After graduation from Swarthmore College in 1919 with a degree in chemistry, Thomas Price, Jr. began his career as a chemist however soon found he had a fond interest in investments and switched to brokerage firm Mackubin Goodrich, now known as Legg Mason. Price worked his way up to Chief Investment Officer before eventually moving on in 1937 to begin his own firm T. Rowe Price Associates, which he managed as the CEO until the late 1960’s.
Credited with popularising growth stocks, Price interpreted markets as cyclical, putting a focus on picking good stocks for the long term his investing career focused on discipline, consistency and fundamental analysis. Some of the characteristics that Rowe searched for in growth companies included:
- Superior research to develop products and markets
- Lack of competition
- Relative immunity from regulation
- Low labour costs
- Minimum 10% return on invested capital.
T. Rowe Price Associates saw average annual returns of 15.4%, believing companies are the most profitable with high return on investment prospect during the growth phase, Price invested in companies such as IBM, Xerox, Honeywell, Coca-Cola and 3M during a time when blue chip stocks were very popular.
With his formative years during the Great Depression, Price learned to embrace investments for the longer-term, embracing stocks while keeping in mind the cyclical nature of the market noting “Change is the investor’s only certainty”. Risk was also managed through extensive research and diversification. Of course lessons were learned along the way, in one interview saying “I make more mistakes than anybody else….but I learned long ago to admit my mistakes and try and correct them”.
Price also went against the norm instead of charging clients commission on trades, he implemented a fee based on assets under managements to align the firm with the success of the investments stating “if we do well for the client, we’ll be taken care of”.
In the late 1960’s he began warning of extreme valuations among stocks before creating “The New Era” fund focusing on natural resources, gold and energy as a way of combating inflation before retiring from his company in 1971 prior to the 1973-74 when the market crashed. He continued to manage investments for his family up until his death in 1983, aged 85.
References:
www.investopedia.com
www.wikipedia.org
www.forbes.com
www.valuewalk.com/t-rowe-price-resource-page
