Meet Sir John Templeton
a celebrated value investor, best known for finding hidden gems in the global market, Sir John Templeton introduced the idea of international investing to US investors.
as a fund manager, he started the Templeton Growth Fund in 1954. the fund went on to generate an average annual return of 15% for 38 years. and in 1992, he sold the firm to the Franklin Group.
after selling his firm, Templeton dedicated his time to philanthropy. but the retired fund manager saw an opportunity to make money during the turn of the century and entered the markets again.
excessive speculation in technology companies in the late ’90s had led to frothy valuations. Nasdaq, an index that tracks the movement of technology firms, rose from around 1,000 points in 1995 to over 5,000 in 2000.
the market euphoria was also an opportune time for one to short stocks.
short-selling involves borrowing shares, selling them in the market, and then hoping that they’ll be available at a lower price in the future so you can buy them back. this means the steeper the price, the larger will the profit be in such a position. but if the thesis doesn’t play out and the stock price continues to rise, one could theoretically incur an infinite loss on their position.
Templeton, known for finding value stocks and holding on to them over the long term, decided to bet against the market euphoria.
back in 1939, when there was panic in the market as the Second World War was about to break, Templeton invested $100 in US stocks that were trading below $1 apiece. five years later, of the 104 companies he had invested in, he made a profit in 100 and roughly made five times the money he had invested on his initial investment.
Templeton, who truly embraced the idea of diversification and showed its importance while investing in stocks, took the same approach with shorting. he shorted 84 Nasdaq stocks, taking positions averaging $2.2 million each.
"this is the only time in my 88 years when I saw technology stocks go to 100 times earnings; or, when there were no earnings, 20 times sales," Templeton said.
he took advantage of what he termed as “temporary insanity.”