What investment principles guided Thomas Rowe Price, Jr.
Thomas Rowe Price, Jr. was an American financier and founder of T. Rowe Price. He developed his investment strategy based on investing in growth companies. This approach seemed highly unconventional in the mid-twentieth century but has proved effective.
Biography of the financier
Price was born in 1898 into a medical dynasty. In 1919, he defended his bachelor’s degree in chemistry. His first job was with the American chemical company DuPont, but he lost interest in the field over time. At the same time, Thomas became interested in stock trading and money management. Over the next ten years, Price worked in small investment firms. His experience allowed him to develop his vision of financial activity. He identified key points on which to base his work, including:
– an emphasis on investing for growth;
– using a commission system for no-load customers;
– rejecting commission-based sales and unethical ways of making profits;
– implementing a rewards policy.
In 1937, Price set up his firm, T. Rowe Price and Associates. He ran the company until 1966 when he sold his shares. The firm still exists today and has billions of dollars under management.
Price’s investment rules
Thomas developed a strategy that is still unique today. It is the result of a series of investment principles that were Price’s own. The financier was primarily interested in companies with growth potential. At the same time, he disagreed with the cyclicality of stock prices. According to the businessman, it was essential to pay attention to the life stages of each company. These include periods of growth, maturity and decline.
The investor’s strategy also included investing for the long term. This approach allows for higher returns over a period of time. It also reduces the broker’s tax burden. Price bought shares at a low cost. In most cases, the company was in the early stages of its cyclical growth. If the value of the company’s securities rose significantly, the investor would sell them, a decision based on an analysis of the prospects. If the business no longer met the growth criteria, the investor would get rid of the securities.
According to Price’s strategy, searching for a promising company begins with studying information from several sources. First, look for news about the emergence of innovations and technological products. Companies in these areas have excellent growth potential.
Another principle of Price’s approach is asset diversification. Ideally, a portfolio should consist of 60 stocks from different companies. This protects the investor from significant losses.