A fund manager who learned from one of the greats says investors should make the most of "maximum pessimism." By Anne Kates Smith, Executive Editor January 1, 2011 Lauren Templeton is president of Lauren Templeton Capital Management, in Chattanooga, Tenn., and co-manager of the Global Maximum Pessimism hedge fund. She is the great-niece of the late Sir John Templeton -- a pioneer of global investing and one of Wall Street's most revered bargain hunters.SEE ALSO: Our Special Report on Investing in Volatile Markets KIPLINGER'S: Individual investors are anxious about the stock market. Is that feeling justified? Or has pessimism reached irrational levels? TEMPLETON: Yes, to both questions. Clearly, investors are scared of a repeat of the last bear market. Investors who were savvy enough to have bought in late 2008 and early 2009 are reluctant to ride the market back down. Those deeply scarred by the financial crisis are on the sidelines. The worry is justified. I graduated from college in 1998. Someone my age who started putting money into the market then hasn’t seen any return on capital. That’s very frustrating. At the same time, fear and uncertainty have carried stock prices down to levels that are out of step with the underlying values of companies. I know, from watching Uncle John for many years, that you make money in stocks during those points of maximum pessimism. I see this excessive pessimism creating opportunities. How do you play this market? One of the best features of the stock market is that you do not need a robust economic backdrop to generate attractive returns. You just need mispricing. In October 2011, stocks were priced similarly to the way they were during the financial crisis. And yet corporate profits were robust, and companies were as well capitalized as they’ve been in decades. Many are finding growth opportunities in developing markets, where the rise in consumer spending is a long-term phenomenon. [See STOCK WATCH: 13 Turnaround Stock Picks Selling Near Their 2009 Lows.] Advertisement What do you like now? Big, U.S.-based multinational firms look really undervalued -- companies such as Johnson & Johnson [symbol JNJ], Microsoft [MSFT] and Wal-Mart Stores [WMT]. You don’t have to play the rise of consumers in developing markets through emerging-markets stocks. What do you tell investors to keep them in the game? If someone waits until things get better to invest, then that investor will always have mediocre results. To get a bargain, you have to buy what other people are selling. To get exceptional returns, you have to do what other people aren’t doing. When I was a child, my dad would let me pick out one stock a month and buy one share of it. He’d mat the stock certificate and hang it on my wall -- my room was wallpapered with stock certificates. I started looking at the market as a business owner would, instead of as a place to gamble or speculate. We approach stocks as businesses we want to be a part of. And we think long-term. When we invest in a company, our horizon is five to ten years. And if you’re nervous, sometimes the best thing to do is to step away from the TV or computer; quit monitoring your portfolio on a daily basis. [See YOUR MIND, YOUR MONEY: How Media Excess Can Mess with Your Wealth.] What are the biggest dangers that investors are facing now? Themselves.