Introduction
It is hard for me to come out some creative ideas to invest, so I like to watch videos, read the article and then search some ideas. The most important part is to consider which ideas make sense, what I can do to apply?
Case study: Templeton, 1939
Shortly after Templeton started his firm, investor pessimism surged. In 1939, World War II began with Germany's invasion of Poland and stocks around the world fell. In New York, the Dow Jones Industrial Average fell almost 25% over five months. Sensing pessimism was at a maximum, Templeton bought $100 worth of stock in every company trading for less than $1 a share on the New York Stock Exchange. He purchased 104 companies for about $10,400. Four years later, his account balance topped $40,000 even though 34 companies had gone bankrupt. Templeton's investment generated an average annual return of 40% a year because he understood pessimism had created bargains.
There are risks associated with this strategy. Some of the companies trading under $1 a share will go bankrupt. In Templeton's case, about one-third of the stocks went bankrupt. The gains he enjoyed resulted from the fact that many of the companies will rebound and reward investors. An example from more recent times demonstrates the size of the potential gains. In March 2009, Citigroup (NYSE:C) fell under $1 a share and has gained nearly 400% since then.
Today, just 14 companies pass Templeton's test of trading below $1 a share on the NYSE. These are companies trading at the point of maximum pessimism.
To duplicate Templeton's strategy, buy all 14 and then wait. Templeton usually gave a stock up to six years to deliver results. If it hadn't moved up much after six years, he would sell.
Reference:
Here is the article.
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