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John Templeton – The Penny Stock Billionaire!

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Little Known Story of a Penny Stock Billionaire

Sir John Templeton is one of the greatest ever investors not many people know about. Templeton was born in 1914 into a working class family in Tennessee. A young, bright student, he received a scholarship to attend Yale University, graduating in 1934 with a degree in economics. Two years he studied for a masters degree in law at Oxford University, England. When he returned to the United States, he worked in New York City for a brokerage firm, Fenner & Beane, which later became known as Merrill Lynch.

In March 1939, Hitler invaded Czechoslovakia, causing the outbreak of World War II. During the war, Templeton borrowed $10,400 to setup his portfolio. Borrowing money to invest wasn’t the most prudent approach to investing but paid off handsomely in the long run. Templeton used the loan to purchase hundred shares of in 104 companies trading under $1 per share on the NYSE. By the end of the war, his portfolio was up 400%, despite 34 of the companies going bankrupt. This capital acted as a catalyst that later helped him become a billionaire!

During the Great Depression he co-founded an investment firm, Templeton, Dobbrow & Vance. The firm was incredibly successful and grew to $300 million in assets with eight mutual funds under management. In 1954, Templton moved to the Bahamas and started the Templeton Growth Fund as a hobby. He multiplied its value by twenty fold in as many years using a contrarian approach, he was one of the first individuals to invest in Japan in the mid 1960s.

Back then if you invested $100,000 into his fund, it would have been worth $55 million in 1999. From 1954 to 1992, the fund had an impressive annual return of 14.5%. In 1962, he sold his stake in the Templeton, Dobbrow & Vance firm and retired.

Achievements

Over the next 25 years, Templeton created some of the most successful international investment funds. In 1999 Money Magazine named him one of the “greatest stock pickers of all time.” In 2007, he was listed in Time’s Magazine 100 most influential people due to his generosity. During his retirement he setup the “John Templeton Foundation” and gave significant donations to scientific and spiritual research.

10 Investment Rules he Followed

  • Be an eternal optimist.
  • Be a global investor – he made a fortune investing in undervalued Japanese stocks.
  • Crisis investing – Templeton’s timing was always perfect, investing at the start of the second World War was a strange tactic that led to him being labelled as the “penny stock billionaire.”
  • Invest like a contrarian – Templeton was the ultimate contrarian and took advantage of crises to purchase shares at bargain prices.
  • Understand how to find bargains – be greedy when others are fearful and fearful when others are greedy!
  • Be patient, invest for the long term – there will be cycles of bull and bear markets but Templeton believed common stocks would perform well in the long-run, despite temporary downturns.
  • Recession is a happy hunting ground.
  • The four most dangerous words in investing is “this time its different.”
  • It pays to be a great student.
  • Always be humble.

Best Stock Market Documentaries to Watch

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Quants: The Alchemists of Wall Street

The documentary offers a great insight into “what a quant is” and the role they play in the global finance markets. The quant’s featured in the documentary were Paul Wilmott, Mike Osinski, Matthew Goldstein and Emanuel Derman. These math geeks were involved in the creation of software programs and complicated algorithms that were involved in a financial crisis. The short film also explores the moral aspects of their job and its impact on society.

BBC Million Dollar Traders

Former Goldman Sachs trader Lex Van Dam risked £1 million of his money to prove it’s possible to take people with no previous trading experience and turn them into a successful city trader. Van Dam enlists the help of old GS buddy Anton Kreil to manage and advise the novice traders. Anton Kreil was an interesting character, (seemed a bit up his own arse) you can checkout some of his videos on YouTube. In total there were 8 traders that came from all walks of life. There’s a shopkeeper, fight promoter, retired engineer, retired army officer, single mother and a student but as the pressure mounted very few make it to the end. The diverse background of the individuals create an interesting dynamic that was both entertaining and at times frustrating to watch (old Simon in particular). The most fascinating insight from the program was the psychological effect it had on some of the participants, some thrived others buckled. It’s important to note that the markets were extremely volatile during filming in 2009.

BBC Traders – Millions by the Minute

Due to the success of Million Dollar Traders the BBC financed another trading related program. Its definitely worth a watch but nowhere near as good as MDT. Millions by the Minute is a two-part series, in part one it follows two women Karen Finerman, who runs a $200 million hedge fund and Virginia McGathey a commodity futures broker. Other financial traders interviewed were Scott Redler a prop trader in New York and Forex traders Piers Curran + Will De Lucy of Amplify trading.

