Hello, and welcome to Investor’s Bookshelf.Today’s book is titled Templeton’s Way with Money: Strategies and Philosophy of a Legendary Investor.
Sir John Templeton is revered as a master in the global investment world. Forbes magazine once called him one of the most successful fund managers in history. Just how successful was he? If you had entrusted him with $10,000 in 1940, fifty years later that sum would have grown to $55 million.
How did Templeton achieve this? Throughout his seventy-year investment career, he consistently adhered to a distinctive method. This method can be described as an open secret: well known in name, but difficult to apply in practice. It is the famous contrarian investment strategy.
So, what is contrarian investing? Let me give you a simple example. After the September 11 terrorist attacks, panic swept the world. The U.S. stock market was shut down for several days, and when it reopened on September 17, share prices plunged. Many investors rushed to sell at any price. Yet at that very moment, Templeton began buying airline stocks, betting that the government would not allow the airline industry to collapse. Six months later, some of the companies he bought had risen as much as 72%. You see, acting against the crowd in times of extreme pessimism—that is contrarian investing.
It’s important to note that contrarian investing rests on a central idea known as the point of maximum pessimism. Templeton explained it vividly: “The time of maximum pessimism is the best time to buy. The time of maximum optimism is the best time to sell.” In other words, “wait until the ninety-ninth person out of a hundred has given up.” That is the heart of contrarian investing.
The book was written by Templeton’s great-niece and her husband, who had unique access to his life and thinking. It offers detailed accounts of how he applied contrarian investing to achieve success, with numerous classic case studies. From these examples, you can learn the underlying logic of contrarian investing, how to identify the point of maximum pessimism in market sentiment, and how to muster the courage to buy when others despair. In this sense, the book is both a biography of Sir John Templeton and a lively, practical textbook on contrarian investing.
In the rest of this session, I’ll walk you through the entire method behind Templeton’s extraordinary record. I’ll divide it into three key themes: the first is bargain-hunter in stocks, the second is global investing, and the third is the courage to sell short.
The First Keyword
Let us first look at the first keyword: bargain-hunter in stocks.
If there is one phrase mentioned most frequently in this book, it is “low-priced stocks.” Here, low-priced does not simply refer to absolute price levels; it is a relative concept, meaning stocks whose market prices are far below their intrinsic value. Templeton’s long-term success in investing came precisely from seizing opportunities in such low-priced stocks. For this reason, he came to be vividly known as the “hunter of bargain stocks.” How did this distinctive investment style take shape? The book explains that his style was deeply influenced by childhood experiences.
In the 1920s, when John Templeton was not yet ten years old, his father, Harvey Templeton, was a lawyer whose office was on the second floor beside the town square of Winchester. In that square, auctions of farms were often held. Whenever no one placed a bid, Harvey would quickly stride down from his office to make an offer. In this way, he often acquired farmland at extraordinarily low prices. By the mid-1920s, he already owned six properties. You may wonder: why would no one bid at these farm auctions? Was it simply poor judgment by the townspeople? Not really. Foreclosure auctions often ended with no bids—this was not unusual. Behind it were key reasons such as information asymmetry between buyers and sellers. Moreover, such auctions were highly sensitive to participants’ emotions. For instance, during times of economic hardship, pessimism and gloom made it quite possible that no one would bid. Thus, foreclosure auctions frequently offered prepared buyers the chance to pick up bargains.
To put it simply, a valuable farm could be purchased at an unbelievably low price simply because no one else bid. This left a deep impression on young Templeton, one that influenced him throughout his life. Later, as an adult, he consistently carried this “buy cheap” mindset into his own life. For example, shortly after he married and moved to New York, he and his wife scoured for bargains, managing to furnish their five-room apartment with just $25. What did $25 mean at the time? Roughly the equivalent of over 2,000 RMB today.
Templeton not only applied this mindset to everyday life but also to buying stocks. In 1939, when the U.S. economy was emerging from the Great Depression and beginning to recover, Templeton believed that this recovery would lift all industries and represented a great investment opportunity. However, he had little money at hand. So he borrowed from his former employer, with the plan of buying every stock trading below $1 on the U.S. market. These were extremely cheap, virtually worthless stocks. Why buy the very lowest-priced ones? Templeton reasoned that in an economic recovery, the weakest and least efficient companies would experience the most dramatic rebounds—their prices had the greatest elasticity. His former employer supported his idea and lent him $10,000. Templeton then purchased shares in every company trading below $1, a total of 104 stocks. His prediction proved correct. Within one year, he had repaid the entire loan. In the following years, he gradually sold the shares, turning his initial $10,000 into $40,000—a threefold gain. When the dust settled, only four of the 104 stocks failed.
