Maximum pessimism - Where great investment bargains hide
Joshua Benton, Editor of Real Wealth loves looking at the strategies of the investment greats.
Earlier this week I was having a cup of coffee with Joshua. He started telling me about a legendary investment move made by one of the greatest investors of all time, Sir John Templeton.
It sounded more like legend than truth.
But in the end, when Joshua showed me how to apply the strategy behind this investment move, I realised that truth is often what legends are made of...
So what's this legendary investment move?
"Maximum pessimism" – Where great investment bargains hide out
Joshua was telling me that Sir John Templeton borrowed $10,000 to buy shares in every company trading on the NYSE for under $1.
A few years later his investment paid off. He made a good profit after paying off his debts. Amazingly only 4 out of 100 shares turned out to be worthless.
From this ‘experiment', Templeton refined his own investing approach, which never failed to deliver outstanding profits.
In fact, he was so successful that every $10,000 invested with him in 1954 was worth more than $2 million in 1992.
So what does this have to do with you and maximum pessimism?
Well, many investors are pessimistic about the JSE and so stocks have fallen drastically.
That's why now's the perfect time to use Sir John Templeton investment strategy to pick the best bargains.
Since January this year, the market, the economy and the rand have been battered by rumours.
So you’ve probably been right worrying about your shares. But you’re not the only one. You see, many investors are scared of the markets right now. They don’t know whether to sell their shares or wait out the rough ride?
But Joshua tells me that panicking is the worst thing you can do. You see, there’s a silver lining to share prices crashing.
Why? Because once panicked investors give up and sell everything, the crash stops and shares hit rock bottom. And when that happens, you should be well-prepared to scoop up the hottest companies trading at bargain prices
Sir John Templeton’s bargain-hunting secrets to successful investing
You must search for stocks that have fallen in price and are priced too low relative to their real value.
You must exploit situations in which a large misconception drove stock prices down. Basically, look for stocks that have become mispriced as a result of temporary changes in the near-term expectations of sellers.
You must always investigate stocks when the outlook is worst according to the market, not best.