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John Templeton: Basic mistakes made by young investors

John Templeton: Basic mistakes made by young investors

Monday 08, 06 2020
John Templeton is known as the successful global sale-off goods hunter. His motto is “Time changes things and makes them better”.

Sir John Templeton (29th November 1912 – 8th July 2008) is one of the most successful investors of all time. His fortune came when he became the true pioneer of global diversification mutual funds, including the Templeton World Fund founded in 1978, which gained a yearly average revenue ratio of approximately 14% between 1954 and 2004, which was higher than the 11% of S&P.

During his time, John Templeton was born in a poor family in Tennesee, and thanks to his scholarships, he was able to pursue his economic study at Yale University and graduate at the top of his class in 1934. Then, he continued his education in Oxford thanks to the Rhodes Scholar scholarship and get a Master's Degree in Law in 1936. Returning to America, he went to New York to become a probationer of Fenner & Beane, one of the predecessors of Merrill Lynch.

5 years later, he established his first investment management firm named Templeton – Dobbro & Vance, in the depths of the Great Depression of 1937. This firm earned its fair share of success, with its assets reached 300 million USD with 8 mutual funds under its management. The company was later rebranded to Templeton Damroth and sold in 1968 as he started over with his Templeton Growth Fund headquartered in Nassau, Bahamas.
Templeton carried out its strategy of avoiding Wall Street by focusing mainly on the British and Japanese markets, which made him a billionaire leading the global investment trend. Thanks to his in-depth researches on markets, his time calculation and planning were flawless.

At the beginning of the technology industry stocks and the Internet boom in the 1990s, Templeton earned himself a remarkable position on these markets, giving him his full of wealth. His motto was “Time changes things and makes them better”. This can be applied to investment as well, as mistakes would be acceptable when you first enter the market, yet you must also gradually learn and devote efforts to better your investment and generate profit.

In the next 25 years, Templeton created some of the biggest and most successful international investment funds and sold those with the Templeton name in 1993 to the Franklin Group Corporations. In 1999, the Money Magazine voted him “the greatest investment stocks picker of the century”. Templeton was also knighted by Queen Elizabeth II due to his achievements.

After his retirement, Templeton became a remarkably active charity activist in the world through the John Templeton Foundation, which has supported multiple psychological and scientific research. Even though he spent approximately 40 million dollars on charity funds each year, he was still very devoted to his innate gift of "research on securities investment".

Being one of the top investors who went against the trend at the beginning of the XX, John Templeton was considered by the investment industry “the one who purchased stocks at the bottom of the Great Depression and sold them at the beginning of the Internet boom, with countless other successful investments between the two periods”.

According to him, investment is actual science and simultaneously an art. However, there is a common thing better excellent traders, which is the fact that they manage to avoid various mistakes, a small one of which may be able to sabotage a skillfully and well-operating “construction”. Young investors entering the market tend to make the following mistakes and if they manage to fix them, success will gradually arrive.

Hesitating to cut losses

This is the first common mistake. Younger investors tend to be stubborn and refuse to withdraw their capital as soon as losses appear. It is ill-advised to be patient with losing trades, and the key is to decisively cut losses to move forward.

It is easy for investors to think that the market is the one that is making mistakes. However, they must realize that the market is always right. You may come across excuses such as “this stock has dropped too much, so it should not drop anymore!”, which have been proved wrong by the practice.

One of the reasons that inexperienced investors hesitate to cut losses is that they are afraid to admit they have been defeated. Nevertheless, they must get over this mentality, as an early withdrawal may sometimes be the best option as it helps you lose only 5% instead of 50%.

John Templeton: Basic mistakes made by young investors

Immature profit-taking

This is a very basic error. When an investment starts to go well, the young traders tend to be too hasty and therefore receive only a small return while ignoring the big waves, causing them to get in and out continuously and sometimes to reach the loss threshold in the short term. Investors need to be patient. Of course, holding a small profit is a very natural reflex for any investor.

Focusing too much on a stock

Another fundamental mistake that young investors often make is the love of centralized and all-in deals with the idea of getting rich quickly by focusing on a stock. This may cause you to lose all your money in a moment without understanding anything.

Centralized trading usually means that all news is included in the price. The mood can be reversed and inexperienced investors never act fast enough, and they tend to stop at the worst possible moment, lose all the money they have earned, and claim that the "game" has been manipulated.

Mastering your analysis

Young investors should ask themselves the following 4 questions before investing:

  • How many people have heard this news before you heard it? If many people have known about it before you do, this news has been too late and the price has already been high.

  • How long has this news spread before it reaches your ears?

  • Who told you this news? The company management or friends?

  • Is that news true? Normally, inside information is not disclosed.

It is important to eliminate the thought that "Securities investment is merely a gamble".

He said up to 80% of young investors always buy stocks at the highest price. The reason is simply that they do not know when to buy and only perform this based on "leaked" rumors. Only a few investors know how to choose when to buy at low prices. Therefore, up to 80% of people suffer losses and only about 20% of people make a profit. Investing accurately means getting rich while investing in a gambling manner will make you run out of money.

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