The Templeton Plan

by Sir John Templeton

  John Templeton loves to quote Charles Dickens’s Mr. Micawber on the subject of thrift: “Annual income twenty pounds, annual expenditure nineteen ninety-six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.” To Templeton, that observation is at the heart of the difference between those bound for success and those who will flounder and perhaps never find their way.

  Also, there is the story told about Prime Minister Disraeli that Templeton finds both amusing and edifying. Disraeli was taking a horse-drawn taxi in London, and when he reached his destination, he tipped the driver a shilling. The man said, “But sir, I often drive your son and he always tips me half a crown.”

  Disraeli answered, “Yes, I can understand that easily. You see, he’s the son of a rich man.”

  But Templeton’s favorite story involving thrift and the miracle of compound interest is the sale of Manhattan by the Indians to the Dutch for beads worth twenty-four dollars. “In history we’re taught that the Indians were foolish to sell Manhattan for so little,” Templeton says. “But if you look at the reality of compound interest you’ll find that if the Indians had invested their money at 8 percent interest at the time of the sale, they would now have $11 trillion. That is more than the value of all the real estate in the entire Western Hemisphere today!”

  There are other thrift habits and tactics that will lead to success. From the time Templeton began to support himself at eighteen until he was wealthy enough to move to Nassau in the Bahamas more than thirty years later, he never had a charge account. He never had a credit card. He never carried a mortgage. He never paid more than one year’s income for the entire cost of a house. (He could remember clearly from his childhood in Franklin County, Tennessee, that people who had mortgages on their property were at great risk.) Even today, he travels only in an airline’s economy class and enjoys giving the saving to charity.

  When Templeton opened his investment counsel office in the RCA Building in New York’s Radio City in 1940, he told his secretary never to buy a new typewriter. The value of typewriters declines 30 to 40 percent the day they leave the store. They bought reliable, secondhand machines, most of them no more than a few months old, for an average of 40 percent below retail price.

  The typewriter principle, Templeton reasoned, could be applied to office space. He didn’t need to spend on show, on something glittery and new. He simply needed the right amount of room in which to function.

  When he found that he’d outgrown his space in the RCA Building, he decided that it would be more economical to have the research department near his home in Englewood, New Jersey. He found space in an old building above a drugstore, and because it was in disrepair, he was able to rent it for one dollar per square foot per year. Templeton spent a few hundred dollars fixing up the entrance to lend it an air of dignity. And, most important, he had over 2,000 square feet of office space for $2,000 a year.

  Because of his devotion to thrift—in small items like typewriters as well as large ones like office space—after the first two years John Templeton’s corporation operated at a profit every year.

  Templeton believes that a central key to thrift is to become self-supporting at an early age. Only when responsible for their own expenses will young people become thrifty and mature enough to be capable of running businesses of their own.

  In the rural South where John grew up, there was a tradition that the children would support their parents when the parents became sixty years old. Templeton feels that was a great help to both generations. The young developed character and a purpose beyond themselves, while those growing old were finally relieved of their harshest financial burdens. Grandparents living with children and grandchildren were happier than those living alone and were also helpful in rearing the grandchildren.

  The Japanese today follow a similar model. The oldest son knows that it is his duty throughout life to support his parents when there is need.

  Templeton learned many of his lessons of conserving his resources from the farmers of his youth. He observed them carefully. Most who got into trouble owed money. Those who didn’t, didn’t. It was as simple as that. Throughout extended depressions, lasting as long as six or eight years, those farmers free of debt could reduce their consumption and continue to live on their farms and not fear losing them. But those who had borrowed saw their debts skyrocket. Eventually many lost their farms to pay off their debts and were without a place to live.

  The principle that Templeton learned from watching the Tennessee farmers carried over to the stock market. There were far too many people who had bought their stock on margin. Those people were wiped out. When the prices went down, they had no more cash to put up and the brokers were obligated to sell them out. Of course they were forced to sell at precisely the wrong time, when stocks were depressed far below their real value. But those who had no debt and had refused to buy on margin rode out the depression with no permanent damage. Again, thrift was the saving factor. Thrift paved the way to success.

  What applies to farmers and stock-market investors also applies to the oil industry. In the 1920s there was a boom in oil drilling. Many people borrowed heavily to drill. Others used their own hard-earned savings. Then, when the East Texas fields came in with huge production, the price of oil dropped to ten cents a barrel. Those producers who had borrowed heavily couldn’t meet their debts and lost their oil leases. But the thrifty ones were able to live through what proved to be only a few difficult months until the price of oil recovered to about a dollar a barrel.

  Observing those grassroots economic lessons wasn’t the sum total of John Templeton’s education in the use and misuse of money. He also read and studied the lives of Benjamin Franklin, John D. Rockefeller, and others. He took to heart what Rockefeller said about wealth: “If you want to become really wealthy, you must have your money work for you. The amount you get paid for your personal effort is relatively small compared with the amount you can earn by having your money make money.”

