Invest Significantly at the Maximum Point of Pessimism 181dollars, you begin to see 20 - or 30 - cent dollars. And therein lies
the real value brought about during periods of market pessimism:
Owning stocks actually becomes a less risky proposition. Very few
people fi nd comfort in distressed markets, and owning stocks is
seen as being more speculative. This viewpoint only confi rms the
backwardness with which many investors continue to pursue invest-
ing. The question that has yet to be answered is “ How is it that buy-
ing a dollar ’ s worth of assets for 75 cents is comforting, yet when
that same dollar of assets is now selling for 35 cents, the investment
is regarded as carrying more risk? ” The answer, of course, is that
it is not. Unfortunately, when investors rush for the exits during
bear markets only to return upon the arrival of good news, they
have chosen to forgo the 35 - cent purchase and wait to buy when
the price hits 75.Avoid That Which Is Most Valuable
Regarded as arguably the greatest stock picker of the twentieth cen-
tury, Sir John Templeton, brilliantly remarked, “ The four most dan-
gerous words in investing are ‘ This time it ’ s different. ’ ”^4 Euphoric
markets always seem to have a way of fooling many investors into
thinking stock prices will always go up. Such nonsensical beliefs are
the number - one reason why many investors make poor investment
choices that lead to permanent losses of capital.
Templeton is widely known for making investments during peri-
ods of extreme pessimism. In 1939, after World War II broke out
in Europe, the 26 - year old Templeton borrowed $ 10,000 and he
used that money to buy 100 shares each in 104 companies that were
selling at $ 1 a share or less on the New Stock Exchange, including
34 that were in bankruptcy. 5 In the end, Templeton reaped large
profi ts on 100 of the companies while the remaining 4 turned out
to be worthless. Fifteen years later, in 1954, Templeton launched
the Templeton Growth Fund. From 1954 to 1992, the fl agship fundCH009.indd 181CH009.indd 181 9/2/09 11:49:57 AM9/2/09 11:49:57 AM