This early success gave Templeton a splendid start to his long career. It seems simple, doesn’t it? But behind this simple operation lay a method that was anything but simple. Without grasping its essentials, one could easily go astray. Let’s examine the key points.
First point: judging the broad trend. By 1939, the U.S. economy had already risen from the depths of the Depression. Roosevelt’s New Deal had begun, and though difficulties remained, the momentum of recovery was unstoppable.
Second point: the focus on “low-priced.” As mentioned earlier, low-priced in this book does not merely mean cheap in absolute terms, but rather deeply undervalued relative to intrinsic worth. Why then, in this case, did Templeton not calculate intrinsic values with complex methods, but instead use a single, extremely simple criterion—stocks under $1? Because, after the Depression, the public had endured long years of extreme pessimism. Stock prices already fully reflected this gloom. At such times, simply picking the very cheapest stocks could yield the greatest price elasticity once the economy and confidence began to recover.
Let’s consider a specific case. Among the stocks Templeton bought, one became a classic example due to its astonishing returns: Missouri Pacific Railroad Company. Originally issued at $100 per share, by 1939 its price had collapsed to $0.125 as the company teetered on bankruptcy. A few years later, the stock rose from $0.125 to $5, a 39-fold increase. In contrast, another railroad company listed at the time—financially much stronger and profitable for fifty consecutive years—produced far smaller gains.
A more detailed comparison helps illustrate this. Suppose we divided U.S. companies in the 1940 market into two groups: Group A, firms that had frequently lost money before 1940 (the so-called “bad” companies); and Group B, firms that had never lost money before 1940 (the “good” companies). Five years later, the average return of Group A was 1,085%, while Group B’s was only 11%—a difference of nearly 100 times. Of course, the book notes that the sample is not comprehensive, so the 100-fold figure may not be fully rigorous. Nevertheless, the statistic reveals an important principle: at times of extreme pessimism, investing in “bad” companies may yield far higher returns than investing in “good” companies. This is because supposedly bad firms are more vulnerable to pessimism-driven sell-offs, making their prices unbelievably cheap.
Third point: holding period. Templeton did not hold these stocks for just a few months. His average holding period was four years, giving prices ample time to recover. Notably, four years was also the average holding period of his entire career, showing that contrarian investing requires patience and does not suit short-term speculation.
Fourth point: sufficient diversification. Even with just $10,000 of capital, Templeton spread his investments across 104 stocks, averaging less than $100 per stock. This wide diversification seems at odds with value investing’s principle of concentration. Why did he do this? Because, in this case, he used only one criterion—stocks under $1—without conducting deep research on fundamentals. Diversification was essential to control risk; one must never put all eggs in one basket. Indeed, years later, 37 of those 104 companies went bankrupt. But by then, Templeton had long since sold his holdings, so it did not affect him.
That concludes our discussion of the first keyword: bargain-hunter in stocks. We can see that Templeton’s philosophy of “buying cheap” was inspired in childhood, and he carried this mindset throughout his life—whether furnishing a home or investing in the financial markets.
The Second Keyword
Now let us move on to today’s second keyword: global investing.
In November 1954, Templeton launched the Templeton Growth Fund, pioneering the practice of global investment. Forbes magazine honored him as the “Father of Global Investing.” From today’s perspective, global investing may seem perfectly normal, but at the time it was groundbreaking. Back then, people generally believed that the United States was the most important country, that the U.S. stock market was the best investment market, and that there was no need to look abroad for opportunities.
Templeton’s willingness to venture into global investing in such a conservative era was closely tied to the influence of his mother. At that time, a woman with such a spirit of adventure and exploration was rare. When Templeton was twelve years old, his mother took him and his brother on an expedition, starting from the northeastern United States. They camped along the way, cooked their own meals, and visited sites and museums that interested them. This journey left a lasting impression on Templeton. From a young age, he came to believe that culture and geography knew no boundaries.
Beyond this influence from his mother, global investing fit seamlessly with Templeton’s bargain-hunting method.
- First, global investing greatly expanded the pool of potential bargains. Limiting oneself to the United States meant a selection of only about 3,000 stocks. Expanding to the global stage, however, provided at least 20,000 options.
- Second, at any given time, different countries may present contrasting prospects and collective moods, sometimes moving in cycles that offset one another. If one seeks opportunities born from pessimism and despair, comparing across nations and shifting capital accordingly can yield far more fruitful results.
- Third, bargain investing often involves enduring further declines after buying. In such cases, diversification is critical for managing risk. Global investing naturally allows for broader diversification.
That is the theoretical side. Let us now examine a practical case: how Templeton made a fortune in the Japanese stock market.
After World War II, Japan, as a defeated nation, was left in ruins. Its economy hit rock bottom and then began a slow recovery amidst pervasive gloom. By the 1950s, Japan was still regarded as a producer of cheap, low-end goods, unworthy of global attention. But long before the masses noticed Japan, Templeton had already turned his gaze there. In the early 1950s, he hired an English-speaking broker in Japan and invested his personal savings into Japanese stocks.
