Billionaire investor Sir John Templeton was a creature of habit…
At the stroke of noon every single day, he would leave his posh Wall Street office to exercise, eat lunch and do some distraction-free reading about the stock market. When he returned to the office, he was refreshed and ready to get to work doing what he did best: buying stocks.
And he did it very well — so well, in fact, that he was known as “the greatest global stock picker of the century.”
But on Oct. 19, 1987 when he returned to his office, he was greeted by full-on pandemonium. His staff surrounded him, screaming that the market had completely collapsed.
“What do we do!?!” they pleaded.
But Templeton wasn’t overcome with dread. He didn’t drop to his knees and panic. He quietly pondered the moment and calmly gave his staff one simple instruction.
“Let’s find stocks to buy.”
The stock market had suffered what we now call Black Monday. The Dow Jones Industrial Average lost 508 points — almost a quarter of its value — in one day. That is the worst single-session percentage drop in history.
Most people were running for the hills. Some analysts thought this would be the death of the stock market for years to come. Long story short, ordinary investors were selling off their portfolios at massive losses.
But Templeton was very familiar with the Baron Rothschild quote, “Buy when there is blood in the streets… even if it’s your own.”
So not only did he not sell, he bought like crazy. And it wasn’t the first time either…
During the Great Depression, Templeton bought 100 shares each in 104 different companies that were selling at less than one dollar per share. Only four turned out to be worthless, and he turned massive profits on the other 100.
You see, Templeton believed in buying solid stocks at the time of “maximum pessimism.” In doing so, you can lock in discounted stocks you would have liked to buy anyway but thought were too expensive. It sounds incredibly simple… but it’s hard to swallow when all you see is panic and chaos. You just have to stick to your guns and think long term. It also helps to avoid the screaming headlines in the Wall Street Journal and the exploding heads on cable television.
While the talk of a market crash can get your blood pumping, your eyes twitching, and send you into a hair-ripping despair, that is exactly what you need to avoid to make yourself a successful post-crash investor.
You need to stay calm and start buying.
But Templeton was hardly the only visionary investor who has made his fortune by doing just that…
After the 1987 crash, instead of liquidating his positions at a huge loss, Warren Buffett did what he does best: value investing.
He started loading up on Coca-Cola shares at a discount. Here’s a recap from a Buffett biography:
In 1988, he started buying up Coca-Cola stock like an addict. His old neighbor, now the President of Coca-Cola, noticed someone was loading up on shares and became concerned. After researching the transactions, he noticed the trades were being placed from the Midwest.
He immediately thought of Buffett, whom he called. Warren confessed to being the culprit and requested they don’t speak of it until he was legally required to disclose his holdings. Within a few months, Berkshire owned 7% of the company, or $1.02 billion dollars worth of stock.
Within three years, Buffett’s Coca-Cola stock would be more than the entire value of Berkshire when he made the investment.
You don’t make returns like that by buying at the top. Crisis investing is one true mark of a seasoned, successful investor — and you don’t have to be a millionaire to get started. Say you were an ordinary investor on Black Monday. If you bought into the broad market immediately following the bloodbath, a mere five years later, you would have reaped an annual gain of 14.5%.
Compare that to the average five-year gain of 9.7% between 1926 and 1987.
If you held for 10 years, that same portfolio would have jumped to 17.2% compared to the stagnant growth of 9.9% in the decades between 1926 and 1987. You could set yourself up for life with a few safe and easy moves. I’m not talking wild speculation here: After 1987, large-cap stock prices rose 12% in 1988 and about 27% in 1989.
With another market correction teetering on the edge of every Fed statement, you’ll need to work quickly. With the Fed set to start raising rates as early as next month, we could see a major slide by the end of the summer.
This market is like a game of musical chairs. Just don’t keep walking around in circles until the music stops. Pick yourself out a nice seat, and comfortably prepare to load up while other investors run frantically around trying to find somewhere to sit.