  Neither a borrower nor a lender be; For loan oft loses both itself and friend, And borrowing dulls the edge of husbandry.

  Those words of Shakespeare have meant a great deal to John Templeton. He has lived by them. He has grown to great success, both inwardly and in worldly terms, by observing and honoring their sentiments. He has made his own financial base secure—in fact, virtually impregnable—by avoiding all consumer debt.

  You can do the same. To paraphrase Mr. Micawber: If you earn a dollar and spend a dollar ten, you’ll be a failure. But if you earn a dollar and spend ninety cents, you’re on the road to success!

  As Step 12 makes clear, the practice of conserving your resources to best advantage is a key to the successful and happy life. Answering the following yes-or-no questions should provide you with a clue to your present financial health:

  Do you save something of every paycheck?

  Do you make a budget?

  Do you live within your budget?

  Are you investing wisely by buying assets that protect you against inflation?

  Do you search for bargains in small items, such as toothpaste and soap, as well as big ones like furniture and automobiles?

  Do you weigh each purchase carefully rather than buy on impulse?

  By the time you have completed The Templeton Plan and reviewed its twenty-one steps, you should be able to answer each of these questions with a confident yes.

  STEP 13

  PROGRESSING ONWARDS AND UPWARDS

  JOHN TEMPLETON has been influenced in his life by Thomas Alva Edison, who said, “If you are doing something the same way you did it twenty years ago, then there must be a better way.” To Templeton, this means that we should seek and welcome change. Change should be seen not as a problem but as a challenge—a form of progress that will lead to better methods for producing results.

  Sometimes progress comes only after a careful assessment of your present position. “If things are not going well for you,
” said Roger Babson, founder of a business school, “begin your effort at correcting the situation by carefully examining the service you are rendering, and especially the spirit in which you are rendering it.”

  Follow-through is an all-important ingredient in making progress. To again quote William Feather: “Once you have sold a customer, make sure he is satisfied with your goods. Stay with him until the goods are used up or worn out. Your product may be of such long life that you will never sell him again, but he will sell you and your product to his friends.”

  And competition—the most difficult kind of all that pits you against your past performance—is at the heart of progress. “It is necessary,” according to the seventeenth-century ruler Queen Christina of Sweden, “to try to surpass one’s self always. This occupation ought to last as long as life.”

  Listed below are three other quotations on the secret of progress that have played a key role in John Templeton’s thinking.

  For artist John Carroll: “The whole story of human and personal progress is an unmitigated tale of denials today—denials of rest, denials of repose and comfort and ease and pleasure—that tomorrow may be richer.”

  C. R. Lawton, the industrialist, was convinced that “time is the one thing that can never be retrieved. One may lose and regain a friend; one may lose and regain money; opportunity once spurned may come again; but the hours that are lost in idleness can never be brought back to be used in gainful pursuits. Most careers are made or marred in the hours after supper.”

  And, finally, these words of clergyman Albert Johnson: “Unprogressiveness…is usually a function of wrong thinking rather than age. Inflexibility of mind and resistance to ‘new ideas’ crop up among the young as well as the old. To progress, one must be mentally alert and striving for self-improvement.”

  When John Templeton came to the conclusion that the field of management studies was in many ways unprogressive, he endowed Templeton College at Oxford, a graduate school in that discipline, named in memory of his mother and father. Templeton College teaches entrepreneurship, a sorely misunderstood and undertaught subject.

  At the dedication ceremony for the new college, the British minister of education, Sir Keith Joseph, said that no English word existed meaning entrepreneurship. Templeton replied that the British equivalent might be benefactor, because entrepreneurs are essentially benefactors. They create jobs, pay taxes, and help the world to increase production. An entrepreneur tries to find ways to produce better-quality goods at lower prices. One of the secrets of progress is to train a nation of entrepreneurs.

  Another way to progress onwards and upwards is to focus on the realm of the spirit. Through the Templeton Foundation Prizes for Progress in Religion, attention is concentrated on people who are doing new and original thinking in religion. Templeton regards progress in religion as more important to our success as people than progress in chemistry, medicine, or even peace.

  He finds it encouraging that there are numerous new organizations working in the field of progress in religion, among them the American Scientific Affiliation, the Christian Medical Society, and the Research Scientists Christian Fellowship. If this tendency toward progress in religion continues, we may see a fulfillment of the prediction made sixty years ago by the electrical engineer Charles steinmetz, who predicted that the greatest inventions of the twentieth century will be in the realm of the spirit, not the natural sciences.

  But progress exists for all of us right now, today, in our own country, in ways that are not only spiritual. In a speech that John Templeton gave to the Financial Analysts Federation in 1984, he said, in part:

  What is the shape of the future? As long as freedom lives, the future is glorious.

