John Templeton: Buying at Maximum Pessimism

Key Takeaways

• In 1939 Templeton bought 100 shares each in 104 stocks trading under a dollar.
• His Templeton Growth Fund (1954) reportedly compounded above 14 percent a year for decades.
• He hunted bargains abroad, notably in cheap, overlooked post-war Japanese stocks.
• In 2000 he shorted expensive tech stocks and profited as the bubble burst.

Background

John Marks Templeton was born on November 29, 1912, in Winchester, Tennessee, according to the John Templeton Foundation and contemporaneous obituaries. He graduated near the top of his class at Yale in 1934, then studied at Oxford as a Rhodes Scholar, finishing in 1936. He began his Wall Street career in the late 1930s, just as the Great Depression was grinding into a new global crisis.

Templeton grew up frugal and stayed that way for life, a habit that shaped how he invested. He looked for assets selling far below what he judged they were worth, a discipline now called value investing. What made him unusual was where he looked. While most American investors of his day bought only domestic shares, Templeton was willing to search the whole world for cheap stocks, an approach that later made him a pioneer of global investing.

His guiding principle became a famous line attributed to him: "Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria. The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell." That idea, buying at the point of maximum pessimism, runs through every chapter of his record.

What Happened

Templeton put his contrarian theory to work at the worst-looking moment imaginable, then repeated the pattern for the rest of his life.

• 1939: As Germany invaded Poland and World War II began, Templeton borrowed money and instructed his broker to buy 100 shares in every stock on the New York exchange trading at one dollar a share or less. He ended up owning 104 companies, a large number of which were in bankruptcy, per the John Templeton Foundation and LGT.
• 1954: He launched the Templeton Growth Fund, one of the first US-style funds with a genuinely global mandate, buying shares across many countries rather than only at home.
• 1950s-1960s: He moved early into cheap foreign markets, allocating his own capital to Japan in the 1950s and client capital in the 1960s, when Japanese shares traded at a fraction of US valuations, according to the Latticework analysis.
• 1968: Templeton became a British subject and later based himself in the Bahamas, per Christianity Today.
• 1987: Queen Elizabeth II knighted him for his philanthropic work, making him Sir John Templeton.
• 1992: He sold the Templeton funds to the Franklin Group, ending his career as an active fund manager.
• Early 2000: Near the top of the dot-com mania, Templeton placed a large short bet against a basket of expensive technology stocks, then watched the Nasdaq collapse weeks later.

The 1939 trade is the one most often retold. Templeton's small, borrowed stake spread across 104 beaten-down companies turned into a substantial gain over the next several years, even though several of the picks went to zero.

Why It Happened

Templeton's edge was temperamental as much as analytical. He acted when headlines were darkest, on the logic that prices already reflected the bad news and could only improve as fear faded. In 1939 the consensus was that war meant ruin, so almost any company trading under a dollar looked doomed. Templeton's bet was that a diversified basket of those companies, bought cheaply enough, would survive and recover even if some failed. He deliberately spread the risk across roughly a hundred names so that the winners would more than cover the handful that collapsed.

His second insight was geographic. Most investors anchor to their home market, a bias that leaves foreign bargains unexamined. By treating the entire world as his hunting ground, Templeton found stocks that domestic-only buyers ignored. Japan was the clearest example. In the decades after the war, Japanese companies traded at a steep discount to American ones, reportedly around four times earnings against close to twenty times in the US, per the Latticework account. Templeton bought them while they were cheap and unfashionable and sold as the rest of the world caught on and bid them up.

The 2000 trade was the mirror image of 1939. Instead of buying at maximum pessimism, he sold at maximum optimism. Internet and technology stocks had reached valuations he considered absurd, with no earnings to support them. He structured the short around a specific mechanism: he targeted recently floated tech companies whose insiders were still locked up, betting that once those insiders were free to sell, the inflated prices would break. That combination of extreme valuation plus a known selling catalyst is why the bet paid off so quickly when the bubble burst.

By the Numbers

• 1939 trade size: Roughly $10,000 borrowed, used to buy 100 shares each in 104 companies trading at a dollar or less. Sources vary on the exact figure; commonly cited around $10,000 to $10,400. (John Templeton Foundation; Latticework)
• Companies in distress: A large share were in bankruptcy. The Foundation cites 34 in bankruptcy; one interview-based account cites 37. Treat as reported. (John Templeton Foundation; Latticework)
• Failures: Only four of the 104 picks proved worthless. (John Templeton Foundation; The Motley Fool)
• 1939 return: The portfolio reportedly grew about 400 percent over an average holding period of roughly four years. Reported figure, attribute as such. (The Motley Fool)
• Templeton Growth Fund founding: 1954, incorporated in Canada. (LGT; The Motley Fool)
• Fund long-run return: Reported at "more than 14 percent" to "more than 15 percent" average annual returns over the decades that followed; a $10,000 stake at inception is widely said to have grown to more than $2 million with dividends reinvested. Reported figures, ranges vary by source. (The Motley Fool; LGT)
• Sale to Franklin: 1992, with the Templeton operation managing roughly $22 billion and sold for about $440 million. Reported. (LGT)
• 2000 short: A basket of 84 Nasdaq technology stocks. Reported. (AlphaPicks; Latticework)
• 2000 profit: Reported at roughly $80 million to $90 million, made within months as the Nasdaq peaked and fell. Estimates vary by source; treat as reported. (AlphaPicks; Latticework)
• Nasdaq decline: From about 5,048 in March 2000 to about 1,139 by October 2002. (AlphaPicks)

Aftermath

There was no scandal and no regulatory fallout in Templeton's story. His record was one of legitimate, audited fund management, and the lasting debate is about method, not misconduct. After selling his funds to Franklin in 1992, he turned increasingly to philanthropy and to questions of science and religion.