By the 1960s, Japan’s economy had entered a high-growth phase. In the early years of that decade, Japan’s average annual growth rate was 10%, compared with about 4% in the United States. Yet stock valuations told a different story: the average price-to-earnings ratio (P/E) in Japan was about 4, while in the United States it was about 19.5. A lower P/E means cheaper stocks. In other words, Japan’s growth rate was 2.5 times that of the U.S., yet many Japanese stocks were priced at an 80% discount relative to American ones. Why were they so cheap? Because the world still held a deep prejudice: Japan was a defeated country, capable only of producing trinkets, and would never catch up with America. This mainstream bias created a massive field of bargain stocks—the exact opportunities Templeton dreamed of.
In the early 1960s, Japan lifted restrictions on foreign investment. Templeton promptly invested his fund’s capital into the Japanese market. Over the following three decades, Japan’s stock index skyrocketed: the Tokyo Stock Exchange’s TOPIX rose 36-fold. Templeton’s fund reaped tremendous profits from this. By the late 1980s, as the Japanese market entered its final frenzy, Templeton withdrew most of his investments there. Why? Because with the influx of international capital, valuations had soared. Comparing with other markets, Templeton found better bargains in Canada, Australia, and the U.S. This reflected one of his key principles for selling: when should you sell a stock? Templeton’s answer was simple—when you find a better one to replace it. This highlights the great advantage of global investing. If one had only invested in the U.S. market during the same period, the returns would have been far lower.
Consider some numbers. Suppose you invested $10,000 in the Templeton Growth Fund at its inception in 1954. By 1992, that $10,000 would have grown to more than $2 million. The fund’s strategy combined bargain-hunting with global investing. By contrast, if during the same period you had invested only in the U.S. market, following the S&P 500’s performance, your $10,000 would have grown to merely $100,000. This comparison shows the immense power of combining bargain-hunting with global investing.
In fact, beyond Japan, Templeton applied this approach in many countries—Korea, Mexico, even China—seizing a wealth of opportunities and generating astonishing returns.
That concludes today’s second keyword: global investing.
The Third Keyword
Now let us turn to the third keyword: the courage to sell short.
First, let me explain what short selling means with a simple example. Suppose there is a stock, Company A, trading at $100 per share. After researching the company, you conclude that the stock is severely overvalued and that its fair value should be around $30. You then borrow 10,000 shares of Company A from someone who already owns them. You don’t need to find that person yourself—this process is arranged through a brokerage firm, for a fee. Having borrowed the shares, you sell them on the market at $100 each, receiving $1,000,000 in cash. Six months later, the stock falls to $30. You then repurchase 10,000 shares for $300,000 and return them to the lender. The transaction is complete. Do you see what happened? You first sold the stock for $1,000,000, later bought it back for $300,000, and pocketed the $700,000 difference (minus fees) as your profit. The essence of short selling lies in predicting that stock prices will fall—the steeper the drop, the greater the profit.
So how did Templeton use short selling brilliantly to make money?
Let us rewind to the end of 1999, the peak of the Nasdaq internet stock frenzy. Investors were utterly euphoric about internet companies. How crazy was it? At the time, entrepreneurs were being advised to put an “e” in front of their company name, which alone could send valuations soaring. Traditional value investors such as Warren Buffett, who refused to buy tech stocks, were ridiculed by the market. In December 1999, Barron’s, the leading financial magazine, ran a cover story with Buffett’s photo and the headline: “What’s Wrong, Warren?”—mocking him as outdated in the new era.
By December 1999, the average P/E ratio of Nasdaq stocks had reached an astonishing 151.7 times—like a runaway train. And at that very moment of peak euphoria, Templeton prepared to act. This time, he intended to short a large number of tech stocks.
One must note, however, that it is extremely difficult to predict the extent of collective euphoria. Shorting stocks that keep rising is very risky. How did Templeton manage this? He found an excellent entry point. Under Nasdaq rules, after an IPO, company executives were subject to a six-month lock-up period during which they could not sell their shares. Once that period expired, however, they were free to sell. Templeton reasoned that since many tech stocks were wildly overvalued, once insiders were allowed to sell, they would rush to cash out. That wave of selling could trigger panic and further declines. Based on this insight, he devised a carefully thought-out short-selling strategy.
First, Templeton identified tech companies whose stock prices had risen more than threefold from their IPO price. Eleven days before the lock-up expired, he began shorting those stocks, positioning himself for the sell-off he expected from insiders. He targeted 84 such companies, shorting $2.2 million worth of each, for a total position of $185 million.