Part two is more interesting and concentrates on retail traders who trade from home. The scary thing is how new trading technology allows anyone to trade the markets. Some of it is hard to watch especially Jane, the nurse who trades forex on a demo account and Rene a retired antiques dealer that has only broke even after 7 years. Justin and Akil from Birmingham run a hedge fund from a small bedroom. They supposedly manage over £1 million which seems like pure bullshit. Charlie Burton also seems a bit sketchy, claims to be a millionaire from Forex trading. It’s more likely he makes the majority of his money selling expensive trading education.

Wall Street Warriors

WSW is a classic that pretty much everyone has seen by this stage. All three seasons can be viewed online, it took over five years for the third season to finally be released but was definitely worth the wait! I wrote a blog post (click here) covering what has happened to some of the characters featured in the series since the show aired. Surprisingly one of them ended up in jail.

Floored: Into the Pit

2 hour film describing how the shift to electronic trading negatively impacted Chicago Floor traders, whose jobs would eventually be replaced by computers. Upcoming young traders who can leverage new trading technology will replace the old pit traders who refuse to adopt. One trader who lost his job during that time, proclaimed that computers were “evil”, now ironically trades (using a computer) for a prop firm. Adrenaline junkie with a passion for hunting, Mike Wash is strongly opposed to e-trading. Former hot-shot Jeff Ansani lost nearly everything on one trade in 1994, now only works as clerk on the floor. Greg Riba was the most entertaining in his two minute cameo and was clearly intoxicated while being interviewed.

The Wall Street Code

Goes into great detail explaining how algorithmic trading and super computers are taking over Wall Street. Former Goldman Sachs quant, Haim Bodek’s high frequency trading company went bust in 2011 due to exchanges not executing his order types correctly. High-frequency trading firms fight over every tick of a stock. They send millions of orders through the exchanges, taking tiny profits but done over an extended period of time, results in substantial gains.

 

Did Warren Buffett Ever Invest in Penny Stocks?

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Yes Buffett did invest in pink sheet penny stocks when he was young, according to the book The Snowball. He loved investing in cheap stocks at discounted prices, which at the time were bargains. He made a vast fortune buying penny stocks and day trading. Buffett was investigated by the SEC in 1974-1976 for manipulating the price of a penny stock called Wesco. Him and Charlie Munger bought  shares at a higher-than-necessary price. Buffett did this as he was buying the company and  had made a promise to a shareholder that he would keep the price above a certain number. He sort of admits what he did was wrong, but it didn’t affect his reputation and one of his companies had to pay a $115,000 fine.

Warren Buffett was born in Omaha, Nebraska on August 30, 1930, the second of three children and the only boy. Today, he’s one of the world’s richest men and in fact his childhood was rather privileged, too. His father Howard was first a stockbroker and then a congressman.

Nonetheless, despite this rather privileged upbringing, Buffett himself always showed an aptitude for hard work and an entrepreneurial spirit.

Early years

When he was 11, he made his first ventures into business by buying six packs of cola from his grandfather’s grocery store and then reselling them for a small profit. It was at this age that Warren buffet investing skills begin to make their presence known, too. He also made his first investment in the stock market at this age.

An early and temporary loss in the stock market also taught him a lesson. After he bought his first three shares in City Service Preferred at $38 a share for himself and his sister Doris, the stock fell to $27 a share. Buffett help those shares until they went back up to $40 a share and then promptly sold them. However, they eventually came to be valued at over $200 a share. It was then that he realized that patience is necessary when it comes to investing. He has never forgotten that lesson.

In 1947, he graduated from high school. He never intended to go to college because he’d already done quite well with his entrepreneurial skills, having made $5,000 delivering newspapers. (1947’s $5,000 would be worth over $42,000 as of 2000.)

However, his father urged him to attend the Wharton business school at the University of Pennsylvania. Buffett did so, but he complained the entire time that he knew more than his professors did. He transferred to the University of Nebraska Lincoln in 1948 and graduated from there in three years.

He then applied to graduate school at Harvard Business School, but was denied admission because he was thought of as “too young.” Undaunted, warren applied to Columbia and was able to study under the tutelage of famous investors Ben Graham and David Dodd. This experience would change him forever.

Mentor Ben Graham

Ben Graham was a pioneer of his day because during the 1920s, he played the “investment game” very carefully by buying very inexpensive stocks so that this investment was almost completely risk-free. He also came up with the principle of “intrinsic” value as a way to measure a business’ true worth, independent of stock price. In this way, investors could decide for themselves what a company was worth and make investment decisions based upon that information.

