Investment Guru Sir John Templeton's 16 Rules For Investment Success

john templeton

Photo: Franklin Templeton

As an investor, one of your New Year’s resolutions may be to polish up on the investment wisdom of our elders.The famous British investment guru Sir John Templeton has 16 Rules For Investment Success, his best tips on what investors need to keep in mind if they’re going to generate positive returns.

His lessons are the end result of a lifetime of knowledge, and include advice on stock selection, going against market sentiment, keeping your cool, and putting investing in perspective.

These words of wisdom provide a solid foundation for success for new investors and an invaluable supplement to existing investors’ knowledge of the market.

1. Invest for maximum total real return

Templeton advises investors to be aware of how taxes and inflation erode returns and to avoid putting too much into fixed-income securities, which often fail to retain the purchasing power of the dollars spent to obtain them.


2. Invest – don't trade or speculate

This tidbit echoes the words of Jack Bogle to investors: get out of the casino. Templeton warns that over-action can eat into potential profits and eventually results in steady losses.


3. Remain flexible and open-minded about types of investment

No one investment vehicle, whether it's bonds, stocks, or futures, works best all the time. That being said, Templeton notes that the S&P 500 has 'outperformed inflation, Treasury bills, and corporate bonds in every decade except the '70s.'


4. Buy low

While this advice might seem obvious, it often means that you'll have to go against the crowd. When equities are popular and in demand, their prices are generally higher. Opportunities to buy low usually only come when when people are pessimistic about the market's performance.


5. When buying stocks, search for bargains among quality stocks

Templeton advocates identifying sales leaders, technological leaders, and trusted brands when selecting stocks to ensure a company is well-positioned and well-rounded before purchasing its stock.


6. Buy value, not market trends or the economic outlook

Templeton emphasises that individual stocks determine the market and not the other way around. The market can disconnect with economic reality - something we're well aware of in the present day, when equities have outperformed the economy at large.


7. Diversify. In stocks and bonds, as in much else, there is safety in numbers

There's a few advantages to portfolio diversification: you're less likely to endure a major loss due to a freak event that devastates one company, and you also have a larger selection of investment vehicles from which to choose.


8. Do your homework or hire wise experts to help you

Sir John insists that you must be aware of what you're buying. In the case of stocks, you are either buying earnings (if you expect growth) or assets (if you expect an acquisition). He warns that there are less opportunities to identify acquisition targets due to corporate raiders.


9. Aggressively monitor your investments

Templeton notes that 'there are no stocks that you can buy and forget.' Markets are in a state of perpetual flux, and change instantaneously. If you're not aware of the changes, you're probably losing money.


10. Don't panic

Even if everyone around you is selling, sometimes the best idea is to take a breath and hold on to your portfolio. In the event of a sell-off, only divest if you have identified more attractive stocks to pick up.


11. Learn from your mistakes

The stock market is a lot like university: it can cost a lot of money to learn a few lessons. So don't make the same mistakes twice. Learn from them, and they'll turn into profit-making opportunities the next time.


12. Begin with a prayer

Templeton believes this helps a person clear his or her mind and make fewer errors during a trading session or in stock selection.


13. Outperforming the market is a difficult task

This is one of Templeton's depressing rules; in effect, it's a reality check. The largest hedge funds produce some extremely volatile returns from year to year, and some have produced negative returns. And those are the experts!


14. An investor who has all the answers doesn't even understand all the questions

In biblical terms, pride comes before the fall. Likewise, overconfidence or certainty in one's investment style or knowledge of the market will inevitably end in failure.


15. There's no free lunch

This is Templeton's list of 'don'ts': Never invest on sentiment, on a tip, or on an IPO just to 'save' commission.


16. Do not be fearful or negative too often

While there have been plenty of bumps along the road, Templeton acknowledges that for '100 years optimists have carried the day in U.S. stocks.' In his opinion, globalization is bullish for equities, and he thinks stocks will continue to 'go up...and up...and up.'


For more advice, you can't go wrong reading any of these:

NOW WATCH: Money & Markets videos

Want to read a more in-depth view on the trends influencing Australian business and the global economy? BI / Research is designed to help executives and industry leaders understand the major challenges and opportunities for industry, technology, strategy and the economy in the future. Sign up for free at