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Thomas Price

Thomas Rowe Price, Jr. was born in 1898 in Linwood, Maryland and died in 1983. Price attended Swarthmore College and graduated in 1919 with a chemistry degree. After graduating, he found that he preferred work with numbers rather than chemicals and began his investments career at Mackubin Goodrich (now known as Legg Mason). Price advanced to the position of chief investment officer with this firm but he soon became frustrated because "the firm did not fully comprehend his definition of growth stocks." In response to this frustration, Price left in 1937 and founded his own company called T. Rowe Price Associates.

Price introduced a new type of firm-client relationship that was based on always "putting the client's interests first". He once said, "If we do well for the client, we'll be taken care of." He charged fees based on the clients investments, rather than commissions. His rationale for this was that the firm would prosper if the clients did. He created the T. Rowe Price Growth Stock Fund in 1950 which was the firm’s first mutual fund.

Price was affected by the Depression during his formative years and this experience taught him to embrace stocks rather than avoid them. He believed the financial markets to be cyclical and began investing for long-term periods (a practice that was extremely uncommon at this point in history). His investment strategy was based on choosing long term stocks. He applied discipline, research, and consistency to this approach and was led to achieve excellent results. He is well-known for founding the growth investment strategy that focused on investing in companies with good management, in fertile industries whose earnings were expected to outperform inflation and the economy in general.

Price was concerned with keeping up with changes and once said,Change is the investor's only certainty." He was also quoted as saying, "No one can see ahead three years, let alone five or ten. Competition, new inventions - all kinds of things - can change the situation in twelve months." He also offered the following advice: "It is better to be early than too late in recognizing the passing of one era, the waning of old investment favorites and the advent of a new era affording new opportunities for the investor."

In his book “The Money Masters”, John Train lists the following factors that Price looked for when assessing growth companies:

  • Research and development.

  • A lack of intense competition.

  • Relative immunity from government regulation.

  • Well-paid employees but low labor costs.

  • Consistently high profit margins (more than 10% returns on invested capital) and a high increase in the value of earnings per share.

Price was very successful in putting this approach into practice for more than thirty years. The stocks that he regularly traded in became known as "T. Rowe Price stocks" in the market. During the late 1960’s Price expressed caution regarding the market’s enthusiasm for growth stocks. It was his view that investors needed to change strategies at this time because price multiples were starting to be unreasonable and the long bull market was coming to an end. At this point he began to sell T. Rowe Price Associates.

In 1973 and 1974 the predictions made by Price began to take shape and the value of growth stocks plummeted. The firm bearing his name only just survived. Price served as the CEO of T. Rowe Price Associates until his retirement in the late 1960’s. The firm has recovered and is currently regarded as one of the premier investment houses in the United States.

About the author

Mark McCracken

Author: Mark McCracken is a corporate trainer and author living in Higashi Osaka, Japan. He is the author of thousands of online articles as well as the Business English textbook, "25 Business Skills in English".

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Mark McCracken , All Rights Reserved