EDGE Lauren Templeton grew up knowing the key to value investing

EDGE Lauren Templeton grew up knowing the key to value investing

June 1st, 2016 by Dave Flessner in EDGE

Lauren Templeton launched her own hedge fund in 2001. Her company is now Templeton Phillips Capital Management, LLC.

Photo by Angela Lewis Foster /Times Free Press.

“If you want to buy the same thing that is popular with your friends or popular with the investment analysts, you can't get a bargain. If you buy the same thing they buy you will get the same performance they get. If you are going to have superior performance, you've got to buy what the other people are not buying or even what those are selling.”
Sir John Templeton

About Lauren C. Templeton

Age: 40

Job: Founder and president of Templeton & Phillips Capital Management LLC

Education: A graduate of Baylor School in Chattanooga and the University of the South in Sewanee where she earned a B.A. in economics.

Career: She began stock investing at age 7 while growing up in Winchester, Tenn. She worked as an associate at the financial advisor Homrich and Berg and later the hedge fund management company New Providence Advisors, both of Atlanta, before starting her own investment firm in 2001. She moved to Chattanooga in 2005. The company is the general partner to the Global Maximum Pessimism Fund and Templeton is a frequent speaker at value investing conferences. From 2010 to 2012, Templeton served as director of the Galtere Institute: Finance for the Future initiative at UTC’s College of Business.

Boards: Templeton helped start and initially headed the Southeastern Hedge Fund Association, Inc. in Atlanta and has served as president of the Atlanta Hedge Fund Roundtable. She serves as a trustee at the Baylor School, The Beacon Center of Tennessee and the Atlas Board of Overseers and is a member of the investment committee of the Chattanooga Rotary Club and the Rotary Foundation. She serves on the John M. Templeton Foundation board and has previously served on the boards of the Memorial Hospital Foundation, the Chattanooga Area Chamber of Commerce and the Finance Advisory Board at the University of Tennessee at Chattanooga.

Personal: She and her husband, Scott Phillips, jointly run the family-owned investment firm and have two daughters. They live on Lookout Mountain.

Company at a glance

Name: Templeton and Phillips Capital Management LLC

History: Started in 2001 as Templeton Capital Management with seed capital of $30 million from Sir John Templeton, who died in 2008. In 2011, Templeton and Phillips expanded its international research efforts through a joint venture with Oxford Metrica, based in Oxford England. Oxford Metrica is led by Dr. Rory Knight, who, prior to forming Oxford Metrica, was the dean of Templeton College (Oxford’s business school) at Oxford University.

Assets: Handles $120 million in investments.

Client base: A dozen or so high-wealth individuals.

Location: Lookout Mountain, Tenn.

Principals: Lauren Templeton and her husband, Scott Phillips.

Primary focus: Value investing. The company’s fund invests in international stocks with estimated upside investment potential of at least 50 percent.

Web site: www.templetonandphillips.com

As a child growing up in Winchester, Tennessee, Lauren Templeton began investing in the stock market at age 7.

The walls of her childhood bedroom in the 1980s were decorated with framed stock certificates she selected for purchase each month from her father, Handly, who also told her bedtime tales about investing. Although her friends didn't believe her, Templeton often told her fellow students she owned Disney, Mattel toys and other businesses.

Templeton, as an only child, recalls being a bit shy but never one to panic in a crisis — an attribute she says is critical for successful investment. Where others feel fear, Templeton sees opportunity.

It's the philosophy that helped make her great uncle, Sir John Templeton, a billionaire investment guru before he died in 2008 at age 95.

Templeton honed her skills at The Baylor School in Chattanooga, where she was a boarding student for four years, and at the University of the South in Sewanee, where she met her future husband, Scott Phillips, through a Sewanee program at St. John's College in Oxford, England.

At the urging of her great uncle, Lauren turned her childhood interest in the markets into a career in investment management. She worked for an investment firm and hedge fund manager in Atlanta for three years before launching her own hedge fund in 2001 with $30 million and the wisdom from her great uncle.

Her company, which was later renamed Templeton & Phillips Capital Management LLC after she married and her husband joined the business, follows the same value investing across the global made famous by John Templeton and his Templeton Growth Fund. She looks for businesses with an intrinsic value at least 50 percent above the company's current stock price.

A key to her above-average returns over her investment career has been buying into the market when others were hitting the exit doors.

"Looking back on our firm's success, one of the great elements was putting a lot of money to work during the financial crisis when other people weren't," she says.

When the stock market hit its Great Recession lows in March 2009, Lauren was going into labor with the birth of the couple's second child. In the hospital, her husband, Scott, was still buying stocks while others were dumping their investments.

