Disciple of basic stock values sees broad advance
Boston — John Templeton, the highly successful manager of the Templeton group of funds , maintains that investors shouldn't hold their breath too long before making the plunge into the market. He is predicting that the Dow Jones industrial average will rise to 1,500 in the next few years and to 3,000 within eight years.
Of course, Mr. Templeton doesn't rule out some twists and turns in the market before his predictions come true. "Stocks go in cycles, in styles," he said during a recent visit to Boston. But he invests on the basis of fundamentals -- real values of the corporations behind a stock -- rather than trying to follow short-term market fluctuations.
On average, he notes, stock market prices are now around 8 times earnings. That compares with a historical average of 14 times earnings.
In fact, for the last 12 years US stocks have gone nowhere, Mr. Templeton says. "This is an unusual situation. We are about ready now to experience the next great bull market."
He expects stock prices to return eventually to at least the 14 -times-earnings average. Further, he figures the cost of living will double in the next years. Corporate earnings will likely double in the same time -- unless profit margins change. So stock prices will rise correspondingly as corporations raise their dividends.
Thus, Mr. templeton figures there is a "better than 50-50 chance that American share prices will triple in the next eight years."
As further evidence, he notes:
* Price-earnings ratios are much higher in other nations -- for instance, 18 times in Singapore, 20 times in Hong Kong, 22 times in Japan.
* Replacement values are close to record lows. In other words, stock prices today value the assets of a company at extremely low levels if the value of these assets are put at the cost of replacing them at today's prices.
* When one corporation takes over another, it often pays 50 to 100 percent over the market price for the stock. "That indicates to me that this is a bargain time," Mr. Templeton says.
* Many companies are buying up their own stock, taking advantage of low prices. The remaining shareholders benefit from this bargain buying.
Over the past 25 years, Mr. Templeton's original fund, the $540 million Templeton Growth Fund, has outgained every other mutual fund in the United States and abroad. He attributes such top performance to what he terms a "simple minded" investment philosophy.
1. He looks for bargains -- stocks selling at one-quarter to one-half of their worth. He says it is surprising how few of the nation's 40,000 market analysts focus on this search.
"You must buy things that are unpopular." It is impossible, he adds, to have a better performance than other people if you do the same thing they are doing.
Mr. Templeton reckons he makes a mistake on about one-third of his choices.
2. Invest in more than one nation. More than 90 percent of investment managers look only in the US. But by searching for bargains elsewhere, the investment manager can reduce risk.
3. Maintain a flexible viewpoint in investing. Funds that are specialized in certain industries or markets have not done well in long run, he maintains.
4. Don't trade frequently. The commissions will eat into your profits. His funds hold on to a stock for five years on average.
5. "If you want to be successful, always open a meeting with prayer." A devout Presbyterian, Mr. Templeton believes that prayer has been one of his fund's major advantages. "You are less tense. You are more likely to think more clearly."
What is Mr. templeton's current advice? He likes Japan's Hitachi and Royal Dutch Petroleum (Shell). Also, he is enthusiastic on Ford. ("I can guarantee you the risk on the downside is only $20," he jokes.) He's down on gold. "I don't know what it is worth. It has been too popular." collectibles are already too high in price. Real estate is also too expensive (except for your own house).
Robert Trattner, publisher of the Market Consensus Letter, lost $20,000 when he took the advice of Joseph Granville, another market letter writer, and bought Chrysler stock.
Mr. Granville, as you may recall, told his thousands of readers to sell their stocks last month when the Dow Jones industrial average broke, 1,000, and they certainly did. The market plunged downward and has been struggling along badly ever since.
Well, Mr. Trattner, a wealthy man, thinks he offers better investment advice than Mr. Granville. But his letter, started just about a year ago, has only 200 subscribers. So, to get some publicity, Mr. Trattner has just challenged Mr. Granville to an investment duel. The adviser who does worse in 1981 should pay Trattner sent a cable to Mr. Granville Friday making the challenge.
For an established letter, the acceptance of such a challenge is dangerous. What if Mr. Granville has a bad year on his stock advice? But Mr. Trattner (Suite 383, 9333 North Meridian, Indianapolis, Ind. 46260) has little to lose.
The financial community, in Wall Street terminology, "discounted" the Reagan budget. In other words, stock prices had already taken account of the much-leaked plan for spending and tax cuts. So there wasn't much excitement once the news was out.
The Dow Jones industrial average was down 4.60 points, to 932, for the week. The broader New York Stock Exchange index was off 0.55 to 72.50.