John Templeton's 16 Rules for Investment Success

1. Invest For Maximum Total Real Return

It means what you actually earn after paying taxes and accounting for inflation.

When you invest for maximum total real return, you must consider the twin challenges of inflation and taxes.

Inflation erodes your purchasing power over time, so you need to invest in assets that have historically outpaced inflation.

Taxes can eat into your returns, so employ strategies to preserve your returns as much as possible.

By addressing these two factors, you can work towards achieving your financial goals and growing your wealth effectively.

This involves making your money work as hard as possible to grow your wealth over time, accounting for both inflation and taxes.

2. Invest - Don't Trade or Speculate

It means invest for the long term.

Frequently buying and selling shares often leads to losses. Over time, these losses can accumulate, making it challenging to achieve your financial goals.

Excessive trading can indeed work against your financial interests.

Your stockbroker is similar to a casino owner. A stockbroker makes money from your trading activity, while a casino owner profits from the bets made in their establishment.

The house, in this case, your stockbroker, always wins, regardless of whether you win or lose. This is because they earn commissions and fees from your transactions, irrespective of the outcome. It's not that they are trying to work against you, but their business model is designed to generate revenue from trading activities.

Now, contrast this with long-term investing. When you invest for the long haul, you're less concerned with the day-to-day fluctuations in the stock market. Instead, you focus on the fundamentals of the companies you invest in. You give your investments time to grow and weather the storms of market volatility.

Shift your focus from frequent trading to long-term investing. Your stockbroker may benefit from your trading activities, but your financial future is better served by adopting a patient, well-researched, and long-term approach to investing.

3. Remain Flexible and Open-minded about Types of Investment

There isn't a single "best" industry for investment. Investment opportunities can pop up in various places, like blue-chip stocks, cyclical stocks, bonds, treasury instruments, and more.

So, it's essential to stay flexible and open-minded. Be ready to profit when an opportunity presents itself.

And when you can't find a suitable opportunity, it's perfectly fine to sit on your cash and patiently wait for the right one to come along.

4. Buy Low

It is often easier said than done. When prices are high, everyone seems eager to jump into the market. But when they plummet, enthusiasm fades.

When stock prices hit rock bottom, many investors turn pessimistic. It becomes a challenge to swim against the current. However, it's essential to remember that the crowd's mindset often focuses on short-term events.

Having the cash and the courage to invest in stocks during these tough times can yield significant returns.

So, don't be deterred by the negativity around; seizing opportunities when prices are low can be a wise move.

5. When buying stocks, search for bargains among Quality Stocks

Buy wonderful companies when they are on sale.

Warren Buffett

“It is far better to buy a wonderful company at a fair price than a fair company at a wonderful price.“

6. Buy Value, not market trends or economic outlook

When it comes to investing, it's crucial to buy based on value rather than getting swayed by market trends or economic predictions. Trends can be enticing, but they often have a short lifespan and are riddled with speculation.

Instead, consider a bottom-up approach to stock picking. This means concentrating on the individual companies themselves and their performance, rather than being fixated on stock prices and future forecasts. By doing so, you're more likely to make informed investment decisions that are grounded in the fundamentals of a company's business rather than following the crowd.

7. Diversify

Diversification protects against ignorance and unknown risks. It mitigates risks by spreading investments across different asset classes and countries.

The level of diversification in your portfolio should reflect your knowledge, confidence, and understanding of the assets you're investing in.

John Maynard Keynes

“Diversification is protection against ignorance, but if you don't feel ignorant, the need for it goes down drastically.”

8. Do you homework or hire wise experts to help you

It's crucial to conduct thorough research before investing in the stock market. Start by reading the company's annual reports. These documents provide a wealth of information about the company's financial health, performance, and future outlook.

Take advantage of the vast resources available online. Explore financial news, stock analysis websites, and official company websites to gather insights into their business strategies, competitive position, and recent developments.

Don't stop there; dig deep into every piece of information you can find about the company. Understand their industry and the macroeconomic factors that might affect their business.

Talking to suppliers and customers is a fantastic idea. They can provide valuable, real-world insights into the company's products, services, and reputation. Customer reviews and feedback can also be a goldmine of information.

In essence, thorough research is your best friend when it comes to investing. It reduces risks.

