There is another mentor, though, one I have not referred to often but that I have gleaned some wisdom from in terms of value investing and courage, and that is 'my pal Sir John.' While Buffett has been very straight forward in his position that you should buy on fear and this was the year to do that, it was Templeton that preached buying far and wide and diversifying broadly into out-of-favor companies. As he did when he started out.
Templeton became a billionaire by pioneering the use of globally diversified mutual funds. His Templeton Growth, Ltd. investment fund, established in 1954, was among the first that invested in Japan in the in the 1960s. He is noted for buying 100 shares of each company trading for less than $1 a share in 1939 and making many times the money back in a 4 year period. He rejected technical analysis for stock trading, preferring instead to use fundamental analysis.I must credit Templeton, another twentieth century pillar of the investment world with my venturing into stocks like Citigroup Inc. (NYSE: C), Ford Motor (NYSE: F), Grubb & Ellis (NYSE: GBE) and MBIA Inc. (NYSE: MBI) that have contributed to my portfolio's extreme gains. All but GBE, which I have only owned a short period, have paid handsomely.
I have tried to follow Templeton's strategy to a degree. I did not try and pick the one stock that is going to make it because the chances of success of such a strategy are greatly reduced. There is no assurance any one of these will companies will not go under. However, I might state the case briefly for each one.
I liked Ford because the Ford family has skin in the game, which is very important to its survival and I wish it were true of more companies. Ford borrowed money cheaply a few years ago before anyone even thought there was any chance of an economic firestorm. Ford sold off assets faster than its competitors and did not have to be bailed out by the federal government. Now, Ford is the chief American beneficiary of the "Cash for Clunkers" program and I expect it will outperform GM and Chrysler going forward, taking market share from both.
I am not entirely convinced that Citigroup is a long-term survivor, but the longer it stays afloat the greater the chance of success. Uncle Sam has saved its butt to the tune of owning up to 36% of the company and it has reported a profit two quarter in a row, albeit suspect from many angles. The government has stated unequivocally that it is not going to let Citi collapse and so far it has stuck by that.
I have watched MBIA for a long time, owning it for periods of time and from what I have read, despite all of its problems, including the shameful adventure into derivatives, it has a book value around $40. If that is anywhere near correct then I hope to capitalize on the potential return to glory after it is allowed to leave the corner of the room. By the way, as I understand it, the P/B is supportable without any new business based on current in place business.
Grubb and Ellis is the cheapest stock in my portfolio, added in the last couple weeks at 60 cents a share. Although I use several companies, GBE is the primary real estate agency I use, in large part due to the local broker Joseph Gabbaian, whose experience and integrity I hold in high esteem. This is a very large bet on my belief that it will make it through these difficult times and when it does, the rewards will be sky high. If that takes a period of years it will still have been worth it.
So giving credit to Templeton, who I wish I would have had the pleasure of meeting, I am grateful that he shared some of his knowledge.
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: I own shares of MBI, and GBE, I have options in C, F and MBI .