The Legacy of T. Rowe Price: Lessons in Independent Thinking and Growth Investing
Thomas (T.) Rowe Price is an OG of growth investing, along with Philip Fischer and others who would sit atop the Mount Rushmore of growth investing. He’s most known as the namesake for the legendary Baltimore-based financial company, but his investing prowess and independent thinking impress me most.
Mr. Price was a man of conviction, never afraid to buck industry trends or pioneer new ones. For example, his firm was the first to reject the industry-standard commission model, opting for a compensation model based on an annual percentage fee. His independence was further on display when he championed a growth-focused investment style that ran counter to the popular value style made famous by Benjamin Graham.
The wide world of investing sometimes lacks creativity, but bold leaders like T. Rowe Price keep the industry moving, even if at a snail’s pace. There’s never one way to do things, but sometimes society declares one method is superior, and it takes a T. Rowe. Price to remind us to keep thinking.
Here are five powerful lessons I’ve learned from T. Rowe Price’s impressive career and leadership:
Be Alert — successful investing doesn’t require complex financial models or years of education. While Wall Street makes investing seem like voodoo, the average investor can make astute investments by paying attention to the world around them. Recognizing emerging trends and identifying problems that need solutions can help investors find suitable investments. Price reinforced this, saying, “If you stay half-alert, you can pick the spectacular performers right from your place of business or out of the neighborhood shopping mall, and long before Wall Street discovers them.” Take notice of products you love, technologies you rely on, and growing trends; you might find an excellent investment opportunity lurking.
Early is better than late — the world is constantly changing, and seismic shifts change the very fiber of our day-to-day lives every once in a while. The industrial revolution and the internet are two examples that readily come to mind. Recognizing world-changing transformations can lead to impressive investment returns, but only if you remain patient, even during volatility. Price said, “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.” I couldn’t agree more, but being early requires patience and conviction, traits that disappear when volatility cranks up.
Patience Pays — we all feel productive after taking action, but investing is one area where unnecessary motion negatively impacts performance. “The growth stock theory of investing requires patience, but is less stressful than trading, generally has less risk, and reduces brokerage commissions and income taxes.” As we invest, it’s critical to avoid mistaking movement for productivity. The most productive action is often no action, even when it feels like everyone around you is moving at a breakneck speed.
Be creative —What’s the secret formula? The secret is, there is no secret. Despite millions of claims that a metric, chart pattern, or indicator can singlehandedly identify the next big stock, there’s no one-size-fits-all solution. Mr. Price summarized this, saying, “No mathematical formula or yardstick alone can be relied on for identifying growth stocks or for detecting when their earnings reach maturity.” When you hear someone declaring a tool the end-all-be-all, you can be sure they are simply selling you something that won’t be effective over the long term.
Make Mistakes — growth investing requires mistakes. Even a good investor will select poor performers, but a few big winners can result in a portfolio with solid returns. T. Rowe didn’t shy away from his mistakes; he said, “I make more mistakes than anybody else…But I learned long ago to admit my mistakes and try to correct them.” Embrace your mistakes.
Everyone is different. We have different objectives, values, time horizons, and risk tolerances — we’re all playing a slightly different game. Cloning a successful investor’s trades, strategy, or methodology may not generate the intended results, but learning important, time-tested lessons from the world’s best investors can build the foundation for successful investing.
Thomas Rowe Price was both an innovator and a student, combining popular strategies with his own techniques to create a theory of investing that is still widely implemented today. This flexibility and individuality provide a framework for investors to develop a suitable style for their unique goals, values, time horizon, and risk tolerance.
Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. I encourage you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from James Vermillion, and all rights are reserved.
