"Bull markets are born on pessimism, grow on scepticism, mature on optimism and die on euphoria." That line, from Sir John Templeton, sums up one of the most successful contrarian investors of the 20th century. In Part 5 of Legendary Investors, we look at the man who searched the whole world for bargains long before it was fashionable.
From small-town Tennessee to Oxford
Templeton was born in 1912 in Winchester, Tennessee. He worked his way through Yale during the Depression, graduated near the top of his class and won a Rhodes Scholarship to study law at Oxford. While travelling across Europe and Asia as a young man, he saw how much opportunity existed outside the United States.
The famous 1939 bet
When World War II began in Europe in 1939, fear gripped markets. Templeton borrowed about $10,000 and bought 100 shares of every company on the major US exchanges trading below $1, roughly 100 companies, including some in or near bankruptcy.
His reasoning: war would pull the US economy out of depression, and the most hated, cheapest companies had the most room to recover. Within a few years, most of those positions had made money and he had multiplied his stake several times. It was a textbook case of buying when others were desperate to sell.
A pioneer of global investing
Templeton launched the Templeton Growth Fund in 1954. Unlike most American managers, he searched worldwide for value. In the 1960s he became one of the first major Western investors in Japan, then seen as a low-quality, risky market. Japanese shares were trading at very low valuations relative to earnings, and he made large gains as the economy boomed. Later, when Japan became expensive in the late 1980s, he sold well before its crash.
The fund produced strong long-term returns over several decades. Templeton sold his fund business to Franklin Resources in 1992, creating Franklin Templeton.
The point of maximum pessimism
Templeton's key rule was to buy "at the point of maximum pessimism", when the news is worst and almost everyone has given up. At that moment prices often reflect fear rather than value. He also said, "If you want to have a better performance than the crowd, you must do things differently from the crowd."
Being early or wrong is painful, so he paired contrarian thinking with careful research into whether a business could survive and recover.
Templeton's core rules, simplified
- Search worldwide. More markets mean more bargains and less dependence on one economy.
- Buy value, not trends. Focus on price compared with long-term earnings power.
- Diversify. "The only investors who shouldn't diversify are those who are right 100% of the time."
- Avoid the crowd. When everyone agrees, the price usually already reflects it.
- Do your homework. Contrarian does not mean careless.
- Stay humble and flexible. Admit mistakes and keep learning.
- Don't panic. Selling in a crash locks in the loss.
- Watch the real return. Count taxes and inflation, not just the headline gain.
"This time is different"
Templeton warned that the four most dangerous words in investing are "this time is different." Every bubble arrives with a story explaining why old rules no longer apply. The technology bubble of 2000 was one such case, and Templeton reportedly profited by shorting overpriced internet stocks around the time lock-up periods expired.
Life beyond money
Templeton moved to the Bahamas in the 1960s, partly to get away from Wall Street's noise. He was deeply interested in spirituality and science and created the Templeton Prize in 1972. He was knighted in 1987 and gave much of his fortune to the John Templeton Foundation. He died in 2008.
How to use his ideas today
- Use market crashes as a time to review your watchlist, not to sell in panic.
- Consider some international exposure, for example through a global index fund, so your portfolio is not tied to one country.
- Be suspicious of investments that everyone is excited about, especially when prices have risen fast.
- Write down why you are buying something, so you can stay calm when headlines turn negative.
The takeaway
Templeton proved that courage, patience and a world map can be powerful tools. Buying when others are fearful is easy to say and hard to do, which is exactly why it can work.
In Part 6, we meet Peter Lynch, who showed that everyday shoppers can spot great stocks before Wall Street does.
Legendary Investors: the full series
- Part 1: Benjamin Graham
- Part 2: Philip Fisher
- Part 3: Warren Buffett
- Part 4: Charlie Munger
- Part 5: John Templeton (you are here)
- Part 6: Peter Lynch
- Part 7: John Bogle
- Part 8: George Soros
- Part 9: Ray Dalio
- Part 10: Jim Simons
This series is for education only and is not investment advice. Returns, dates and figures are commonly cited historical values and may vary slightly between sources. Past performance does not guarantee future results.
