There are very few contrarians who actually practiced what they preached. Sir John Templeton was one of them. Templeton, described as “arguably the greatest  nhà cái OK9 global stock picker of the century” by Money Magazine in 1999, was one of those who literally bought low during the Depression and sold high during the dot-com boom.

One of the greatest things was that he did not keep the secret of his investment success to himself. Today, his 16-point summary of investment success rules is available to everyone. To a large extent, Templeton’s style of investing in the markets, which is primarily a style of value investing, was focused on finding bargains and looking for opportunities in the most pessimistic environments.

As a contrarian, he believed that the best bargains were in stocks, which were completely neglected or those stocks that other investors were not even studying. Templeton attributed much of his success to his ability to maintain an elevated mood, avoid anxiety and stay disciplined. Templeton became known for his “avoiding the herd” and “buying when there’s blood in the streets” philosophy. He was also known for taking profits when values and expectations were high.

Inflation and taxes are two important and critical things that determine how much returns, we are really going to make on an investment. If a security makes 8% annualized returns and the inflation rate in the country is at 9%, in that case, the real rate of return will be negative 1%.

Similarly, many people, particularly traders, carry out huge transactions throughout the year. But even after a year, let us assume, the trader makes a 20% return on the invested capital and ends up paying tax on short-term capital gains in addition to transaction costs, then the returns would not be encouraging at all. Those who passively manage their funds will be in a far better position with respect to efforts vis-a-vis returns.

As a long-term investor, if we take factors like inflation, taxes and transaction costs into account before investing in various asset classes, we will be far better off. One needs to ask if the asset class can generate enough returns to justify the inflation and taxes, if any. Adjusted to inflation, there are certain assets in India as well as globally, which have performed poorly in generating returns to beat the cost of living.

No wonder in India, because of the inflationary environment and low interest rates, the government and the RBI came out with bonds, which offer inflation-adjusted rates. This, at least, makes sure that those who do not wish to take risks can still make decent returns that are 1% to 1. 5% higher than inflation. Thus, allowing investors and money savers to deal with the rising cost of living, in the long run.

This is precisely the reason why legends like Warren Buffett and others have warned enterprising investors against investing in debt or risk-free instruments, which actually, over a period of time, erode capital because of high cost of living, rather than generate positive returns over the long term.