T. Rowe Price: The Man, The Company, and The Investment Philosophy
Biography of the man who named and institutionalised growth investing.
Summary
Cornelius Bond worked at T. Rowe Price and Associates and wrote this biography of the firm's founder using company records and Price's own writings, including his investment notes and client letters.
The investment philosophy is the substance. Price developed what he called the growth stock theory in the 1930s, arguing that a company passes through a life cycle of growth, maturity and decline, that the greatest returns come from holding companies during their growth phase, and that an investor should identify those companies and hold them for years. He specified what to look for: superior research and development, lack of cutthroat competition, relative immunity from regulation, low total labour costs with well-paid employees, and a return on invested capital above average with sustained earnings growth through economic cycles. He applied this most famously to holdings including Merck, Black and Decker and 3M.
The firm history covers the founding of the advisory business in 1937, the decision to charge fees on assets rather than to take commissions, which was unusual at the time and aligned the adviser with the client, the launch of the Growth Stock Fund in 1950 and the New Horizons Fund in 1960, and the transition of the firm after Price sold his interest. Bond also covers Price's later shift in the 1960s and 1970s toward believing that inflation would dominate and that natural resources would outperform, which he acted on in his personal account. The book is written by an insider and is admiring, and its investment content is the reason to read it.
Key takeaways 7
- Price argued that companies pass through growth, maturity and decline, and that the largest returns come from holding through the growth phase.
- His criteria included superior research, limited competition, low regulatory exposure and returns on capital sustained through economic cycles.
- Charging fees on assets rather than taking commissions aligned the adviser's interest with the client's, which was unusual when Price adopted it.
- Growth investing as Price practised it required holding positions for many years and tolerating high valuations on the way.
- Price shifted in his later years to expecting inflation to dominate returns, and positioned his personal account in natural resources accordingly.
- The New Horizons Fund applied the same method to smaller emerging companies, which required accepting greater volatility.
- Price argued that an investor should study a company's industry position rather than its share price history.
Who should read it
Investors interested in the origins of growth investing and in a fund management business built on a single stated philosophy.
Where it sits in the reference 2
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