John Templeton On Finding True Value | 1989 | Summary and Q&A

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November 30, 2020
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John Templeton On Finding True Value | 1989

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Summary

In this video interview, 26-year-old Mr. Templeton discusses various topics, including the possibility of a bull market, the potential for the Dow to reach 3,000, the expected high of the market in the 90s, concerns about the takeover craze, finding bargains in the market, the emergence of a major nation in the next century, the future of the US as an economic power, the outlook on inflation, and the popularity of pessimism.

Questions & Answers

Q: Was the bear market already over after the crash?

According to Mr. Templeton, it looks more like it every day, and with the recent new high since the crash, it would be hard to argue that the bear market has not already ended. He believes that when economic history is written, it will be regarded as a short bear market that ended 14 months ago.

Q: Do you think the Dow will reach 3,000 by the end of 1990?

Mr. Templeton doubts it is likely, but he thinks there is still an even chance of reaching 3,000 by the end of 1990.

Q: How high do you think the market will go in the 90s?

Mr. Templeton believes that when the next bull market gets roaring, earnings should be 40% higher than they are now. This would justify share prices that are 40% higher than the previous peak, which would be over 4,000 on the Dow. He also mentions that the shortage of shares could drive prices even higher, and there is a 50/50 chance the Dow will be above 5,000 by the time this bull market reaches its peak.

Q: Are you concerned about the takeover craze going too far?

Yes, Mr. Templeton acknowledges the concern. While he believes that American shares are still selling for less than their worth, he expresses worry that the prices of acquisitions are getting above true value. He also mentions that these huge acquisitions result in a decrease in government tax revenue, and he thinks some changes in the tax law might be necessary to address this issue.

Q: Where are you finding legitimate bargains now?

Mr. Templeton says there are numerous bargains in America, with over 65% of their investments being in the country. He also mentions bargains in New Zealand, Hong Kong, Canada, and England. Specifically, he highlights financial stocks, companies that sponsor mutual funds, life insurance companies like Signal Insurance, and emerging growth stocks as areas with remarkably low prices.

Q: Do you perceive a major nation emerging in the next century?

Yes, Mr. Templeton believes that China will be well worth watching in the next 25 years. He explains how the huge population of a billion people in China is doubling their standard of living every seven years, which will have a significant impact on the world. He also mentions the role of Hong Kong becoming a part of mainland China in speeding up progress.

Q: What does the decreasing importance of the US stock market mean for the future of the US as an economic power?

Mr. Templeton sees it as a positive development. He mentions that America is rapidly growing, adding five million new jobs in just the last two years. However, he also recognizes that other nations, particularly poor nations, are growing even faster. He believes it is a happy situation to have everyone more prosperous.

Q: What is your outlook on inflation, and which companies might benefit from it?

Mr. Templeton acknowledges that inflation is a problem due to human nature. He mentions that on average, inflation will likely double the cost of living every 10 years. He advises against holding too much cash and suggests investing in stocks that are most depressed and have the greatest potential to benefit from higher prices, such as stocks in grocery stores.

Q: Why do you think pessimism is so popular?

Mr. Templeton attributes the popularity of pessimism to human nature. He explains that people are more attracted to news about catastrophes, and with the instantaneous communication we have today, we are constantly exposed to pessimistic information from various nations. However, he emphasizes the importance of maintaining optimism as an antidote to pessimism.

Takeaways

In summary, Mr. Templeton expresses optimism about the possibility of a bull market, the potential for the market to reach new highs, and the overall prosperity of nations. He highlights areas of the market where bargains can be found and discusses the emergence of China as a major nation to watch in the future. He also addresses concerns about the takeover craze and inflation, offering insights on how to navigate these challenges. Lastly, he notes the popularity of pessimism but encourages maintaining optimism as a counterbalance.

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