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Lessons From an Investing Guru's Niece

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We're celebrating the winning ways of female investors with a series of articles about what makes the fairer sex better at picking stocks. Last week, we profiled investing All-Star Lisa Rapuano. Read on to find out why everyone needs more girl power in their portfolio.

Lauren Templeton was not like most 7-year-old little girls. When her peers plastered their bedroom walls with pictures of princesses and posters of tween idols, she proudly hung her growing collection of matted and framed stock certificates.

Of course, with the last name of Templeton, the decor choice was a gimme. Lauren is the great-niece of "Uncle John," the legendary global investor Sir John Templeton, who, like fellow Benjamin Graham disciple Warren Buffet, boasts one of the most astonishing long-term track records. (His Templeton Growth Fund, established in 1954, was one of the first globally diversified mutual funds.)

Lauren Templeton grew up on a steady diet of BLTs -- Buffett, Lynch, and great-uncle Templeton, that is. Bedtime stories were tales about the magic of compound interest and the mystical powers of time and patience, as she told LouAnn Lofton in the Fool's new book, Warren Buffett Invests Like a Girl.

Today, Templeton runs her own asset management firm based out of Chattanooga, Tenn. Lauren Templeton Capital Management is a small value investing boutique that -- no surprise here -- focuses on global bargain stocks, a fact that would make Uncle John very proud.

Growing up Templeton
As a fledgling investor in companies that were familiar to her -- like Gap and Wal-Mart, which her father helped her purchase share-by-share every month -- Templeton didn't pay much attention to sussing out the intrinsic value of her picks.

What wasn't lost on little Lauren was what it meant to be a shareholder: "I really did, as a child, think of myself as an owner of one of these companies," Templeton says. "I can remember telling friends on the playground that, yes, I did own part of Disney. And they couldn't believe it."

Becoming a value-oriented investor was inevitable. She describes her family as very thrifty -- her father owned a hardware store, and her parents saved 50% of everything they ever made so that they could invest it in stocks. To Templeton, value investing was -- and is still -- a way of life.

That's not to say that she skipped the rebellious years entirely. Templeton dabbled with other investment styles, but her experimental phase was brief and, she says, felt too speculative (like gambling) compared to the framework of value investing.

The Templeton family values won out: "In every other area of my life, I seek to find the best bargain in relation to something's value -- whether I'm buying a car or a house ... why wouldn't I do the same in the stock market?"

Four ways to think more like a guru
Growing up a Templeton was certainly good fortune for Lauren. But having investing guru genes in your DNA, or even parents to nurture model saver-investor behavior, is not the secret to success, she says. "I think some people are born with a natural ability to be better investors than other people," Templeton says. The trait that separates the stars from the pack? The ability to control one's emotions. "Investors who can control their emotions are going to have better returns."

There's a reason the following Buffett quote is trotted out about every five seconds (excluding stock market holidays) -- it's because he found a less-preachy way to say "Patience is a virtue" and link it to a) being better than the next guy, and b) a financial payoff: "Success in investing doesn't correlate with I.Q. .... Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing." See?

Of course, Buffett is one of the few mere mortals who has mastered the ability to resist the stock market's deafening din. But the rest of us can fake it, or, rather learn to control our "urges" and give our investments the chance to bloom. Here are four exercises that might help:

1. Identify your biases -- how you tend to react in certain situations, and why you do so.
Like Warren Buffett, Templeton is a student of human behavior. Her bedside table is stacked with books and papers about behavioral finance and neuroscience.

She studies what affects decision-making processes -- how hormones and neurotransmitters contribute to an investor's ability to control his or her emotions -- and considers how these things influence her behavior as an investor. "By studying and reading about human behavior, you can implement some tools to help your investing strategy," she says.

2. Set up systems to overcome your harmful emotions.
Templeton spends a lot of time thinking about how to compensate for her innate biases, "whether that's having limit orders in on certain securities well below the market or different rules or procedures we have here at the firm to assist me when I know I'm going to be in a stressful situation."

That's something she learned from Great-Uncle John. He's famous for investing in beaten-down stocks at their lowest of lows -- or "points of maximum pessimism," as he called them. But even he struggled with the reality of loading up on stocks when their prices were tanking.

To overcome his emotions, Sir John kept in his desk drawer a wish list of securities and a good-till-cancel limit order (up to 30% below market prices). "When the market would fall in value or there would be a major correction in the stock price... he knew that human nature would make it scary to step in and buy," she says. In other words, he came up with a system to make sure he didn't get in his own way.

3. Lose some money... and let that be a lesson to you.
We've all got tales to tell about our youthful indiscretions -- boneheaded stunts that didn't turn out quite as planned. At least Lauren's are fit to print -- and relevant to those who clicked here to read an investing article.

For example, after college graduation, she borrowed money from her dad to invest in a hot stock tip from a friend. "I bought the stock, and it really crashed in value... I lost a ton of money," she says. When she called her dad to apologize for losing all of the money she borrowed, he already had his speech prepared. According to Templeton, he said, "Great! That's exactly what I was hoping would happen! Now you know there are no hot tips in the stock market; this is not a game of gambling. You have to do your homework and make wise investments."

She says that experience -- gambling, and losing -- was one of the best investing lessons she ever learned: "It's [the stock market] is not a casino. If you treat it like a casino, then those are going to be your results." For the rest of us, the larger lesson here is to be adult enough to own up to your investing indiscretions so that you can learn from them.

4. Hang some homemade stock certificates on the wall.
Stocks are easy to trade in and out of on a whim. Ticker symbols are so inanimate that it's hard to remember they represent a living, breathing company made up of people who are making decisions that will affect the value of the dollar you invested in their future.

When you buy stock in a company, write down the reasons you decided to invest in it. What makes you want to buy a stake in that company? Why that company and not others in its peer group? What thesis do you see bearing out? Then write down what would make you sell the company. Get specific -- is it a change in management? A certain product line that flops? In moments of weakness -- a disappointing quarter, a bad hair day, whatever -- don't make a move until you review this piece of paper.

Even better, get out a couple of Sharpies and freehand a few stock certificates to past up on the wall.

A stock certificate is a very tangible reminder that you've just bought a small ownership stake in an actual business. Templeton pines for the days when companies issued physical stock certificates to investors. "As a child, holding that stock certificate in my hand and having something to put on my wall that represented the share that I owned... it really gave me a sense of ownership in that business," she says. "If you look at [your investments] through the eyes of a business owner you're going to make wiser investments."

Get in touch with your feminine investor side
What is it that makes Warren Buffett such a consistently phenomenal investor? He's patient. He's thorough. He shuns risk. He shies away from things he doesn't understand. In other words, Warren Buffett invests like a girl. If you want to improve your portfolio's returns, you should, too. Learn how in our new book, Warren Buffett Invests Like a Girl. We'll send you the first chapter, gratis!

Dayana Yochim throws like a girl, shrieks like a child, orders carbonated beverages like a Midwesterner, and invests like a Fool. The Motley Fool owns shares of Wal-Mart. Motley Fool newsletter services have recommended Wal-Mart and Walt Disney, as well as a diagonal call position in Wal-Mart . Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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  • Report this Comment On May 19, 2011, at 10:07 AM, David369 wrote:

    Good article! Should be required reading for every investor. Well, maybe not day traders, but all the rest.

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