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Become a master "bargain hunter" while the JSE is under pressure

by , 30 June 2015

Have you heard of legendary investor and mutual fund pioneer Sir John Templeton?

If you haven't, let me tell you a bit about him.

John Templeton became a billionaire by pioneering the use of globally diversified mutual funds.

He was known for his investment strategy of buying stocks in times when there was huge pessimism in the markets.

He was called the "bargain hunter" for his tremendous ability to pick the right stocks at very low price while other investors stayed away.

John Templeton believed that the best bargains could only be found "at the point of maximum pessimism".

I bring up this legendary investor today because the JSE is in the middle of a tough downtrend.

The JSE All Share Index fell from its high of 55.188 in April to 52.856 levels today. Consequently, investors have become bearish and this has impacted stock prices.

But this isn't all bad news. You see, just like John Templeton's "bargain hunter" investment strategy, you too, could find the next bargain while pessimism surrounds the JSE right now.

How "bargain hunting" paid-off with a 650% gain

John Templeton made a legendary move at the start of World War II.

In September 1939 World War II broke out. And John Templeton was sitting in his office at Rockefeller Plaza in Manhattan when the news broke out that Hitler had invaded Poland.

He was no millionaire at that time. So he borrowed money to buy 100 shares each in 104 companies selling at $1 per share or less, including 34 companies that were in bankruptcy.

A few years later his investments paid off. He made a good profit after paying off his debt. Amazingly only 4 out of 100 turned out to be worthless.

Again in 1978, he started investing in Ford (F:NYSE) when it looked like it was headed for bankruptcy. Its shares were at around $2.

He even kept buying Ford's shares as they slid to $1. By 1987, Ford had zoomed to $15 – a 650% gain!

You can become your very own "bargain hunter"

The book Investing the Templeton Way, describes the three key factors of his strategy for purchasing bargain shares in the wake of a crisis.
  1. The bargain hunter searches for stocks that have fallen in price and are priced too low relative to their real value.
  2. The bargain hunter searches for situations in which a large misconception has driven stock prices down. Basically, bargain hunters look for stocks that have become mispriced as a result of temporary changes in the near-term expectations of sellers.
  3. The bargain hunter always investigates stocks when the outlook is worst according to the market, not best.

So this sums up Templeton's successful investing philosophy – which essentially thrives on pessimism.  So remember when the markets are down, you can use the "bargain hunter" to find the best opportunities at cheap prices. 

Become a master "bargain hunter" while the JSE is under pressure
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