9. Aggressively monitor your investments

Make sure you regularly check on your investments, ideally every year. Be prepared to make adjustments when necessary. Monitoring your investments is crucial to maintaining a healthy portfolio.

John Maynard Keynes

“When the facts change, I change my mind - what do you do, sir?”

10. Don’t panic

If you can't watch your stocks drop by 50%, then investing in the stock market is not for you.

In the stock market, it's not high IQ that matters, but having the right temperament.

Avoid the temptation to sell your stocks hastily. Take a moment to review your investments. If you still believe in the company's future prospects, consider holding onto your shares or even buying more during a downturn.

Only consider selling if you come across a much better company at a bargain price.

11. Learn from your mistakes

Learning from our mistakes is a crucial part of personal growth and success.

When we make mistakes, it's like a lesson in disguise. Whether it's a misstep at work or in our personal lives or investing, it's a chance to gain valuable experience.

The key is to reflect on what went wrong, understand why it happened, and how we can prevent it from recurring. It's about turning that setback into a setup for future success.

So, remember the lessons you've learned from your mistakes and apply them as you move forward. It's how we become wiser, more resilient, and ultimately, more successful in life, work and investing.

12. Begin with a prayer

Starting your day with a prayer is a wonderful habit. It helps you begin your day with a sense of gratitude, setting a positive tone for everything that follows. When you express your thankfulness for what you have, you open yourself up to receiving more blessings in return.

Offering a prayer before eating food is a practice that can instill mindfulness and appreciation for the nourishment you're about to receive. It's a moment to acknowledge the effort that went into preparing your meal and the privilege of having food on your table.

Praying before making investment decisions in the stock market is a powerful way to seek guidance and wisdom. The stock market can be unpredictable, and a prayer can bring clarity to your thoughts, helping you make more informed choices and remain calm, even in turbulent times.

And, before going to sleep, a prayer can be a moment of reflection and surrender, allowing you to let go of the day's worries and find inner peace. It's a reminder that we are not in control of everything, and that surrendering to a higher power can bring comfort and restful sleep.

Incorporating prayer into your daily routine can indeed help you stay grounded, make better decisions, and become a more centered and compassionate person. So, don't underestimate the power of prayer in your life—it can be a source of strength, clarity, and personal growth.

13. Outperforming the market is a difficult task

Outperforming the market is not easy, but it's also not impossible.

As long as you maintain a steady temperament and invest for the long term, you have a much better chance of outperforming the market and most institutions by a wide margin.

14. An investor who has all the answers doesn’t even understand all the questions

In the complex and ever-changing world of investing, it's crucial to recognize that there are often more questions than answers. The markets are influenced by countless factors, and their dynamics can be unpredictable. Even the most seasoned investors must continuously adapt to new information, market shifts, and unexpected events.

So, while someone may seem like they have it all figured out, it's essential to remain humble and open to the idea that there's always more to learn. Successful investors understand that there are limits to their knowledge and that the investment landscape can surprise even the most experienced individuals.

Stay curious, acknowledge our limitations, and approach investing with a healthy dose of humility. After all, the best investors are those who are not just well-versed in answers but also acutely aware of the questions they have yet to explore.

15. There’s no free lunch

This saying holds true not only in the world of investing but in life in general.

People tend to speak favorably or critically of us, often driven by their own self-interest.

Avoid putting your money into overhyped IPOs. The companies that manage these IPOs pocket substantial commissions in return. Before you decide to invest, make sure to conduct thorough research.

Don't make investment decisions based solely on tips from others. Always ask yourself why someone is sharing that tip with you. If it's such a surefire strategy, why aren't they using it to make a fortune themselves?

Be cautious when dealing with free advisors. They might advise you to buy certain stocks while they sell the same stock for a profit. Alternatively, they may suggest others to sell, only to scoop up the stocks at a discount.

16. Do not be fearful or negative too often

There have been corrections, perhaps even crashes, wars, calamities, pandemics, and even changes in governments. Markets have witnessed these events and have not only survived but also continued to progress. This resilience will likely persist into the future.

Over time, stocks tend to appreciate in value.

It's essential to practice caution without succumbing to fear or negativity.

Also read Charlie Munger’s 10 Rules of Investing for Success in the Stock Market.