Values and Virtue

by Paul Sutherland

Posted February 10, 2010

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February Edition

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by Barry Hyman

FIM Group's Energy Focus

by Suzanne Stepan

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At FIM Group we are forward-looking, value-oriented
investors who believe that we are compensated for risk by including a margin of error in each investment we make. The margin of error comes from paying the right price. We use diversification, asset allocation, careful security selection and emotional peace as our investment tools, and we are always weary of the "five poisons" that can affect the investment decision-making process.

My brother dropped by my house last Sunday morning and said, “Did you know Warren Buffett is a Buddhist?” “Huh?” I said, looking up from a spoonful of Cheerios destined for my 22-month-old son, Patrick’s, mouth. “Yes! He said that emotional peace is one of the keys to his success!” We chatted about that for a while, and then I told him about another investor who had virtue written all over him – Sir John Templeton. There is no single investor who has had more influence on our firm’s old-timers – namely, Jeff Lokken and me – and our investment philosophy. In his foreword to the book Investing the Templeton Way, Templeton stated that he relied on the following motto throughout his investing career: “To buy when others are despondently selling and to sell when others are avidly buying requires the greatest of fortitude and pays the greatest ultimate rewards.”

While he did not specifically mention "inner peace," I think Templeton’s use of the word "fortitude" communicates the same message. Templeton, like Buffett, didn’t allow the noise of politics, self-serving Wall Street and the hype of investment fads to sway him from his mission. Both he and Buffett stayed true to their investing theme of searching worldwide to be compensated for taking on the risk of investing, and to be goal-oriented – not fad-oriented – in their investment approach. I can find little approval for indexing, benchmarking, passive asset allocation, laddering, hedge fund leveraging, using trust companies as advisers, or consultants that can give you history but not discuss the future.

Both Buffett and Templeton knew about the future, and both had The Intelligent Investor by Benjamin Graham (1949) on their bookshelf.

Sin of Sloth

Growing up, I attended catechism classes at St. Phillips, but I was not allowed to go to confession because I lacked one important criterion – I was not Catholic. So despite giggles and notes being passed during class, I managed to learn a bit about sin and virtue. The "high scholars" we were, we interpreted sloth, one of Catholicism’s "seven deadly sins" as simply, doing anything that we found fun. While the priest talked about attractive, seductive distractions and how they could lead us to sin, we of course thought about those attractive, seductive, distractions and let the sin part lie at the steps of St. Phillips.

Today, I realize that I have recently succumbed to the sin of sloth. Over the past few months I have allowed myself to get caught up in a dialogue that really has little to do with investing, but which both Jeff Lokken and I love to discuss: politics and political economy. While politics does have something to do with investing, it is not investing, and it certainly is a waste of time to spend valuable newsletter time writing about politics. In other words, it is part of the landscape, but is not the landscape. Chatting about tax laws, Obama’s philosophy on health care, McCain’s fix for the banking industry or Clinton’s Internet globalization agenda, while useful and seductively interesting, is in large part a waste of time in the world of investing.

Politics in Perspective

Global political dialogue is interesting and can indeed influence capital flows, but it is merely one input among thousands than can affect investing. And for investors to concentrate their efforts on the political influence on any one investment, then, really is an insidious, irresponsible, slothful waste. Americans seem to especially enjoy wallowing in politics, the slimy underbelly of our American life. My gosh, if you’ve listened to talk radio or Fox News lately, you would think that the future of capitalism and the free world rests on the ability of unions, associations and businesses to continue to buy votes unencumbered, which of course concerns us here at FIM Group as Americans, but really just helps certain industries and creates barriers for others. So I confess I was slothfully giving various political commentators more time than they were worth. America is too big, and we are too smart to let a few Republicans or Democrats ruin our democracy or capitalism for that matter. Capitalism is what works in the world. It is messy, politicians will mess with it, populists will sway the masses, large businesses will create barriers to competition and creative destruction will happen in America because we are capitalists.

Templeton's '10'

Back in the 1970s, we set out to find our place in the overhyped, seductive, oversimplified world of investing that was full of guaranteed annuities, "Nifty Nifties," blue chips, gold bugs and real estate partnerships, and we felt that Sir John Templeton’s long-term, values, virtue and common-sense approach would be our fort. Templeton had 10 maxims* that we incorporated and made our own. While Sir John may no longer be with us, his words are as timely today as they were back then and, of course, we have now nearly 35 years of working on the fortitude and inner peace bit of his core teaching.

Invest for real returns

The true objective for any longterm investor is maximum total real return after taxes.

Keep an open mind

Never adopt permanently any type of asset or any selection method. Try to stay flexible, open-minded and skeptical.

Why follow the crowd?

If you buy the same securities as other people, you will have the same results as other people... To buy when others are despondently selling and to sell when others are greedily buying requires the greatest fortitude and pays the greatest reward.

Everything changes

Bear markets have always been temporary. And so have bull markets.

Consider avoiding the popular

Too many investors can spoil any share selection method or any market timing formula.

Learn from your mistakes

‘This time is different’ are among the most costly four words in market history.

Buy during times of market pessimism

The time of maximum pessimism can be the best time to buy, and the time of maximum optimism can be the best time to sell.

Hunt for value and bargains

In the stock market, the only way to get a bargain is to buy considering what most investors are selling.

Search worldwide

If you search worldwide, you will find more bargains and better bargains than by studying only one nation.

No one knows everything

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

Play Nice

I believe that because of John Templeton’s deep faith and worldview, he felt it was self-evident that virtue, ethics, honesty, transparency, a common good orientation and sustainable business models were important and should be included in any investment philosophy statement. I also believe that he felt that adding them to his maxims would be as redundant as reminding an adult to "play nice."

If you interested in reading the book Investing the Templeton Way; The Market-Beating Strategies of Value Investing’s Legendary Bargain Hunter e-mail This e-mail address is being protected from spambots. You need JavaScript enabled to view it or call 231.929.4500, and we will be happy to send you a complimentary copy.