This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Revisiting the Templeton Trade

This column originally appeared on Real Money at 5:00 p.m. EDT on May 4.

NEW YORK ( Real Money) -- The clan gathered at Chez Melvin yesterday evening for a little wine and cake in celebration of the old man getting older.

It was a gorgeous night, so we sat out on the patio enjoying some conversation, and my son and I got onto the subject of stocks and the stock market.

I am teaching him how to use some basic value techniques and to focus on long shots that can offer dramatic returns over time. He is young enough that he can be much more aggressive in his approach to the markets and focus more on distressed equities with the potential for recovery.

During our conversation, I told him one of my favorite stock market stories. Sir John Templeton borrowed $10,000 before World War II and bought every stock priced at less than $1 on the NYSE. Over the next four years, the portfolio of cheap stocks quadrupled in value. It was the beginning of his fortune and spectacular investing career.

> > Bull or Bear? Vote in Our Poll

This investment strategy can still be employed today.

I adjust the $1 to $3 to capture more opportunities in low-priced NYSE-listed issues. Listed stocks trading for less than $1 today are often in danger of losing their listing and moving to the Nasdaq or even the pink sheets.

I add an additional rule to the screening process: no Chinese stocks. I do not trust one single number issued by a Chinese company, government agency or other source when it comes to the markets.

I assembled a portfolio of stocks that were trading for less than $3 on the NYSE back in 2008 when the world was thought to be ending.

I have kept track of how it performed, and it has actually done a little better than Sir John did with his low-priced speculation.

The portfolio has seen a few bankruptcies, several takeovers and mergers but most of the stocks are still listed today. The return is a nice multiple of 5 times the original capital rather than a paltry percentage. It is a high-risk and very volatile trade, but if I were a young man, this fertile arena would be the staple of my investing efforts.

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV


DOW 17,776.12 -200.19 -1.11%
S&P 500 2,067.89 -18.35 -0.88%
NASDAQ 4,900.8850 -46.5560 -0.94%

Our Tweets

Partners Compare Online Brokers

Top Rated Stocks Top Rated Funds Top Rated ETFs