He had already created the Templeton Prize in 1972, an award for progress toward discoveries about spiritual realities, deliberately set to exceed the cash value of a Nobel Prize. Its first recipient was Mother Teresa, and later honorees included figures such as Billy Graham and Aleksandr Solzhenitsyn, per Christianity Today. In 1987, the same year he was knighted, he established the John Templeton Foundation, which went on to fund hundreds of research projects.

Sir John Templeton died of pneumonia on July 8, 2008, at a hospital in Nassau, the Bahamas, at age 95, according to Christianity Today and his obituaries. By then he had been described by Money magazine as "arguably the greatest global stock picker of the century," a label tied directly to the contrarian discipline he had practiced since 1939. His name lives on in the Franklin Templeton fund family and in the foundation and prize that carry his name.

Lessons for Investors

1. Maximum pessimism is uncomfortable by design. Templeton bought in 1939 precisely because the news was terrifying and prices reflected it. The lesson is not to be reckless but to recognize that the best prices usually appear when most people refuse to buy. If a purchase feels easy and consensus-approved, you are probably not getting a bargain.

2. Diversify a deep-value basket so the failures cannot sink you. Four of Templeton's 104 picks went to zero, yet the basket still gained sharply because no single loss was large relative to the whole. When you buy distressed or deeply cheap assets, spreading across many names converts individual blowups into a survivable cost of doing business.

3. Home-country bias hides real bargains. Templeton's willingness to buy Japan when it traded at a fraction of US valuations, then sell when it became expensive, came from treating the whole world as one opportunity set. Limiting yourself to familiar names can mean paying up at home while cheaper, equally good businesses sit ignored elsewhere.

4. Valuation cuts both ways. The same discipline that told Templeton to buy cheap in 1939 told him to short expensive tech in 2000. Extreme prices are a signal regardless of direction. When an asset class trades at valuations with little earnings to support them, the contrarian move can be to step away or bet against the crowd, not to chase it.

5. Treat famous return figures as reported, not guaranteed. The headline numbers in this story, the 400 percent on the 1939 basket and the 14 to 15 percent on the fund, come from biographies and financial writers, and the exact figures differ across sources. Read any track record critically, note where estimates diverge, and never anchor a decision on a single round number.

Frequently Asked Questions

Who was John Templeton and why is he famous? John Templeton was a pioneer of global and contrarian value investing who ran the Templeton Growth Fund and is famous for buying cheap stocks at the start of World War II in 1939. He later shorted the dot-com bubble near its peak in 2000.

Why did Templeton buy stocks in 1939? He believed prices already reflected the war panic, so deeply cheap stocks had more room to recover than to fall further. Buying at the point of maximum pessimism was his core philosophy, and the 1939 basket put it into practice.

How much money did Templeton make on his trades? His 1939 basket reportedly rose about 400 percent over roughly four years, and his Templeton Growth Fund is widely cited as compounding above 14 percent a year for decades. His 2000 tech short reportedly netted somewhere around $80 million to $90 million.

Could Templeton's approach work again today? The principles can, since markets still swing between fear and greed, but the specifics are harder to repeat. Distressed sub-dollar baskets are riskier and more constrained now, and cheap, ignored foreign markets are not as plentiful as post-war Japan was.

What is the main lesson from John Templeton? The single most transferable idea is that the best opportunities usually appear when sentiment is at its worst and the worst risks appear when sentiment is euphoric. Discipline about valuation, in both directions, mattered more than any forecast.

Sources

1. John Templeton Foundation. Sir John Templeton (official biography). https://www.templeton.org/about/sir-john-templeton
2. LGT. John Templeton: a global stock picker's remarkable life story. https://www.lgt.com/global-en/market-assessments/insights/financial-knowledge/how-john-templeton-reconciled-god-and-mammon-301542
3. Latticework / MOI Global. Lessons from Sir John Templeton, Global Contrarian and Superinvestor. https://www.latticework.com/p/lessons-from-sir-john-templeton-global
4. The Motley Fool. John Templeton (famous investors). https://www.fool.com/investing/how-to-invest/famous-investors/john-templeton
5. Christianity Today. Philanthropist Sir John Templeton Dies at 95. July 2008. https://www.christianitytoday.com/2008/07/philanthropist-sir-john-templeton-dies-at-95/
6. AlphaPicks. Meet The Man Credited With One Of The Greatest Trades Of All Time. https://www.alphapicks.co.uk/p/meet-the-man-credited-with-one-of
7. Quotes on Finance. John Templeton: "Bull markets are born on pessimism." https://quotesonfinance.com/quote/121/john-templeton-bull-markets-are-born-on-pessimism

Disclaimer

This article is educational content only and is not financial advice. Nothing here is a recommendation to buy, sell, or hold any security. Consult a licensed advisor before making investment decisions.