Foreword

My late great uncle, Sir John Templeton, kept a plaque on his desk that read, “Trouble is opportunity.” He also coined the phrase “Investing at the point of maximum pessimism” to describe the optimal time to invest.

Buying at the point of maximum pessimism is more than a simple investment motto. It is a successful and time tested investment strategy that can significantly increase the odds of investment success in your favor. Accommodating the sellers, as my uncle always put it, is simple. But psychological inertia usually stands in the way of even the most rational investor during extreme market volatility. The most recent bear market is a prime example. Beginning with the collapse of two Bear Stearns hedge funds and ending with a bailout of the entire U.S. financial system, the recent crisis was no place for the faint of heart.

In the wake of these events, even the most seasoned investors proclaimed that the sky was indeed falling. It has always been interesting to me that during periods of market upheaval, perfectly rational individuals can and often do exhibit completely irrational behavior. Behavioral finance is a fascinating field of study. Regardless of the psychological or even biological reasons for the discomfort that many investors experience during a market correction, impediments to buying at the point of maximum pessimism exist.

In my opinion, the best prescription for the paralysis that often accompanies a stock market panic is advance preparation. We know that often the best opportunities present themselves during times of crisis. Most investors even recite the motto “Crisis equals opportunity,” but few investors have the fortitude to take advantage of these precious occasions. Because crisis usually occurs when least expected, it is disturbing and usually induces our panic response. Investors must learn to look forward to these events and, more importantly, take advantage of them. For anyone who invested money throughout the bear market of 2007 through 2009, this represented a precious, if not once-in-a-generation, opportunity. Unfortunately for some, this opportunity may have been lost due to a lack of preparation for such intense volatility in stock prices and condensed selling in a short period of time. The most successful investors are prepared well in advance of market disruptions.

One technique that Uncle John always used to prepare himself for future market volatility was to maintain a list of stocks that he was interested in owning at a much lower price. This practice underscores the reality that the stock market is often too dynamic for anyone to predict with any accuracy. As investors, we should not spend all our time trying to predict or anticipate every move of the stock market. Instead, we should anticipate what actions we would take in order to capitalize on an opportunity should it present itself.

Following in the (albeit, very large) footsteps of my great uncle, my husband and I have made an investment career by continuously searching the world for bargain stocks on behalf of our investors. We believe that the long-term perspective on investing is not only applicable but also the best approach. In Buying at the Point of Maximum Pessimism, my husband Scott Phillips identifies several long-term investment opportunities in the stock market. Based on our research, we believe that these are long-term trends that should persist for many years to come. Investors might find it helpful to use the investment themes described in this book to refine their wish list of securities in order to capitalize on future market volatility. Moreover, the investment themes described in this book take into thoughtful consideration many of the abrupt changes that the global economy experienced in the wake of the financial crisis. In sum, this book should help investors prioritize investments as they seek to take advantage of points of maximum pessimism.

Happy bargain hunting!

Lauren C. Templeton
Principal and Founder
Lauren Templeton Capital Management, LLC