Sir John Templeton was a legendary value investor over several generations and in an elite group with the likes of Warren Buffett. He passed away in 2008 at the age of 95. In the year before his death, his great-niece, Lauren Templeton and her husband, Scott Phillips, worked with Sir John to co-author the book: Investing the Templeton Way: The Market Beating Strategies of Value Investing's Legendary Bargain Hunter. I'm still reading it and will do a more thorough write-up if worthwhile for you.

Crisis and Opportunity

One chapter in the book - Crisis Equals Opportunity - deals specifically with investing during crises. The chapter begins by pointing out that when written in Chinese, the word crisis is made up of two characters - one represents danger, and the other represents opportunity.

A table in the chapter (see below) lists how U.S. stocks performed during and after some major crises that occurred over Sir John's career. For each crisis you can see the date the crisis began and how many days it lasted until the market's bottom and the percent decline in the stock market as measured by the Dow Jones Industrial Average.





The last two columns are of great interest. The second to last column shows what happened to $100,000 invested just before the crisis began and held for five years. The last column shows what happened to $100,000 invested at the completion of the crisis (market low) and then held for five years.

							Growth of $100K Invested for 5 Years
		Event	Duration to		% Change
Crisis		Date	Low (days)		to Low		Pre-crisis		Post-crisis
Pearl Harbor Attack		12/7/1941	12		-8.2%		$146,633		$166,767
Korean War		6/25/1950	13		-12.0%		$200,262		$231,698
Pres. Eisenhower's		9/26/1955	12		-10.0%		$120,036		$134,239
Heart Attack
Blue Monday		5/28/1962	21		-12.4%		$149,929		$162,778
1962 Panic
Cuban Missile Crisis		10/14/1962	8		-4.8%		$146,593		$160,313
Pres. Kennedy		11/22/1963	1		-2.9%		$131,733		$135,918
Assassination
1987 Crash		10/19/1987	1		-22.6%		$141,287		$183,380
United Airlines		10/13/1989	1		-6.9%		$140,451		$151,421
LBO Failure
Persian Gulf War		8/2/1990	50		-18.4%		$162,122		$200,219
Asian Financial Crisis		10/27/1997	1		-7.2%		$107,781		$117,910
September 11 Attack		9/11/2001	5		-14.3%		$118,596		$140,039

The lessons, according to the authors:

• "...a number of different events and scenarios can disrupt the stock market and create mass selling. Political events such as the outbreak of war and a threat to the nation's leadership tend to present some of the easier opportunities for a bargain hunter with a cool demeanor."
• "...in each instance an investor with a long-term time horizon should gain from adding to his or her investments during these fits of selling."
• "Despite the commonsense appeal of being a buyer when the rest of the market is selling out of fear, this is a difficult task to execute. The problem is once again that all the psychological duress that the stock market can muster will be thrown directly into your face." 

Sir John's book was published before the 2008 financial crisis unfolded. While five years have not yet elapsed, those who were patient and had the courage to buy stocks when they were depressed in late 2008 and early 2009 have already been handsomely rewarded.

The 2008 crisis was unlike any in Templeton's table above. He had an answer to that too:

"...each instance looks somewhat different and exact comparisons to historical crises are not easy to make. This will always serve to rattle investors. If the comparisons were easy, it is probable that there would not be a sell-off. Regardless, the wise bargain hunter is a student of history. Bargain hunters embrace the timeless lesson from history that crisis equals opportunity."

Copyright Eric Tyson, 2008 - 2010 all rights reserved.

Eric Tyson is the only best-selling personal finance author who has an extensive background as an hourly-based financial advisor and who does not accept speaking fees, endorsement deals or fees of any type from companies in the financial services industry or product or service providers recommended in his articles, books and his publications.