, many investors start buying. And when it falls, the majority is overcome by pessimism and sales begin. You have to do the opposite: buy during periods of maximum pessimism and sell during periods of maximum optimism.
Going against the crowd is hard, but if you do like everyone else, then the results will be like everyone else's. You cannot beat the market if you move with the market. When you buy with the crowd, you always overpay.
Never follow the crowd.
5. Buy the most undervalued stocks among the highest quality stocks
Invest in quality companies - the largest, with unique technology, with the best team, with a strong market position. During times of market downturns, all stocks fall, but the leading companies have the greatest chances of getting through a tough time. Less powerful companies may be tempted with higher upside, but if they go broke, you lose everything.
6. Focus on value, not trends or forecasts
The stock market and economic growth are not always correlated. A bear market may not necessarily be accompanied by a recession, and a decline in corporate profits may not always lead to a decline in stock prices. You are unlikely to lose if you take a stock that has fundamental value. Buy specific stocks, not trend or forecast.
7. Diversify your portfolio
As careful as you are, you cannot foresee everything. At any time, there can be a natural disaster, a supply disruption, a sudden technological breakthrough at a competitor, or a government ban. One can insure against this only by diversification. Buy not only stocks but also bonds. Invest in the markets of different countries.
8. Do your homework or hire consultants
Do a deep research on paper before investing. In most cases, you buy either future profits or assets. Assets and earnings are two key factors affecting the value of a stock.
If you expect the company to grow and develop, you are buying profits .
If you buy shares in a company that could be an attractive takeover target from larger competitors, you are buying assets .
9. Actively monitor your investments
No bull market lasts forever. No bear market lasts forever. There are no stocks that you can buy and hold forever. The relaxation Lucien Hooper spoke of (see above) is not the same as complacency and complacency.
The market is constantly changing. In just seven years, from 1983 to 1990, 30 companies flew out of the Forture Top 100. Some merged with other companies, others were shredded, acquired by foreign companies, delisted, or simply went out of business.
Remember, no investment is everlasting.
10. Don't panic
If you didn't have time to sell your stock before the market crash, don't do it after. If you choose your stocks well, sooner or later they will recover. The only reason to sell is if you find more attractive papers. If you don't find it, keep what you have.
11. Learn from mistakes
There is only one way to avoid mistakes - not invest at all. And this is the biggest mistake.
Don't be discouraged when you make mistakes. And don't try to recoup by increasing the risks. Determine what you did wrong and don't make that mistake in the future.
12. Remember that beating the market is difficult.
The biggest challenge in the stock market is not to beat the average investor. The real challenge is to beat the professionals who manage banks and investment funds. They need to pay salaries, corporate taxes, keep some of the money in reserve - and because of all this, they need to achieve above average results.
13. An investor who knows all the answers, in fact, does not even know the questions themselves.
Overconfidence in the stock market always leads to disappointment or disaster. Success is not a result; it is a process of constantly seeking answers to new questions .
14. Don't be led by your emotions.
Never buy stocks on emotions. Favorite brand. First place of work. The manufacturer of your first car. For many people, this is reason enough to buy stock. Don't fall for it. Analyze these stocks like any other.
Never invest during an IPO (initial public offering). After being placed, prices usually go down.
Don't buy on someone else's advice. Even the most seasoned investors are often seduced by this temptation, but it rarely ends well.
15. Don't be overly pessimistic.
Healthy skepticism is beneficial, but within certain limits. Crises do happen, sometimes they are prolonged. But over long stretches (50-100 years), optimism still prevails. Excessive caution simply won't make you money.
Templeton has formulated 15 principles of investing:
1. Invest with the expectation of maximum REAL return
Long-term investment should take into account taxes and inflation. By investing in fixed income instruments (bonds), you run the risk of remaining in the red if you do not properly calculate taxes and inflation. $ 100,000 with an average inflation rate of 4% will turn into $ 68,000 in just 10 years.
This means that in a decade you need to grow your portfolio by at least 47% - up to $ 147,000. And this does not include taxes.
2. Don't trade or speculate. Invest.
The stock market is not a casino, but if you trade too often, using options and futures, then the market becomes a casino for you. And, as in any casino, you will lose. Your profits will eat up your commissions. Or the market will go in an unexpected direction and destroy your short positions.