  When I was born in Franklin County, Tennessee, the uniform wage for unskilled men was ten cents an hour. Now the average for factory workers is nine dollars. Even after adjusting for inflation, the increase is more than tenfold. The federal budget in nominal dollars is now almost 300 times as great as at the peak of prosperity in 1929. In my lifetime real consumption per person worldwide—that is, the standard of living in real goods—has more than quadrupled.

  A landmark for freedom was the publication 208 years ago of Adam Smith’s great work called An Inquiry into the Nature and Causes of the Wealth of Nations. The necktie I wear today, bearing the likeness of Adam Smith, is supplied by the Philadelphia Society to commemorate that great liberation. In 208 years of relative freedom, the yearly output of goods and services worldwide has increased more than a hundredfold. This is a hundredfold increase in real goods and services consumed, net after eliminating inflation.

  Before Adam Smith, less than 1,000 corporations existed on earth, but now corporations are being created at the rate of 4,000 every business day. In the days of Adam Smith, 85 percent of the people were needed on the farm, but now less than 4 percent of the farms in America produce a surplus of food.

  We now enjoy prosperity greater than ever dreamed of before this century. Will this level of progress continue in the future? If we are able to preserve and enhance freedom, these trends may continue and accelerate. We may expect more rapid change and wider fluctuations.

  Life will be full of adventure and opportunity and never be dull or routine.

  In America alone this year over $100 billion will be dedicated to research and development—more in one year in one nation than the total research for all the world’s history before I was born. Awesome new blessings are visible also in health, entertainment, spiritual growth, and charity. In America alone over $50 billion will be donated to churches and charities this year. Each year the generous and voluntary giving by Americans alone exceeds the total income of all the world’s people in any year before Adam Smith.

  We should be overwhelmingly grateful to have been born in this century. The slow progress of prehistoric ages is over, and centuries of human enterprise are now miraculously bursting forth into flower. The evolution of human knowledge is accelerating, and we are reaping the fruits of generations of scientific thought: Only sixty years ago astronomers became convinced that the universe is 100 billion times larger than previously thought. More than half of the scientists who ever lived are alive today. More than half of the discoveries in the natural sciences have been made in this century. More than half of the goods produced since the earth was born have been produced in the two centuries since Adam Smith. Over half the books ever written were written in the last half-century. More new books are published each month than were written in the entire historical period before the birth of Columbus.

  Discovery and invention have not stopped or even slowed down. Who can imagine what will be discovered if research continues to accelerate? Each discovery reveals new mysteries. The more we learn, the more we realize how ignorant we were in the past and how much more there is still to discover.

  If you do not fall down on your knees each day, with overwhelming gratitude for your blessings—your multiplying multitudes of blessings—then you just have not yet seen the big picture.

  Now, of course, not all change is progress. Not all change leads to medical breakthroughs and scientific discoveries. Change can be either constructive or destructive. But the destructive forms tend to have a short life. The world is quick to eliminate those things that are not useful and progressive in the best sense of the word.

  Those people who want to progress and be successful should focus on a goal that is productive and useful. They will be happy and fulfilled because their activities will help others.

  The book Future Shock made the point that too much change is a problem, but actually there is never too much change. The book, if its theme had been stated properly, could have been called Future Joy, because change leads to progress, and progress to prosperity and happiness.

  If you seek progress, always remain open-minded, read widely, travel extensively, continually ask questions, and be alert to new methods in your work. Most of all, seek. Those who do not seek are not likely to find. It says i
n Matthew 7:7–8: “Ask, and it will be given you; seek, and you will find; knock, and it will be opened unto you. For everyone who asks receives; and he who seeks finds; and to him who knocks it will be opened.”

  Consider progress in the field of medicine. Fifty percent of all that is known has been discovered in the past twenty years. Ninety percent of all that is known has been discovered in the twentieth century.

  We live in a world and a time of spiraling progress. We are better educated, better fed, and better housed than any people at any time in the history of the world. One of the greatest secrets of progress is to understand our good fortune—understand it and use it for worthwhile ends.

  For John Templeton, the secret of progress is to continually test new methods, think of new ways to select investments, and test them rigorously to see which ones work. To stay ahead of other security analysts, he reads widely in professional journals and seeks to try new methods that are not yet popular with others.

  Whatever field of work you have chosen as a career, it is vital that you study hard, that you try to become the most knowledgeable person in your field. It is important to examine your field in a world context, because your mind will grow more open and flexible if you understand what has happened under different circumstances in other cultures.

  For example, John Templeton’s son, a pediatric surgeon, as part of a delegation of American doctors visited Red China to study with Chinese doctors. They exchanged information on different methods and products, and the feeling was positive on both sides. The doctors from both countries felt they were learning something they did not already know—and a secret of progress is to constantly learn.