Tilson & Heins: How You Can Be a Stock "Lion" Like Templeton

Barry Ritholtz isn’t the only successful manager saying investors should be making “watch lists”. In their latest “Discovering Value” column for Kiplinger’s, Whitney Tilson and John Heins say that maintaining a watch list of stocks you’re interested in is a key to good investing.

“The stock market rarely offers truly exceptional buying opportunities, so it pays to be prepared when one comes along,” Tilson and Heins write. “We suggest that you maintain a watch list of companies that you would love to own, or own more of, at the right price. … When the stock hits the target, you strike (assuming that your assessment of the company is unchanged). The discipline of maintaining a watch list is especially helpful in today’s tempestuous market. By doing your long-term valuation work in advance, you can take some of the emotion out of buy decisions when stocks get hammered.”

Tilson and Heins say stock investing is less about hectic trading floors and more about exercising patience. An “appropriate image might be a hungry lion lying in wait,” they write. “Even though plenty of gazelles may be running around, the lion can’t go after them all, so he waits until one is within easy reach. And when the opportunity presents itself, he springs.”

The great John Templeton excelled at this, note Tilson and Heins. Templeton “frequently placed firm buy orders on stocks he would be happy to own at, say, 40% below their then-current market prices,” they write. Often times, the orders went unfilled because the stock never got that low. But when such stocks did reach the strike zone, he got them at tremendous prices. And, using such a system helped ensure that short-term bad news didn’t keep Templeton from buying falling stocks, Tilson and Heins say.

Tilson and Heins write that their watch lists now include “high-quality businesses with difficult-to-challenge franchises, high returns on invested capital and sturdy balance sheets”. Usually, those firms’ stocks don’t come cheap, but because of the broad market plunge, a number of them now are selling at very attractive levels. Two stocks now getting close to their watch list price targets: Johnson & Johnson and Coca-Cola.

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