Soon after he began shorting, in the second week of March 2000—right after the Nasdaq hit its all-time high of 5,132 points—the market collapsed. And that was only the beginning. Within less than a year, the Nasdaq had lost half its value. Many of the stocks Templeton had shorted plummeted more than 95%. Yes, you read that correctly: down 95%. Companies that had once been adored by investors became almost worthless in just months.
This was, without question, another classic contrarian battle. Yet it is important to emphasize once more: short selling carries enormous risks. Templeton knew this, so he established strict risk-control rules in advance.
- First, he set an upper limit. If a shorted stock rose beyond that threshold instead of falling, he would immediately buy back shares to close the position, limiting losses.
- Second, he defined two exit conditions for profitable trades. If either was met, he would close the short. The first condition was when the stock fell by 95%—time to take profits, as the trade had already delivered extraordinary gains. The second condition was if the stock’s P/E ratio, based on a full year of earnings, dropped below 30. His original rationale for shorting was overvaluation; if the P/E fell under 30, that rationale no longer held, and the trade had to be closed.
That is the third keyword: the courage to sell short. Short selling is often regarded as a high-risk maneuver that most value investors avoid. Yet hidden within it are rich opportunities. By enforcing strict risk controls, Templeton demonstrated what a well-executed short sale looks like.
Summary
That concludes the discussion of this book. Let us now summarize today’s content. We covered three key ideas:
The first keyword is the bargain-hunter in stocks.
The essence of Templeton’s contrarian method lies in buying at low prices. He generally used two quantitative standards to judge whether a stock was cheap enough. The first: its price should ideally be 80% below intrinsic value—that is, something worth $10 could be bought for $2. Such bargains are rare, but the volatile emotions of the financial markets provide many such opportunities. The second: the forward price-to-earnings ratio, calculated five years into the future, should be no higher than 5. Of course, predicting five years ahead is nearly impossible with precision, but it forces the investor to focus on long-term business performance rather than short-term noise.
The second keyword is global investing.
If we liken bargain-hunting to fishing for a rare kind of fish, then the more ponds you have access to, the greater your chances. This is the rationale behind global investing. In the 1950s, Templeton was among the first to expand beyond U.S. markets. By applying his bargain-hunting philosophy globally, he found extraordinary opportunities in Japan, Korea, Mexico, China, and elsewhere—contributions that powered his remarkable lifetime record.
The third keyword is the courage to sell short.
Templeton was adventurous and broad-minded, willing to profit even through methods most investors avoid. At the peak of the dot-com bubble between 1999 and 2000, he carefully shorted overvalued internet stocks, anticipating the collapse that soon followed. By doing so, he made enormous profits.
Finally, let us consider the place of Templeton’s contrarian investing in the broader field of investment. He was a master in this domain. In a broad sense, his approach is a form of value investing, but it differs markedly from the Buffett style. The core of value investing, in one sentence, is to buy a company’s stock at a price well below intrinsic value. To achieve this requires three rare abilities:
- Valuing companies in the present,
- Assessing their future competitive strength, and
- Waiting for opportunities when prices fall far below intrinsic worth.
The Buffett style focuses on the second ability: selecting a handful of outstanding companies with enduring competitive advantages—such as Coca-Cola or See’s Candies—and buying them heavily when fairly priced. This strategy involves highly concentrated holdings, often just a few dozen stocks, and requires deep, detailed research.
Templeton’s contrarian style, on the other hand, emphasizes the third ability: seizing the point of maximum pessimism. When collective sentiment is darkest, the market offers its richest bargains. This approach favors breadth over depth, often requiring dozens or even hundreds of holdings. For example, if you look only in the U.S., such moments of extreme pessimism might arise once every ten years. But if you search globally, you might find one every three years.
Put simply: Buffett-style value investing centers on analyzing company fundamentals to find great businesses; Templeton-style contrarian investing focuses on gauging mass psychology and finding the best opportunities to buy cheap. This is the fundamental difference between the two approaches.
One of the authors of this book is Templeton’s great-niece, which gave access to an abundance of firsthand material. As a result, the book vividly presents the essence of Templeton’s contrarian investing. Still, it has a small shortcoming: it recounts only Templeton’s successes. Yet every great investor also has failures—Templeton’s funds, for instance, underperformed for several years in the 1970s. The book does not discuss these failures or how he learned from them. For anyone studying contrarian investing, it is important to remember that while the method works over the long run, in the short run it often means enduring painful price swings. One must be mentally prepared.
Let us close with one of Templeton’s famous sayings:
Bull markets are born in pessimism, grow in skepticism, mature in optimism, and die in euphoria. The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell.
*Don’t have time to read full-length business books? We’ve got you covered.
Every day, we distill one powerful book on business, economics, or investing — so you can learn the key ideas, without spending hours flipping pages.