John Templeton bought during extreme pessimism

John Templeton's 1939 investment raises a difficult question: Is extreme pessimism an opportunity or a warning?

When World War II began in Europe, John Templeton bought a broad group of deeply depressed stocks, including companies already in bankruptcy. His strategy became a famous example of contrarian investing.

However, buying simply because something has fallen sharply is not a reliable strategy on its own. Some companies recover, while others never do.

Discussion: How can investors distinguish temporary panic from permanent damage? Would you look for improving fundamentals, valuation, diversification, or another signal before buying an unpopular asset?

Is it harder psychologically to buy when everyone is fearful or to sell when everyone is optimistic?