The Money Mastersby John Train
Here are insights into nine of the most successful investors of our time Benjamin Graham, Warren Buffett, John Templeton, and Philip Fisher, among others. In these fascinating profiles John Train reveals the unique investment styles that have made each a master: the traits that distinguish them from the crowd and the techniques that create the single characteristic unifying them all consisently profitable investments. Their methods, Train reveals, include those both the nonprofessional and the seasoned investor can apply for profit.
John Train founded Train, Smith Investment Counsel and is chairman of Montrose Advisors, both of New York. His bestselling books on investing include The Craft of Investing, The Money Masters, The New Money Masters, and The Midas Touch. He has written several hundred columns for The Wall Street Journal, Forbes, The New York Times, Harvard Magazine, The Financial Times, and other publications. He is a part-time director of two independent government agencies reporting directly to Congress and of several emerging market mutual funds. He lives in New York, spends summers in Maine, and travels frequently to Europe, Asia, and South America.
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T. Rowe Price
Mr. Growth Stock
The great bull surge of the 1990s was a perfect T. Rowe Price market. Everybody got rich, but some people got really rich: those who spotted the hot new growth stocks--Microsoft, Intel, Cisco, AOL, and the rest--and rode them to glory. They often made ten times or so on their money-sometimes a hundred times. The investors who failed to tie on to this prodigious opportunity mostly held off because they couldn't properly evaluate the companies and felt they ought to understand anything on which they risked their capital.
So how could one have made the decision to ride this wave on the basis of the imperfect understanding that most of us bring to high technology? This chapter describes the technique.
The one key thing you did have to determine was that computer software, the Internet, biotechnology, telecom, and the rest of the high-technology landscape were real and were exploding. Changing the world, in fact. In other words, that here was a great growth opportunity. Not a hard truth to determine! But the difficult part, how to participate, is what the Price technique can tell you. So here goes.
Like Benjamin Graham, Price, who died in 1983, gave his name to an entire theory of investment. The "T. Rowe Price approach" was once heard on Wall Street almost as often as "a real Ben Graham situation," the prevailing orthodoxy before Price arrived. Price's growth-oriented thinking gradually pushed aside the "value" style systematized by Graham. Indeed, Price may have popularized the term "growth stock." Price created a large pool of capital: Already substantial whilehe still headed it, the company he founded, T. Rowe Price Associates, Inc., in Baltimore, eventually became one of the largest in the country but branched out from its founder's ideas. What follows describes Price's own philosophy, developed during the years when he actually ran his firm.
His thesis, briefly, was that the investor's best hope of doing well is by seeking the "fertile fields for growth" and then holding those stocks for long periods of time. He defined a growth company as one which shows "long-term growth of earnings, reaching a new high level per share at the peak of each succeeding major business cycle and which gives indications of reaching new high earnings at the peak of future business cycles." (It may, however, have declining earnings within a business cycle.) Coca-Cola (which became by far Warren Buffett's largest holding) was for a very long time exactly such a company, as were Merck, Wal-Mart, and Texas Instruments.
Price held that since industries and corporations both have life cycles, the most profitable and least risky time to own a share is during the early stages of growth. After a company reaches maturity, the investor's opportunity diminishes and his risk increases. Successfully working out and applying this approach made him one of the most famous investment practitioners of his day.
A portly man with sad eyes and a dark mustache surmounting a knowing, tired, and somewhat grim smile, Price came from Glyndon, Maryland, then a summer resort for people from Baltimore. His father was a country doctor.
Investing was his life. Like most of the greatest investors--or artists or professionals of any sort--Rowe Price lost himself in the task; his first interest was always in superior performance, not in making a killing for himself. He was thus a good professional: The client came first. "If we do well for the client, we'll be taken care of," he liked to say. He craved immortality in the record books. To help shape his own monument, he kept a close eye on what the press said about him, and later, long after retiring from his firm, started writing articles on his investment ideas to create a new performance record.
In his eighties, Price still got up at 5 A.M. He was exceedingly disciplined and organized, with an agenda for each day, always executing the items in the order listed and never taking up unlisted ones. Similarly, when he bought a stock at 20, he also established that he would sell some at, say, 40 and did even if things had changed for the good. If he had determined to buy more stock at 13, he would even if the news from the company was discouraging.
An associate recalls him as being "amazingly able, irascible, and egotistical." He was "Mr. Price" to almost everyone; he wouldn't be aboard the ship at all unless he was the captain. He was able to say, "I make a lot of mistakes . . . I'm not very bright," but all the same, everybody who worked with him always had to do exactly as he specified. Since he hated to delegate responsibility, he would have made a poor industrial manager.
To be a great investor, one must be a contrarian, a loner. But it's virtually impossible for loners to create a self-sufficient organization. Typically, the strong-willed loner has weak followers. He thus must either sell his company to outsiders to realize a capital value for his efforts (which leaves his clients prey to the acquisitor) or else, with great trepidation, sell it to his own followers, as did Price, who was openly concerned that his followers were not fit to succeed him. The best hope for the organization is to have a talented successor still in his thirties when the sixty-five-year-old founder is ready to retire. The latter may not be jealous of a much younger man--not his psychological son and rival, but his grandson.
T. Rowe Price Associates had a relatively small volume of assets under management until late in Price's life. In the early 1950s the firm's portfolios totaled only a few hundred million dollars, and in 1966, when Price was in his late sixties, the firm ran approximately $1.5 billion . . .Money Master. Copyright � by John Train. Reprinted by permission of HarperCollins Publishers, Inc. All rights reserved. Available now wherever books are sold.
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