T. Rowe Price by Cornelius C. Bond

Author:Cornelius C. Bond
Language: eng
Format: epub
ISBN: 9781119531319
Publisher: Wiley
Published: 2019-03-19T00:00:00+00:00

It is hard not to admire such goals, and all those who knew Mr. Price understood that these words were from his heart.

Walter Kidd said that Mr. Price thought like a college professor: “To be successful, he believed he must publish or perish.” Such a belief goes back to the beginning of the firm, when Mr. Price began to communicate regularly with his clients through carefully written investment bulletins, a practice he would maintain until right before his death. It was common knowledge in the firm that Mr. Price wanted to be recognized beyond Baltimore. He wanted to be on the national stage. The series of articles that Barron's invited him to do as a follow up to his 1930s articles on growth stocks fit right into these plans. The first article, “Picking Growth Stocks for the 1950s,” appeared February 6, 1950. He again outlined his definition of a growth company – with no changes, despite the tumultuous intervening eleven years. He reviewed the lists of the growth companies that he had published in 1939. Of the forty‐three “premier” growth companies, only one had failed to attain a new high in earnings in the postwar recovery and, among a second list of twenty‐four less‐proven growth stocks, three had failed to achieve this goal. Only 6 percent of the 1939 companies in his model “growth” portfolio had failed to measure up as growth companies over the intervening time period. Earnings for this list had grown 365 percent, versus only 129 percent for the companies listed in the Dow Jones Industrial Average. This was considerably better than his promise to clients in 1939 that he expected to be right 75 percent of the time. In this postwar article, he stated that he anticipated that his batting average would come closer to his prior 75‐percent goal in the next decade. As usual, Mr. Price believed in under‐ rather than overpromising performance.

His emphasis going forward would not change greatly from 1939, he said, although there would be some subtle shifts. He would emphasize international business more in his selection of U.S. stocks, as American business became much more global. As socialism and the welfare state, put in place in the 1930s, continued to grow, he anticipated that the dollar would continue to decrease in its buying power and inflation would be a force to be reckoned with. He therefore chose growth companies that would have the power to increase prices. Research and development had made tremendous strides during the war, and would also be more emphasized in his stock selection in the postwar period.

In his next Barron's article, February 20, 1950, with the same title, he made the first revision of his original definition of a growth stock. Due to his increasing concern about inflation, he changed the rate of growth of earnings of a growth stock, saying that it must not only “reach a new high in earnings from one business cycle to the next,” but it must also demonstrate a growth in earnings “faster than the rise in the cost of living.

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