Murdo Murchison's decision to invest in computer disk-drive makers Seagate Technology and Maxtor kept his $19. 7 billion Templeton Growth Fund from the ranks of 2004's best-performing...

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Murdo Murchison’s decision to invest in computer disk-drive makers Seagate Technology and Maxtor kept his $19.7 billion Templeton Growth Fund from the ranks of 2004’s best-performing U.S. equity mutual funds.

Seagate’s stock dropped 13 percent and shares of Maxtor fell 55 percent after customers, including Dell, demanded lower prices for disk drives.

Murchison, who’s just the third manager in the Templeton fund’s 50-year history, said he’s sticking with the two stocks.

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“To stand against the tide, you have to be prepared to look foolish for months, sometimes longer,” Murchison said. His fund holds about 9.5 million shares of Seagate and 12.5 million shares of Maxtor.

The Templeton Growth Fund was up 15.3 percent through Dec. 22, placing 25th of 105 similarly managed funds tracked by Bloomberg.

The longer-term comparative record is better. The fund rose at an average annual rate of 12.2 percent during the past three years, compared with the average 8.6 percent return of competing funds and the 3.2 percent advance of the Standard & Poor’s 500 Index.

Murchison bought shares of Scotts Valley, Calif.-based Seagate and Maxtor of Milpitas, Calif., the world’s two largest manufacturers of disk drives, because he expects demand to be “colossal” as consumers download videos, photographs and music from the Internet.

Government regulators also are requiring that financial companies retain data for longer periods, increasing companies’ needs for storage space.

“Wild card”

“In five years, the pricing issues will disappear and the two companies will get their inventory levels under control,” Murchison said.

He also expects smaller competitors to go out of business.

Pricing competition among disk-drive makers is the biggest “wild card,” said Brent Bracelin, an analyst at Pacific Crest Securities in Portland, who has a “sector perform” rating on Seagate. For investors with a five-year view, it’s “valid” to think there will be fewer disk-drive makers, he said.

Murchison said he pays more attention to long-term business trends and profit margins than he does to quarterly financial reports. A stock makes it onto Murchison’s buy list once it has the backing of Templeton’s 40 analysts and managers.

Sir John

The Templeton Growth Fund was started in 1954 by Sir John Templeton, who ran it until 1987, when he was replaced by Mark Holowesko.

Murchison, who’s based in the Bahamas, succeeded Holowesko at the end of 2000. Holowesko now serves as president for Templeton Capital Advisors, a unit of Franklin Resources of San Mateo, Calif.

Murchison joined Templeton in 1993, after working in London as an oil, gas and mining company analyst at Schroder Investment Management.

“Sir John has said that if you make two out of three decisions correctly, you’ll deliver a long-term track record,” he said. “By definition, that means you’re making a wrong decision a third of the time. That’s something I struggled to get used to.”

Two mistakes were buying shares of U.S. grocery-store chains Kroger and Albertsons, Murchison said. He sold a portion of a stake in Kroger and all of Albertsons this year on concern about competition from Wal-Mart and Costco. Kroger shares fell about 33 percent and Albertsons stock declined about 50 percent in the four years that the fund held the stocks.

“We failed to fully account for the impact that Wal-Mart and Costco would have on the food sector,” Murchison said.

Cash position

The Templeton Growth Fund had about 8 percent of its assets in cash at the end of October, compared with 4.4 percent for the average stock mutual fund tracked by the Investment Company Institute, the industry’s Washington-based trade group.

Murchison said his most successful stock picks of the past two years include Redmond-based AT&T Wireless, which is now part of Atlanta-based Cingular Wireless and Boeing.

Shares of Boeing were bought in the low $30s, where the stock traded as recently as mid-2003 on concern that Airbus was winning new business at Boeing’s expense, Murchison said.

The stock closed Friday at $50.31.

The Templeton fund also holds stakes in DirecTV Group, the biggest U.S. satellite-television service, and British Sky Broadcasting Group, the U.K.’s largest pay-television company.

The Templeton Growth Fund has investments in companies from about 20 countries. The biggest holdings were GlaxoSmithKline.