Kudos to Andrea Riquier of Investors Business Daily for her informative and timely story on Thomas Rowe Price, Jr. (1898 - 1983), and his timeless investment philosophy, entitled "T. Rowe Price was right with bet on American growth."
Her article points out that Price's convictions about the benefits of ownership of shares in well-run businesses operating in "fertile fields for future growth" were strong enough for him to decide to launch his investment advisory business in 1937, in the depths of the Great Depression. The parallels to the situation today could not be more pointed.
History has borne out time and again the validity of the investment philosophy in which he believed and which formed the foundation of an investment portfolio which achieved a compound annual growth rate of 9.4% over the course of thirty-seven years between 1934 and 1972, according to a paper Mr. Price wrote outlining his growth-stock theory in 1973, soundly beating the market averages over the same period. He calculated that, if income had been reinvested in the portfolio at the end of each year, a $10,000 investment made on 12/31/1934 would have grown to a value of $2,712,011 on 12/31/1972.
Taylor Frigon Capital Management's founder and Chief Investment Officer, Gerry Frigon, whose investment discipline is descended from that of Rowe Price by way of being descended from the investment discipline of the late Dick Taylor, who was a portfolio manager with Mr. Price, is quoted in the article as well, explaining that one of the core principles of the approach is to concentrate on the investment merits and potential of the underlying business rather than the stock and its movements in the exchanges: a crucial distinction which seems so obvious and yet which continues to elude investors large and small, professional or amateur, to this day.
We have written many previous articles expounding some of the foundational concepts of what Mr. Price called "The Growth Stock Theory of Investing." Some of these include:
- "The Classic Growth Stock Investment Philosophy"
- "The business focus of the great 20th century investors"
- "'Inflection points' and the Growth Stock Theory"
- "Beautiful Growth Companies, Part III"
- "Look for paradigm shifts, part 2"
At a point in history at which many investors, and many of the voices featured in the media, seem to be giving up on the possibility of ingenuity, innovation and even free enterprise itself, it strikes us as extremely appropriate to think back to those dark days of the 1930s, when Thomas Rowe Price was formulating the pioneering investment philosophy which was built upon finding well-run, innovative companies operating in fertile fields for future growth, and owning shares in those companies through the ups and downs of the various economic and market cycles. His vision and courage to follow his convictions were certainly rewarded by success over the years, both for his portfolios and for those who invested with him using that approach.
Thanks to Andrea Riquier and to Investors Business Daily for reminding us all of this uplifting lesson.