Lucien Hooper, a Wall Street legend, once said: “ I've always been amazed at how much better relaxed long-term investors are at managing their portfolios than high-frequency traders. The relaxed long-term investor is usually more informed and better at understanding. and commissions. And he does not overload his head with unnecessary thoughts . "
3. Remain flexible and open to new ways of investing
There are times when it is best to buy blue chips. There are times when it is best to buy cyclical stocks. There are times when it is best to buy bonds or treasuries. And there are times when it's better to sell everything and sit on the money, waiting for new investment opportunities.
There are no perpetual and / or perfect investments. Any investment is temporary.
However, it should be noted that most of the time the most profitable investments are in stocks. For example: the Standard and Poor's 500 index from the 1950s to the 1980s grew by an average of 12.5% per year. Average inflation in the same period was 4.3%, interest on US government bonds - 4.8%, and on corporate bonds - 5.4%.
4. Buy cheap
Seemingly the most obvious advice. But the most difficult one to execute. When the market rises, many investors start buying. And when it falls, the majority is overcome by pessimism and sales begin. You have to do the opposite: buy during periods of maximum pessimism and sell during periods of maximum optimism.
Going against the crowd is hard, but if you do like everyone else, then the results will be like everyone else's. You cannot beat the market if you move with the market. When you buy with the crowd, you always overpay.
Never follow the crowd.
5. Buy the most undervalued stocks among the highest quality stocks
Invest in quality companies - the largest, with unique technology, with the best team, with a strong market position. During times of market downturns, all stocks fall, but the leading companies have the greatest chances of getting through a tough time. Less powerful companies may be tempted with higher upside, but if they go broke, you lose everything.
6. Focus on value, not trends or forecasts
The stock market and economic growth are not always correlated. A bear market may not necessarily be accompanied by a recession, and a decline in corporate profits may not always lead to a decline in stock prices. You are unlikely to lose if you take a stock that has fundamental value. Buy specific stocks, not trend or forecast.
7. Diversify your portfolio
As careful as you are, you cannot foresee everything. At any time, there can be a natural disaster, a supply disruption, a sudden technological breakthrough at a competitor, or a government ban. One can insure against this only by diversification. Buy not only stocks but also bonds. Invest in the markets of different countries.
8. Do your homework or hire consultants
Do a deep research on paper before investing. In most cases, you buy either future profits or assets. Assets and earnings are two key factors affecting the value of a stock.
If you expect the company to grow and develop, you are buying profits .
If you buy shares in a company that could be an attractive takeover target from larger competitors, you are buying assets .
9. Actively monitor your investments
No bull market lasts forever. No bear market lasts forever. There are no stocks that you can buy and hold forever. The relaxation Lucien Hooper spoke of (see above) is not the same as complacency and complacency.
The market is constantly changing. In just seven years, from 1983 to 1990, 30 companies flew out of the Forture Top 100. Some merged with other companies, others were shredded, acquired by foreign companies, delisted, or simply went out of business.
Remember, no investment is everlasting.
10. Don't panic
If you didn't have time to sell your stock before the market crash, don't do it after. If you choose your stocks well, sooner or later they will recover. The only reason to sell is if you find more attractive papers. If you don't find it, keep what you have.
11. Learn from mistakes
There is only one way to avoid mistakes - not invest at all. And this is the biggest mistake.
Don't be discouraged when you make mistakes. And don't try to recoup by increasing the risks. Determine what you did wrong and don't make that mistake in the future.
12. Remember that beating the market is difficult.
The biggest challenge in the stock market is not to beat the average investor. The real challenge is to beat the professionals who manage banks and investment funds. They need to pay salaries, corporate taxes, keep some of the money in reserve - and because of all this, they need to achieve above average results.
13. An investor who knows all the answers, in fact, does not even know the questions themselves.
Overconfidence in the stock market always leads to disappointment or disaster. Success is not a result; it is a process of constantly seeking answers to new questions .
14. Don't be led by your emotions.
Never buy stocks on emotions. Favorite brand. First place of work. The manufacturer of your first car. For many people, this is reason enough to buy stock. Don't fall for it. Analyze these stocks like any other.
Never invest during an IPO (initial public offering). After being placed, prices usually go down.
Don't buy on someone else's advice. Even the most seasoned investors are often seduced by this temptation, but it rarely ends well.
15. Don't be overly pessimistic.
Healthy skepticism is beneficial, but within certain limits. Crises do happen, sometimes they are prolonged. But over long stretches (50-100 years), optimism still prevails. Excessive caution simply won't make you money.
