John Templeton, the founder of Templeton Funds was a multi-faceted personality, alegendary investor, fund manager and an astute philanthropist. He wrote 16 rules of investmentsuccess, which can be found here.
They are the crux of his investment ideas and philosophy. Let us examine their relevance in theIndian context.
Rule 1: Begin with a prayer
Prayer helps you think clearly and make fewer mistakes. Meditation is known to reduce anxietyand stress, helping in better decision making.
Rule 2: Invest for maximum total real return
It is important to only consider the total real return i.e. the money you make in your investmentlifetime after inflation and taxes. Many investors get carried away by short-term movements. Theytend to ignore the long-term opportunities. Thus, it is wise to invest for total real returns.
Rule 3: Remain flexible and open-minded
Flexibility comes from being agile. Open-mindedness is learning from new ideas andperspectives. Many old-timers missed India's IT sector growth in the early 90s, which gave multi-bagger stocks like Infosys and Wipro. Cut to early 2005, many people were enamored with ITsector. They neglected the infrastructure and banking sectors, whose stocks multiplied within acouple of years. Hence it is important to be flexible and open-minded.
Rule 4: Invest, do not trade or speculate
Almost all successful people in the stock market are investors and not traders. They invest for long-term and are patient. There are many investors who have become millionaires solely onreturn of one stock in their portfolio over a decade. Sure they bought lot of other stocks whichwent nowhere but the one or two stocks that did well made all the difference. Traders think of themarket as a casino where you play daily to win, investors think of markets as a long-term wealthbuilding exercise.
Rule 5: Search for bargains
Just as we buy garments at discount sale, we need to buy and not sell stocks when markets arecrashing. In October 2008, many high dividend yielding stocks were sold for meager amount.People who bought them have reaped huge profits.
Rule 6: Don't buy market trends or economic theorie
sRemember the India story told when the sensex was at 21,000 and markets dipped to 7,500within a year. The boom gave way to gloom, economists and market experts were expecting acorrection not a crash. Thus, you should not rely on economic theories and market trends whileinvesting as they are told only after the event has occurred.
Rule 7: Diversify across assets and across markets, there is safety in numbers
Last year, when stocks dipped, gold and bond mutual funds thrived, an investor who had investedacross all three assets would have got negative return in stocks but would have made goodreturns in bonds and gold. Thus, it is advisable not to put all eggs in one basket.To spread risk, investments should be diversified across assets such as:- Stocks / equity mutual funds- Bonds/ bond mutual funds- Gold/ gold exchange traded funds- Real estate- Foreign mutual funds- Traditional assets such as fixed deposits and public provident fundsInvestment opportunities come with risks. When markets are high, investors want 100 per centequity exposure and forget the downside risk. When markets have crashed they want 100 per cent safety and ignore the upside potential.