"It was the perfect time to make those purchases," Templeton recalls during an interview at a new Lookout Mountain office being remodeled to house her hedge fund management company. "It was a very positive experience for us and we're not scared of market corrections or downturns. In fact, we like to see them because we know what we are going to do and that is how we are going to make our money as investors."

Templeton and Phillips search for opportunities where other investors are acting irrationally, often because of fear or undue pessimism, or where market information is not otherwise adequate and some businesses are therefore undervalued in the market.

"The great benefit to the international markets, and one of the things that we like about it going, forward is that there are fewer investors, fewer analysts and less information," Phillips says. "It is the inefficiency in the price of a security that allows you to profit. It's the difference between the price and what you believe to the intrinsic value to be and that is what you are trying to exploit."

Phillips says humans are biologically wired to make bad investment decisions. The "fight or flight" response that helped humans ward off attacks and survive in the animal kingdom often leads to the wrong psychological and physiological responses to investment markets. But the instant bead of sweet, the palpitating heart or the upset stomach people get when things go wrong and they feel threatened often leads to selling investments at the wrong time. Investors are too fearful to take advantage of undervalued assets during periods of maximum pessimism.

"When you are confronted with falling stock prices or something going wrong with your portfolio, your immediate reaction is fear and uncertainty and too often investors or portfolio managers act on those emotions in a way that in the long run undermines their return," Phillips said.

Sir John Templeton was famous for his success in avoiding such emotions and sticking with longer term value investments, especially after he sold most of his investment interests on Wall Street and moved with his wife to Nassau, Bahamas. He kept just one of his funds, the Templeton Growth Fund, which he managed out of a storefront office in Nassau far from the hustle of Wall Street.

His Templeton Growth Fund, Ltd. established in 1954, was among the first U.S. funds to invest in Japan in the middle of the 1960s. During the Depression of the 1930s, Templeton reportedly bought 100 shares of each of the New York Stock Exchange-listed company that were then selling for less than $1 a share. He made a fortune later when the markets rebounded and the United States emerged as a global superpower after World War II.

Lauren Templeton benefited personally by the wealth and wisdom of her great uncle from an early age. She still recalls John Templeton's annual visits back to Winchester, Tennessee, including one time he and Dinah Shore were in the Crimson Clover parade and visited Lauren's family. Lauren also was a regular viewer of the former PBS show "Wall Street Week with Louis Rukeyser," which frequently included Sir John Templeton as a guest.

But she says she learned the most from her uncle while she and her husband co-wrote a best-selling book in 2007 shortly before John Templeton's death on "Investing the Templeton Way." The couple interviewed the billionaire in the Bahamas for parts of the book and researched his writings through the years to produce the McGraw-Hill publication, which has been translated into nine languages. The book highlights the market-beating strategies used by Sir John Templeton through his carer.

That book, along with another Phillips authored on Templeton's strategies for "Buying at the Point of Maximum Pessimism," won the couple plenty of devoted fans. One reader of their first book, Howard Donnelly, wrote Templeton to tell her how the Templeton investment philosophy had paid off for him and his wife in their retirement. Although he was not one of their investment clients, Templeton invited Donnelly to a value investment conference last year where she was speaking. Donnelly drove nearly 500 miles from his home in suburban St. Louis to meet and thank Templeton and Phillips for their book and their investment help.

"In my opinion, Lauren Templeton, and her husband, Scott Phillips are special people," Donnelly says "They have been very kind to me and their books have made me a better investor, and a better person."

Following their advice, Donnelly says, "made me a lot of money."

For all the wealth made by John Templeton, he operated for years in Nassau, Bahamas, from a relatively modest office and never drove a fancy automobile. Lauren Templeton says she drives a Honda mini-van these days "and my father thinks that's too extravagant."

"The more you save, the more you can invest," she says.

Like her great uncle who gave away more than $1 billion to a variety of charities, Lauren also believes in giving back. She serves on several boards as a trustee or investment advisor, including The Baylor School which she credits for helping develop her as a young woman, and the conservative think tank, the Beacon Group in Nashville in 2010.

From 2010 to 2012, Templeton also served as the director of the Finance for the Future program at the University of Tennessee at Chattanooga. At UTC, she taught a finance course, and she regularly speaks around the world at value investment conferences.

"I got over some of my early shyness," she says.

When she decided in the 1990s to leave Atlanta and return to Tennessee, John Templeton initially advised her to relocate to Nashville. But with fond memories of Baylor, Templeton chose Chattanooga instead.

"This is a great place to live and to raise a family," she says.

Her single-story, storefront office atop Lookout Mountain is more than 800 miles from Wall Street in the New York financial capital. But as a long-term value investor, Templeton sees that as an advantage.

"People always want to do what is popular in the market at the time," Lauren says. "Our investments aren't always the most compelling cocktail party conversation, but over the long term finding value and sticking with it pays off."