John Templeton Used These Two Techniques To Overcome Behavioral Biases

Johnny HopkinsJohn Templeton1 Comment

In her recent interview on The Investor’s Podcast, Lauren Templeton discussed two techniques her great uncle, Sir John Templeton, would use to overcome behavioral biases. Here’s an excerpt from the interview:

But he [Templeton] had a lot of techniques that he used to overcome behavioral biases. So a great technique that we used here in our company that he always talked about using, and it sounds so simple, but it is very powerful and it’s just palpable in the office when you use it, is creating a wish list of securities that you would like to own that are not currently attractively priced that you would like to own if they ever fell in price.

Now, during a market sell off, even seasoned investors get very nervous and there are all sorts of physiological reasons for that. When you look at your screen and see red, your amygdala has already increased your heart rate. You probably already have shortness of breath. You may even be perspiring, and all of these things contribute to your fight or flight response taking over, and this happens to even the most serious investors.

But during these times, if you can pull out a list of securities from your desk drawer that you have researched in advance, when you are thinking rationally and you start placing orders, putting money to work during these really scary moments in the market, shifting your focus from how much money you have lost to the unbelievable opportunities ahead of you, it changes the vibe in your office immediately.

It goes from negative and scary to positive and future minded. So I highly encourage that tool and that’s just one of the small tools that I saw Sir John use throughout his career to combat some of these biases.

Another example would be he would place good to cancel orders under the market by let’s say 20%, and he would just let him sit, and occasionally you would get filled on an order. We have used that here at the office a little bit, not much, but we have gotten filled on an order using that methodology before, it was years ago.

You can listen to the entire discussion here:

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One Comment on “John Templeton Used These Two Techniques To Overcome Behavioral Biases”

  1. That is a very good article. It is a sensible and down to earth concept. Of course, preparing the list is the most difficult part and that is where the Acquirers Multiple can really help. I maintain a relatively simple database, a list, ranked from the lowest to the highest multiple with a cutoff of 6. It is also grouped by industry. There are normally around 250 companies in the list partly because I stick to larger cap. Buying shares of companies at the top, the lowest ratio, is very low risk and consistently delivers remarkable returns. I call it the Modified Acquirers Multiple because I use forward not trailing numbers and I use EBITDA not EBIT. For technology companies in particular, the accounting treatment of amortization of intangibles under US accounting rules is materially misleading.
    For banks, I do use book value. It is the only industry where book values have any relevance.

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