Stock Picking, John Templeton and Me

My previous post brings something to mind. Something I remember reading Sir John Templeton saying in the late 1980s or early 1990s.

Sir John remarked on the difference between successful investors and mediocre investors. He said successful investors get 6 out of 10 stock selections right, and mediocre investors get 4 out of 10 right.

I've tried Google searches, looking for an article with him saying that to document it, to check my memory. So far I haven't been able to find it. (If any readers can, please shoot me an email.)

But, for the moment, let's assume my recollection is correct. That means if I can live up to Sir John's standards, some of the stocks in the "Current Holdings" menu at the right will prove to be losers. Right now, Media General (MEG/NYSE) and Takefuji Corp. (8564/JP or TAKAF/OTC) qualify. Nikko Cordial (NIKOY/OTC) is a big loser over the past year, but remains a profitable investment on the whole since being recommended in 2005.

Then again, Controlled Greed.com is less than two years old. And, as I posted in a comment the other day, with a time horizon of up to five years, this blog has ample time left to see its stock picks turn to losers.

Yet I'm optimistic most won't be losers. Or that the ones that are will simply be "non winners" -- or "dead money" to put it another way. Then a few big winners can make the portfolio as a whole live up to Sir John Templeton's standard of success.

Comments

[Trent]

To be successful on a 60% batting average, I would guess it is being measured relative to the market. So dead money is only non-negative if you define it as earning the market return.

[Moon]

As important as the 4 or 6 "right" selections in Templeton's metric is how the 6 or 4 other selections panned out. An investor who gets 4 "right" and the other 6 "dead" (as you tagged them) could well outperform an investor who gets 6 "right" and the other 4 "wrong" (losers).

Perhaps Templeton didn't intend to peddle a rigorous metric, and simply meant to say that all investors are wrong sometimes; it's just that successful ones are wrong somewhat less frequently than mediocre ones.

[Jason]

Remember, baseball is the only competition where you can be successful 3 out of 10 times and be considered an all-star. :)

[John]

Trent and Moon: I think this was just meant by Templeton as a rule of thumb. My memory is he just made the statement, it wasn't the subject of a feature length article.

Jason: You took the words right out of my mouth, sort of. I was going to say that in baseball batters who fail 7 out of 10 times make millions more than those failing 8 out of 10 times.