The TEN Principles of John Templeton’s Investment

I have read a good article about the ten investment principles adopted by John Templeton in a chinese newspaper, The Oriental Daily. So, I have summarized it and translated to english and post here. You all can read and think if these principles are benefit to yourself.

1) Leave the market when everyone is looking good at the market
From experience, in a risky investment market, it is always minority earning money, and majority is just enjoying the process or losing money. Thus, when people look good, we leave the market; when people look bad on the market, we enter the market.

2) Do not put all eggs in one basket
Even professional analysts may judge wrongly. So, if you invest all your money into a single stock, you may lose all your money if anything bad happens on that particular stock. By diversification, we invest our money into several stocks, if one of the stocks performs badly, we still have most of our money left.

3) Choose emerging market if you want super high return
Like human, the fastest growth happens during baby and teenage stage, but not adult stage. So, investing in emerging markets, we may obtain super high return from the fast growth of economy in emerging countries.

4) Main factor in stock selection – Understand the management team
Everybody has different characteristics and attitude. To make a corporate to be successful, management team is playing the most important role. We should understand how they manage the corporate and select those corporate with a good management team.

5) Select stock with FELT
When selecting stock, we should justify if the stock price is FAIR, the market is EFFICIENT, the stock is LIQUID, and the corporate annual report is TRANSPARENT.

6) Investment opportunity is always available during crisis
In the final stage of crisis, normally markets have been dropped quite a lot, and there are stocks undervalued. By having many cheap stocks and undervalued stocks, there are a lot of opportunities for us to invest.

7) Investment decision guidance – Net Assets
Net asset is the difference between total assets and total liabilities of a corporate, then divided by the number of share. If net asset is higher than the current share price, this share is undervalued. If the net asset is lower than the current share price, this share is overvalued.

8) Understand the game rules and regulations before entering a market
There are different policies, rules and regulations in different markets and countries. Before we invest in a market, we should understand the rules and regulations in the markets, especially those emerging markets which has less complete law and rules to protect the investors.

9) Gold is always hidden under the sands
Do not just look at the surface when we invest. We should study the market, find out the potential corporate and invest in these potential corporations.

10) Technical analysis is not the most important method
Technical analysis is just a part of all the analysis methods. Technical analysis is a supplement after we analyze on the politics, capital and fundamental aspects. Investment is on a particular stock, so we should analyze the fundamental of the corporate before we invest.