I regularly receive free books to review and unfortunately, can’t study every title that arrives. But Empower Your Investing – Adopting Best Practices From John Templeton, Peter Lynch, and Warren Buffett by Scott Chapman, is different. It reads like a biography and offers invaluable investment guidance. If you want to be a successful investor, then why not learn from the best?
Research shows that most individual investors and actively managed mutual funds fail to keep up with the returns of the unmanaged indexes. That’s why the growth of the passive, index fund investing movement has taken hold. Yet, there are a few prominent investors that have managed to buck the trend and outperformed the indexes over many years. Chapman posits that by understanding how John Templeton, Peter Lynch, and Warren Buffett invested, you too can become a successful investor. So, if you’re interested in an inside look at these three great investment minds, I suggest that you study Empower Your Investing.
Each chapter follows a systematic study of the investor with these headings:
- Personal Background
- Investment Performance
- The Mental Model
- Method of Investment Selection
- Portfolio Design
- Case Studies
Although I’ve read several books that discect Warren Buffett’s investment strategy and also studied Lynch’s One Up on Wall Street, the actionable investment advice in this book is superb.
Previously, I was a stock-picker and studied the balue investing bible of Graham and Dodd’s, The Intelligent Investor to books on financial statement analysis and many more.
I only wish this book had been around when I was learning about investing.
The John Templeton Investing Story
I was riveted by the “Personal Background” chapter about John Templeton’s early life. Known as one of the premier value investors, Templeton’s life is peppered with drive and creativity. The chapter title “The Capitalist Missionary,” debunks the myth that success in finance is equated with greed and malfeasance. He was a genuinely charitable man.
Templeton was determined to atttend Yale University, which required four years of high school math, despite the drawback that his high school only offered three years. To overcome this obstacle, he volunteered to be the teacher and student for a fourth year math class. Along with eight students, he created and enrolled in the fourth year math class, with the principal grading the exams enabling him to enroll in Yale.
His father didn’t have the means to pay for Templeton’s tuition, so he funded his college tuition with winnings from the poker table.
Templeton’s investing and personal values could be a lesson in a guide to practical living:
“Several admirable qualities were already evident in John’s development that would shape his approach to investing and life, such as his kindness, humility, positive attitude, discipline, and fierce commitment to accomplish his goals. Four of his perspectives are worth exploring further as they served as corner-stones for his approach to investing: setting goals, extra effort, thrift, and avoiding consumer debt.”
His early investment performance was mediocre. His first fund, launched in 1954,the Templeton Growth Fund raised $6.6 million and by 1957, the fund was valued at $2.9 million. In fact, the fund didn’t return to $7 million until 1969.
This fact, undescores the importance of patience and fidelity to one’s investment style. Value investing, while shown to outperform over the long run, can experience periods of sub par performance.
After selling all the firm’s assets except the Templeton growth fund in the early 1960’s, he relocated to the Bahama’s for tax and financial reasons. between 1954 and 1992, the Templeton Growth fund reported 14.5% annual returns, despite underperforming the S&P 500 in six of its first ten years.
His investment success was driven by his patience and commitment to sound principals including the contrarian, democratic, and global tilt to his stock picks. His mental style incorporated research, bargain-hunting, prayer, gratitude, and optimism.
The story continues with indepth discussions of Templeton’s investment methodologies and strategies for when to buy, when to sell, and portfolio construction. He includes investment guidance for individual investors seeking various investment goals such as income or growth. He eschewed income-type investments such as high yielding stocks and bonds solely for their cash flow. Instead he recommends taking capital gains as cash from the asset’s growth.
For the stock analyst, Chapman lays out individual stock analyses, to learn from.
“Reflections,” the final chapter of the Templeton’s section includes tales of the author’s personal encounters with Templeton and proof of his generosity and kindness.
Peter Lynch’s Road to Investing Stardom
Perter Lynch was an investing star at Fidelity, running the Fidelity Magellan Fund from ________ to ____________ and earning an average annual return of ________. Yet, despite his stellar success, Lynch was a fervent believer in “buy what you know”. He thought that ordinary investors were capable of implementing sound investment research tactics and earn exceptional returns.
Although today, with the advent of computerized trading and stock pickers pitted against computer algorithms, it’s questionable if it is possible for the small investor to beat the market indexes.
But, for those invesotrs seeking to try their hand at outperforming the market, Lynch lays out the strategy that led to his stellar investment performance.
Like Templeton, Lynch had a tireless work ethic, working 80 t0 85 hours per week, even Sunday’s after church. During his tenure at Fidelity, even his vacations masked visits to company headquarter to chat with CEOs and learn first hand about a company.
Lynch’s stock-picking prowess could be distilled into seven habits:
- Focus on companies that you understand and develop conviction. This habit is similar to Warren Buffetts commitment to buying only business that he understood.
- Be Persistent in prospecting for an undervalued gem. Similar to dating, the more people you go out with, the greater the likelihood of finding “the one”. Regarding stock selection, it takes a lot of looking to find a keeper.
- Stay in touch. Lynch liked to vist an call companies. Todays investors can easily read the online news, sec filings and press releases as well as chatting with investor relations representatives.
- Take copious notes. Lynch kept track of company details and predictions, to consider later.
- Focus on the company, not the economy. “I can’t say enough about the fact that earnings are the key to success in investing in stocks. No matter what happens to the market, the earnings will determine the results,” Lynch said.
- Work hard, it’s not magic.
- Be open minded, flexible and think like an amateur. He considered unpopular stocks that weren’t widely followed.
Lynch abided by lists and rules. Just has he outlined stock-picking habits, he also had a list of investing steps to take, for investing in winners. Then he categorized his stock picks into buckets such as turnaround, asset play, cyclical, fast grower and stalward. These lists make it easy for amateur investors to follow in his footsteps.
I appreciate that Empower Your Investing includes the investing giants’ mistakes. It makes the legend’s stock-picking genius seem somewhat achievable.
Lynch’s philosophy on losses:
“Peter Lynch said that stocks don’t know that you own them. Yet, when a stock
falls below your purchase price, it can feel like a personal a!ront. Reconcile yourself to the fact that mistakes are inevitable. Lynch estimated that 35–40 percent of his stocks were losers.
“You’re going to make mistakes. You’re terrific in this business if you’re right six times out of ten. No method guarantees you’re not going to lose your shirt.I’ve had stocks go from $11 to seven cents.” While mistakes may be inevitable, Peter Lynch repeatedly reassured investor that one winning stock can make up for many losers.” ~ Empower Your Investing
Ultimately, Lynch’s stock picking strategy is a combination to tireless research and adherence to a strict set of investing principles. While many of the case studies mentioned in the book were also included in One Up on Wall Street, I found the repetition helpful, in clarifying his process.
Warren Buffett – “The Incomparable”
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