In 1939, Sir John Templeton borrowed $10,000 to start on the path that would lead him to create Franklin Templeton Investments, a global investment manager with more than $725 billion in assets under management today. Templeton is best known as a value investor, but he also had a contrarian streak.
Templeton looked at the world in 1939 and saw fear. At the start of what would become World War II, the Dow Jones Industrial Average fell almost 25 percent in five months and investors still in shock from two bear markets in the 1930’s probably thought “here we go again.” Surrounded by fear, Templeton bought 100 shares of every company trading for less than $1 a share on the New York Stock Exchange. His thinking was that these companies were as low as they could get and individually each company would either be a big winner or go bankrupt. He thought the winners were likely to outweigh the losers. He bought shares in 104 companies and invested about $10,000. Before the war ended, Templeton had made more than $30,000 on his investment (more than 41 percent a year) and only four of his stock picks resulted in a total loss with the company in bankruptcy.
Contrarians buy when everyone is selling and sell when everyone is buying. Rather than looking at value, they look at fear and greed and take positions contrary to the emotions driving the majority of investors. As a more recent example of this kind of trade, in 2000 contrarians shorted internet stocks while most investors thought these stocks would deliver triple digit annual gains forever. By going against the crowd, some investors enjoyed large gains while most suffered large losses. Others shorted the stocks too early and suffered losses. Contrarian trades need to be made at the right time and I think I found the next one.
Looking at the world today, Greece may well be the country that is most feared (it's market also recently triggered a "once in a decade "buy" signal"). Unfortunately U.S. investors can’t easily find 100 stocks to buy at low prices, but there are two cheap Greek stocks traded in the U.S.
One of these stocks is National Bank of Greece (NBG). This stock is actually among the relative strength leaders over the past six months with a rank of 98, indicating that it has outperformed about 98% of all other investments over that time driven by a 56% gain in the past three weeks.
This is a speculative trade on a Greek turnaround, one that Templeton would be likely to approve of.
The second trade to bet on a Greek comeback is Hellenic Telecommunications (HLTOY), which is traded on the Pink Sheets. Foreign stocks will occasionally use a Pink Sheets listing to avoid the expense of restating financial statements in the format required by U.S. regulators. Nestle (NSLYF) and Nintendo (NTDOY) are other examples of large companies that also trade on the Pink Sheets.
HLTOY fell 96% from its 2007 high and is now trading near $1.25 a share, about 2.5 times the company’s earnings over the past twelve months. The latest financial statements show that the company had cash equivalent to $1.97 a share on its books so traders are buying the stock at a discount by any measure. HLTOY is expected to grow earnings at 10% a year going forward so it could be worth more than $5 a share on a fundamental basis. The reason to buy now is because this week’s price action triggered a buy signal on the MACD indicator.
These are risky trades. The low prices for NBG and HLTOY makes a stop seem redundant. Trade only what you can afford to lose in these positions and you may enjoy Templeton-like gains.