Sir John Templeton wasn’t your typical Wall Street money manager.
His Templeton Growth Fund averaged a 14.5% return for 38 years, trouncing the major indices.
Every $10,000 invested in that fund in 1954 was worth well over $7 million by 2005.
The thing is, Templeton didn’t have any brilliant forecasting system, an ability to get out before a big market crash, or any other hard-to-replicate strategy.
His secret was simple and it explains why smart investors are buying into one the cheapest markets in the world today.
The Secret to 69,900% Returns
Templeton was a contrarian investor.
He took “buy low, sell high” an extreme.
He bought into international markets and companies hitting record lows. He waited for the “point of maximum pessimism” trigger to really buy in.
He bought fear...extreme fear.
The best example was In 1939. The continent was in shambles and was only getting worse. Templeton bought shares of every European stock trading below $1.00 a share. He made a fortune.
That move and countless more like it was why Money magazine called him, “the greatest global stock picker of the century.”
And if he were alive to this day, we’re sure he’d be a big buyer of Russia.
As a Profit Alert reader, you already know the many reasons why.
Your editor explained back in the December issue:
Russia is in the middle of a full-blown credit crisis.
Thanks to the entire situation, Russia’s economy is now expected contract to between 4.5% and 4.7% next year.
Investors, as you might expect, are reacting to all the bad news. The outflow of money from Russia has been accelerating. According to CNBC, money flow out of Russia has reached a negative $13.4 billion in the third quarter of 2014.
That’s more than double the $5.9 billion in a tough first quarter of 2013. And outflows are set to climb even higher in the current quarter.
All this is making the world’s cheapest stock market even cheaper. The Market Vectors Russia ETF (RSX) is down more than 39% in the last six months.
Things are horrible in Russia right now. Stocks are priced for far worse conditions. But this all should be familiar to experienced investors.
Despite Russia’s many issues, its stocks are some of the cheapest opportunities we’ve ever seen.
Since that report, Russian stocks are still one of the most hated markets around.
But -- and here’s the key -- they’re not as hated as they were.
It’s the classic setup we’ve seen (and profited from) many times before. Russia merely went from terrible to bad and the gains followed.
Russia has been one of the best performing markets of the year so far. It’s up 28% in two months.
That’s good. But it could be the start of something great.
Fortune Favors the Brave
Russian stocks have a lot going against them. But they have a lot going for them too.
We know that despite it’s recent recovery, the Russian market is still cheap.
It has a Price-to-Earnings (P/E) multiple of just under five. For comparison, the P/E multiple of the S&P 500 is 17.
The thing we like most though is the history of the extreme pessimism that engulfs Russia every few years.
When Russia collapsed in 1998 on debt default, Russian stocks fell from 75% from from peak to trough. They went on to soar 44,000% over the next decade.
Russia collapsed again in 2008. It also dropped 75%. Within three years it was up 320%.
With such a cheap valuation and pessimism surrounding it, the Russian market could very well beat U.S. markets over the next few months and years.
Buying on the “maximum pessimism” point never feels good or is easy to make. But Templeton’s track record and market history in general shows it has made many investors quite wealthy.
If you find it, buy it. You won’t regret it.