Sir John Templeton’s Last Testament:
Financial Chaos Will Last Many Years
When Sir John Templeton passed away in July of 2008, we lost
one of the greatest investment minds of our time.
But with great lucidity, in June of 2005, Sir John penned a
memorandum to friends and family that is uncanny and prophetic
in its vision of what would happen to the U.S. and global
economy.
The first two words — so pithy yet so powerful — are bolded
and highlighted on his original document. They read, simply:
“Financial Chaos.”
Recently, Sir John’s son, Dr. John Templeton — “Jack” to his
friends — shared with me the memo, which never had seen public
light.
As Jack relates, his father wanted the memo to be widely
circulated. Unfortunately, it was not; instead, it was
discovered in a file cabinet only after Sir John’s passing.
Now, before you read Sir John’s memorandum below, let me
share with you some background information — information that
Sir John would have insisted that you know.
On two occasions Sir John invited me to his home base in
Lyford Cay, a small enclave of Americans and Europeans who live
in Nassau in the Bahamas.
I was among the last journalists to interview the man Money
magazine described as “arguably the greatest global stock picker
of the [20th] century.”
Sir John had become famous, first, as a trendsetter in equity
investing by becoming the foremost American expert in global
investing, which he began in the 1940s.
As he explained to me, just after graduating from Yale, he
was almost dumbfounded that Americans rarely invested abroad.
For a long time, he recounted, it was almost considered
unpatriotic for an American to buy foreign securities.
He eventually launched the Templeton Funds for such global
investing, which was later bought out by Franklin investments
and is now called the Franklin Templeton Funds.
Investors who took his advice did extraordinarily well.
Though of very humble means, Templeton himself became a
billionaire.
When I met with Sir John for the last time, for the purposes
of an interview that would appear in Newsmax’s Financial
Intelligence Report, our investor newsletter, Sir John made a
deal with me.
He would offer his views on the stock market and investment
advice if I made sure to include his views on spirituality and
faith. I agreed.
After officially retiring from the money management world,
Sir John’s main focus was to advance spirituality to improve the
human condition. His vehicle for doing so was his John Templeton
Foundation, based in West Conshohocken, Pa., and run by his son
Jack, a former surgeon.
The foundation is perhaps best known for its annual award,
the Templeton Prize, described as honoring “a living person who
has made an exceptional contribution to affirming life’s
spiritual dimension, whether through insight, discovery, or
practical works.”
For Sir John and Jack, faith and spirituality are not
mutually exclusive from economic prosperity.
They have argued, and the Templeton Foundation has continued
to advance their belief, that religious values are basic and
intrinsic to the ideas of human liberty and the free enterprise
system.
For sure, Sir John was a visionary in many ways.
His wisdom gave him tremendous insights into the human
condition and the practical effects of that condition on society
and the economy as well.
Sir John had accurately predicted the dot-com crash of 2000
and 2001. When I met him for the last time in December of 2004,
he was warning that the housing bubble would eventually crash,
with home prices falling by as much as 50 percent or more from
their highs in some markets.
He predicted a fall-off of the stock market after that.
Both predictions were not widely accepted at the time, yet
they eventually came to pass.
In his last memorandum on the markets and the economy, he
elaborated on these same themes, warning of dire economic
“chaos,” which he predicted would last many years.
Still, he was optimistic on equity investments, specifically
in globally diverse companies with high growth patterns and wide
profit margins.
He suggested such stocks would remain “valuable” for
investors to preserve and grow one’s wealth.
As you read this memo, please remember that Sir John has left
an important legacy, not just here in his “Last Testament” to
investors, but in his writings and in the important work of his
foundation, so ably led by his son, Jack.
Scroll down to read the memorandum.
To your success,
Christopher Ruddy
CEO and Editor in Chief
Newsmax and Moneynews
President of Newsmax’s Financial Brain Trust
John M. Templeton
Lyford Cay, Nassau, Bahamas
June 15, 2005
MEMORANDUM
Financial Chaos -- probably in many
nations in the next five years. The word chaos is chosen
to express likelihood of reduced profit margin at the
same time as acceleration in cost of living.
Increasingly often, people ask my opinion on what
is likely to happen financially. I am now thinking that
the dangers are more numerous and larger than ever
before in my lifetime. Quite likely, in the early months
of 2005, the peak of prosperity is behind us.
In the past century, protection could be obtained
by keeping your net worth in cash or government bonds.
Now, the surplus capacities are so great that most
currencies and bonds are likely to continue losing their
purchasing power.
Mortgages and other forms of debts are over
tenfold greater now than ever before 1970, which can
cause manifold increases in bankruptcy auctions.
Surplus capacity, which leads to intense competition,
has already shown devastating effects on companies who
operate airlines and is now beginning to show in
companies in ocean shipping and other activities. Also,
the present surpluses of cash and liquid assets have
pushed yields on bonds and mortgages almost to zero when
adjusted for higher cost of living. Clearly, major
corrections are likely in the next few years.
Most of the methods of universities and other schools
which require residence have become hopelessly obsolete.
Probably over half of the universities in the world will
disappear quickly over the next thirty years.
Obsolescence is likely to have a devastating effect
in a wide variety of human activities, especially in
those where advancement is hindered by labor unions or
other bureaucracies or by government regulations.
Increasing freedom of competition is likely to cause
most established institutions to disappear with the next
fifty years, especially in nations where there are
limits on free competition.
Accelerating competition is likely to cause profit
margins to continue to decrease and even become negative
in various industries. Over tenfold more persons
hopelessly indebted leads to multiplying bankruptcies
not only for them but for many businesses that extend
credit without collateral. Voters are likely to enact
rescue subsidies, which transfer the debts to
governments, such as Fannie May and Freddie Mac.
Research and discoveries and efficiency are likely to
continue to accelerate. Probably, as quickly as fifty
years, as much as ninety percent of education will be
done by electronics.
Now, with almost one hundred independent nations on
earth and rapid advancements in communication, the top
one percent of people are likely to progress more
rapidly than the others. Such top one percent may
consist of those who are multi-millionaires and also,
those who are innovators and also, those with top
intellectual abilities. Comparisons show that
prosperity flows toward those nations having most
freedom of competition.
Especially, electronic computers are likely to become
helpful in all human activities including even persons
who have not yet learned to read.
Hopefully, many of you can help us to find published
journals and websites and electronic search engines to
help us benefit from accelerating research and
discoveries.
Not yet have I found any better method to prosper
during the future financial chaos, which is likely to
last many years, than to keep your net worth in shares
of those corporations that have proven to have the
widest profit margins and the most rapidly increasing
profits. Earning power is likely to continue to be
valuable, especially if diversified among many nations.
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