This Time is Different: Marcus Templeton said this phase was costly in 1933, but here is when it may be true

Nick Sundich Nick Sundich, January 11, 2024

‘The investor who says, “This time is different,” when in fact it’s virtually a repeat of an earlier situation, has uttered among the four most costly words in the annals of investing’. This quote was said by John Templeton’s in his work ‘16 rules for Investment Success‘.

Why Templeton thought ‘This Time is Different’ was dangerous

Templeton believed that investors who think “this time is different” are often caught up in market trends and fail to see the bigger picture. They become overconfident and ignore warning signs, leading to rash decisions that can result in heavy losses. This belief stemmed from Templeton’s experience during the Great Depression, where many investors believed that the stock market would continue to climb indefinitely. However, Templeton saw the warning signs and predicted the eventual crash, leading to him making significant profits. Templeton also warned against blindly following popular investment trends or strategies without understanding their underlying principles. He believed that this type of herd mentality was dangerous and could lead to financial ruin.

In today’s fast-paced financial world, where information is readily available and market trends change quickly, it is more important than ever to heed Templeton’s warning. Blindly following the crowd or believing that “this time is different” can be disastrous for investors. Instead, Templeton advocated for a contrarian approach – going against the grain and thinking independently. He believed in doing thorough research and analysis, looking for undervalued opportunities and being patient in the face of market volatility.

Templeton’s words continue to hold true today as investors face new challenges and uncertainties. As tempting as it may be to believe that “this time is different,” we must remember the lessons from Templeton and always approach investing with caution, diligence, and an open mind. Only then can we truly have a chance at achieving long-term success in the ever-changing world of finance.

 

When it might be really different for a stock you own

All this being said, some of the most spectacular returns can be made from betting on unloved stocks that really are turning a corner – and it really is different. But how can you avoid picking stocks that just say they are different from the past, but are still stuck in a never-ending cycle of mediocrity? In our view, there are 5 key catalysts.

First, if long-term management departs and are replaced by a new team, particularly if that team has a proven track record of turning around companies. Second, if the company is selling off non-core assets, allowing it to focus on core operations that will actually generate it revenue. Too often, companies with several operational divisions can be ‘The Jack of all trades and the Master of none’ and achieve very little. Allowing it to focus on businesses that will generate it cash will be in the best interests.

Third, if you can see a turnaround in the company’s financial results, particularly if its top and bottom lines (revenue and profit) are improving, but also other metrics such as Return on Assets or Net Tangible Assets. Fourth, if a new fund manager buys into the stock, particularly those with a proven track record of presiding over turnaround stories and have clear ideas to help management turn the businesses around. Yes, institutional fund managers often like taking a hands on approach to their investment and advising management on how they can turn around the business. After all, it is their clients’ money on the line. Fifth and finally, if the share price has clearly broken out of a downtrend. This can be difficult to determine, especially for investors who are not well skilled in technical analysis, although it is a good indicator.

 

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