His investment principles were simple but sound, and he became an immediate mentor to young Mr. Buffett. Buffett discovered when he was reading an edition of Who’s Who that Graham was in fact the chairman of small insurance company called Geico. Buffett immediately made it his task to go to Washington, DC to find the headquarters. He did, and was introduced to the financial vice president, Lorimer Davidson. They talked for four hours about various business practices, something that would be invaluable to Buffett. Later, he acquired Geico through his corporation, Berkshire Hathaway.

After graduating from Columbia, Buffett briefly worked for his father’s brokerage firm and then for his old mentor Ben Graham. During his time there, he began to search for investment opportunities. Warren’s approach was to find out how a company worked and how it was superior to competing companies. In 1950, he started investing with $9,800 and ended up with over $140,000 by 1956.

In 1956, he gathered up seven limited partners, including his sister Doris, and created the first of the Warren Buffett companies, Buffet Associates, Ltd. By the end of that year, he was in charge of about $300,000 in capital. Over the next five years, his partnerships made an amazing 251% profit, this when the Dow was only up 74.3%. By 1962, he had more than 90 limited partnerships across the United States with capital in excess of $7.2 million. $1 million of that was Buffett’s personal stake. Eventually, he liquidated that fund and took control of Berkshire Hathaway, a textile company.

Berkshire Hathaway

Buffett eventually ended Berkshire Hathaway’s textile involvement, but kept the name itself for what became his portfolio of companies. He began to invest in majorly undervalued companies such as Coca-Cola, the Washington Post, and American Express. Today, Berkshire Hathaway owns large holdings in many previously undervalued companies that have become major players in the market.

Philanthropist and humble man

In spite of his incredible wealth, Buffett remains a humble man who still lives in the house he bought in 1958 in Omaha, Nebraska. He has and plans to continue to give much of his wealth away to charity, much of it while he is still alive. Most of this money will go to the foundation friend and fellow billionaire Bill Gates has set up.

Jesse Livermore – Greatest Stock Trader of All Time?

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Jesse Livermore was one of the worlds greatest stock traders. He made millions on Wall Street yet his story is as sad as any Shakespeare tragedy. He’s a prime example of why money can’t buy happiness. His story starts way back in 1877 when he was born on a small farm in Massachusetts. Jesse’s father was a farmer, and he wanted Jesse to become a farmer. Jesse knew from a young age that farming wasn’t the life for him. So at the age of 15, he ran away from home and went to the big city of Boston to make his fortune.

Jesse got a job at Paine Webber (a stock brokerage firm) as a Board Monkey. This involved him reading stock quotes off the ticker tape and then writing them on the big board so the stock brokers behind him could see what was going on in the stock market. As time went on he started to see patterns in the numbers and was able to guess (with great accuracy) where the numbers would be at the end of the day. One of his buddies told him he was so good that he should be betting on the stocks.

He started going to bucket shops. A bucket shop was a place where you could place your bets on stocks without the inconvenience of actually owning any stocks (nowadays this sort of activity is illegal). So Jesse began placing bets on stock prices and he started making money. At the age of 15 he had made a $1,000, which is about $20,000 in today’s money (probably more with all the inflation). Despite his early success Jesse still wasn’t satisfied. He didn’t see the stock market as a way to make money, he saw it as a game that he wanted to win.

Eventually, Livermore was banned for life from bucket shops due to the amount of money he was making. Jesse took all his money and went to New York City to become a stock trader. He became successful and began to create systems and rules for himself to follow so that he would consistently make money in the stock market. Then came the stock market crash of 1927, but Jesse seen this coming and shorted the market all the way down and made $3 million from the collapse. By this stage he was still in his 20’s and was able to retire, but not Jesse he still wanted to play the game.

Not long after that Jesse began breaking his own strategy and started taking stock tips from other traders. Livermore traded things he didn’t even understand, even commodities like cotton. He lost everything he made and ended up going bankrupt. Then came World War 1, Jesse saw the markets trending upwards and he rode the market up and down again making back everything. Another stock market crash came in 1929 and once again Livermore banked big time, making more than a $100 million, over a billion dollars in today’s money.

Jesse was on top of the world, he owned mansions all over the world fully staffed with servants 24 hours a day. He learnt from last time and protected his wealth putting it into trust funds. Jesse had conquered and won the game, but he didn’t feel like he had won and once again he started losing all of his money. On November 28, 1940, he walked into a cloak room in a fancy hotel, took out a gun and shot himself. A note was found in his pocket written to his wife saying  “I’m unworthy of your love, I’m a failure.” Livermore thought the stock market was a puzzle he could solve and his goal was to conquer the market, but that goal was unattainable.