John Templeton is famous for his quote: “Invest at the point of maximum pessimism”. McIntire graduate Clara Lee, from Franklin Templeton, spoke to our class and taught us that this seemingly simple quote is the foundation behind all of Franklin Templeton’s investments. Franklin Templeton is a “value” investor, which means that the firm prides itself on selecting companies with high intrinsic value whose stocks are currently being underpriced by the market. Clara went on to highlight that value can come from many different sources including unappreciated growth, restructuring, macro crisis, cyclical depression, secular pressure and micro crisis.
In order to further emphasize how Franklin Templeton analysts screen for ‘value” stocks using a “bottom up” approach Clara provided a few examples of companies that Templeton has selected in the past. One of the examples that Clara underscored was the firm’s investment in TNT Express. TNT Express is a firm that can be thought of as the “UPS of Europe”. The market anticipated that a bid to buy TNT Express from UPS would be accepted but due to regulations the bid fell through. The stock plummeted when the market discovered the rejection of the bid. However, Templeton viewed this as an opportunity to invest with an investment thesis centered upon restructuring.
However, as I gained a further understanding of “value” investing through the examples it became clear that market timing is a huge issue with the philosophy. Professor Webb provided us with the example of Lehman Brothers. It is conceivable that a value investor would have thought that Lehman Brothers was undervalued as the 2007-2008 crisis came to light and bought shares. However, the value of Lehman’s stock soon plummeted to zero. This highlights the typical market timing issues with value investing and Clara acknowledged that often Franklin Templeton mistimes the market.