How To Invest Like Templeton

Sir John Templeton“Invest at the point of maximum pessimism.

Sir John Marks Templeton is considered by some to be one of the most famous value investors. Sir Templeton is a contrarian, a value investor, and a bargain hunter. Well-known for his Templeton funds, Templeton’s flagship Templeton Growth Fund posted a 13.8% annualized average return over a period of 50 years.

Templeton’s investing mantra was to “search for companies that offered low prices and an excellent long term outlook.” Given his enormous success, it would be interesting for us to use Templeton’s criteria to screen the shares on our very own Straits Times Index (SGX: ^STI).

A screen is a rough search through the companies listed on the Singapore Exchange (SGX: S68) that fulfills the criteria we determine. Let’s take a look at some of Templeton’s criteria, and apply them to some local shares.

Low Price

This means that companies with a lower price to earnings (P/E) ratio as compared to the Straits Times Index current P/E ratio (right now, it’s 13) and a low price to book (P/B) ratio. A P/B ratio is the price per share of the company dividend by its net asset value per share. For this exercise, we will just use a P/B ratio of below 1.5 for illustration purposes.

Excellent long term outlook

While a successful history does not necessarily mean a successful future, an easy way to find a stable company would be those that have had positive operating profit margins and consistent growth in revenue and earnings over the past 5 years. This is to ensure that the companies have a long history of growth.

Companies that fulfilled this criteria include DBS Group Holdings Ltd (SGX: D05) and United Overseas Bank Ltd (SGX: U11).  the largest bank by market capitalisation in South East Asia, DBS Group has earnings of over SGD 3.3billion in the last financial year,  and is currently trading at a P/E ratio of 10.4 and a P/B ratio of 1.25. UOB, the third largest banking group in Singapore,  is currently trading at a P/E ratio of 11.4, and has a P/B ratio of 1.4.

Foolish Bottom Line

These two criteria can only act as the starting point for a prudent investor’s decision-making process. While it is a good idea to learn from the masters,  it is still important to invest in a style that you are comfortable with. Happy investing.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley doesn’t own shares in any companies mentioned.