“Even the amateur investor who lacks training and time to devote to managing his investments can be reasonably successful by selecting the best-managed companies in fertile fields of growth, buying their shares and retaining them until it becomes obvious that they no longer meet the definition of a growth stock.” – T. Rowe Price
Buy and hold investing is not dead. It is as tried and true a method of investing as it was in the 1930’s when T. Rowe Price helped make it popular. While the odds are stacked against the individual investor who has little time for stock research and a smaller amount of education in stock valuation, all is not lost. T. Rowe Price said that even the small investor can overcome these obstacles by holding onto a company that they believe will grow in value for a long period of time. Today, we view long periods of time in a matter of months instead of years. If you truly want to be successful as a buy and hold, growth investor, you should consider your investments before you buy them in terms of years and decades.
What did T. Rowe Price consider a growth stock? Today, stocks generally fall into two categories, growth or value. A value stock is one that is considered to be trading at a lower price relative to it’s fundamentals such as P/E Ratio, discounted cash flow, etc. A growth stock, on the other hand, is a stock that appreciates in value and has yields a high return on equity (ROE). T. Rowe Price looked for certain things when he sought a growth stock to invest in. He looked for a company with superior research and development, a lack of intense competition from competitors, lack of government regulation, low total labor costs, 10% return on invested capital, high profit margins, and growth in earnings per share (EPS).
Who Is T. Rowe Price? Thomas Rowe Price, Jr. founded the investment firm that bears his name in 1937. Price is often credited with popularizing the growth style of investing. His growth oriented investing philosophy helped push aside Benjamin Graham’s famous value approach that was popular at that time. Both investing styles remain popular today with investors and money managers alike. Price believed that investors should buy growth stocks and then hold them for a long period of time. After a company reaches maturity in its business cycle, an investor’s opportunity to earn a decent return on his money decreases and risk increases.
Do you have your own favorite investing quote or a favorite investor that you would like to see in this series? I would love to hear it. Please drop me a line in the comment section below or e-mail me.
Note – This is a part of a series of posts every Wednesday on the blog featuring quotes about investing from famous investors and people in finance. Check out the entire series of Famous Investors’ Quotes.