Dear Reader,
Attached is our latest list of stocks passing value screens (low EV/ebit, high returns on invested capital, etc.), which don’t meet our investment criteria - and our reasoning.
This may help you avoid some ‘value traps’, and stocks that aren’t sufficiently attractive compared to opportunities available today.
For reports of stocks that pass our quantitative and qualitative standards:
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Templeton Speech at the Canadian Club (1988)
Notes below:
9:00 Gratitude
Don't forget to be thankful for LIFE - it requires practice.
24:45 Success is built on bear markets
Though bull markets are enjoyable, the seeds of success are sown in bear markets.
27:15 Templeton's Investing Principles
Worth remembering:
a) Buy when others are despondently selling
b) Diversify widely
c) Invest worldwide
d) Be contrarian
e) Focus on value not outlook
f) Sell only when you find a better bargain
g) Prices fluctuate far more than underlying business values
h) Achieving a successful investment record is harder than most people think
33:00 Gold
Gold may preserve value but its performance is likely to substantially underperform productive businesses - i.e. stocks - over time (as it has in the past - including dividends).
34:00 Short range is hard to forecast, long range is easier
Predicting short-term market movements is practically impossible, but the long-term future of business values is easier to predict.
Of course wars and political revolutions have decimated business values in the past - but if you choose to invest in militarily strong (or US-allied), politically stable, and business-friendly countries with a strong rule of law and protections for minority shareholders - you're likely to do well in stocks over time.
36:30 Japan
Japan in the 80s was a stock market phenomenon to behold. From the time Templeton bought Japanese stocks decades earlier at 3x earnings, the market reached lofty heights of 76x earnings by the late 80s.
There's practically no limit to the emotional swings of the stock market - best to exploit the emotions, not be carried away by them.
40:45 Inflation is inevitable
Governments have now established a record of intervening with monetary and fiscal stimulus to prevent economic depressions - resulting in ever-expanding money supply and inflation. In a world of inflation, stocks and real-estate are likely to provide the best investment avenues for capital appreciation.
42:45 Workers as shareholders
It's notable that most young employees don't save at least 10% of their pay and invest - this is what we did early in our careers. A widespread adoption of this practice would enable them to benefit from the bounties of capitalism - and prevent complaints of generational unfairness.
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For our best stock ideas:
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