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CONTRIBUTORS

Christopher Peel, CFA

Portfolio Manager
Templeton Global Equity Group
Bahamas

The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell"
Sir John Templeton

As value investors, we are continually searching markets for stocks that we believe are attractively valued relative to their long-term fundamental intrinsic value. Among the most fertile hunting grounds for such companies, we believe, are areas that might be considered pockets of pessimism. These are industries or companies where the market’s focus on weak short-term profitability provides an opportunity to invest at potentially attractive long-term valuations.

Conversely, we seek to avoid pockets of optimism, namely areas of the market that we think are expensive and where we believe investors are overestimating long-term earnings power—two factors which, taken together, can lead to poor long-term returns.

In this paper, we hope to shed further light on a philosophy which has been central to our investment approach since the late Sir John Templeton established the first Templeton fund in the early 1950s. Here, we introduce a proprietary framework for defining pockets of pessimism and optimism and demonstrate how the investment team at Templeton Global Equity Group seeks to profit from contrarian value opportunities.

Read the full paper to learn more about the following topics:

  • Taking advantage of market sentiment
  • Identifying a pocket of pessimism
  • Our historical study
  • Case study: UK household durables industry

WHAT ARE THE RISKS?

All investments involve risks, including possible loss of principal.

Equity securities are subject to price fluctuation and possible loss of principal.

Active management does not ensure gains or protect against market declines.

Special risks are associated with investing in foreign securities, including risks associated with political and economic developments, trading practices, availability of information, limited markets and currency exchange rate fluctuations and policies; investments in emerging markets involve heightened risks related to the same factors. Sovereign debt securities are subject to various risks in addition to those relating to debt securities and foreign securities generally, including, but not limited to, the risk that a governmental entity may be unwilling or unable to pay interest and repay principal on its sovereign debt. To the extent a strategy focuses on particular countries, regions, industries, sectors or types of investment from time to time, it may be subject to greater risks of adverse developments in such areas of focus than a strategy that invests in a wider variety of countries, regions, industries, sectors or investments.

Any companies and/or case studies referenced herein are used solely for illustrative purposes; any investment may or may not be currently held by any portfolio advised by Franklin Templeton. The information provided is not a recommendation or individual investment advice for any particular security, strategy, or investment product and is not an indication of the trading intent of any Franklin Templeton managed portfolio.

IMPORTANT LEGAL INFORMATION

This material is intended to be of general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy. All investments involve risks, including possible loss of principal. There is no guarantee that a strategy will meet its objective. Performance may also be affected by currency fluctuations. Reduced liquidity may have a negative impact on the price of the assets. Currency fluctuations may affect the value of overseas investments. Where a strategy invests in emerging markets, the risks can be greater than in developed markets. Where a strategy invests in derivative instruments, this entails specific risks that may increase the risk profile of the strategy. Where a strategy invests in a specific sector or geographical area, the returns may be more volatile than a more diversified strategy.

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