Penny Stocks - Sir John Templeton Style

hauler

Active Member
#1
Penny stocks in the "Fundamental Analysis" section can as well qualify as an oxymoron, but I am starting this thread to let boarders see and evaluate the investing style adopted by Sir John Templeton (http://en.wikipedia.org/wiki/John_Templeton) - called by many as "Greatest global stock picker of the 20th century".

In 1939 (End phase of The Great Depression era), John Templeton bought 100 shares of all the stocks that were listed on NYSE and was trading at a value of less than $1. Later, as WWII ended many of his stocks went to zero, but many of his stocks multiplied 20-25 times. Net result was huge money making for him.

consider a simple example-
Let there are 100 stocks trading on an exchange at a value of Rs. 10. you have a kitty of 1 lac rupees. So, you decide to buy 100 stocks each of all the stocks.

Money used = 10*100*100 = 1,00,000
Suppose you give all the stocks a time of 5 years. And in 5 years 80% of stocks have stopped trading (gone to zero), but rest of the 20 stocks have multiplied by at least 10 times.(value=200)
Current value = (0*80*100 + 200*10*100) = 2,00,00.
In 5 years, you are doubling the money - Not worth for the risk taken ? you may think that you are taking too much risk for not so magnificent returns. But in reality, the risk is equal to any other other long term investing style you might be using right now (Only large caps, basket of large and mid-caps etc.)

Why this strategy when index is at 20K ?
Although, sensex is at 20K hovering around sensex PE of around 14-16, the real destruction in last 5 years has happened in mid, small and tiny cap stocks.

More to follow...
 

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