More T. Rowe Price Quotes
“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.”
“Buy stocks of growing businesses, managed by people of vision, who understand significant social and economic trends and who are preparing for the future through intelligent R&D.”
Buying obscure or out-of-favor growth stocks is a very reliable recipe for making money in the market.
“Insurance companies know that a greater risk is involved in insuring the life of a man 50 years old than a man 25 and that a much greater risk is involved in insuring a man of 75 than one of 50. They know, in other words, that risk increases as a man reaches maturity and starts to decline…”
“In very much the same way, common sense tells us that an investment in a business affords great gain possibilities and involves less risk of loss while the long-term, or secular, earnings trend is still growing than after it has reached maturity and starts to decline… The risk factor increases when maturity is reached and decadence begins…”
Buying and Selling Tips from T. Rowe Price
How to Buy
- Look for a record of increasing earnings
- The best time to buy growth stocks is when they are out of favor.
- Buy stocks with a record of rising dividends. They are worth a higher multiple than secondary stocks.
- Stable growth is worth more than cyclical growth. Cyclical stocks deserve a higher multiple of their recession earnings than of their peak earnings.
- Investors should pay a lower multiple for earnings for growth stocks when bonds hav high yields.
- When stocks are yielding 5% or more, investors should pay a lower p-e ratio for growth stocks than when the growth stocks are yielding 3% or less. The “total return” of growth stocks have to copete with bonds or other stocks.
Scale Buying: When a growth stock falls to its target price, buy aggressively and not worry about bottom fishing.
How to Sell
Price said an investor had to be able to tell when a company’s earnings growth is ending. Ways of doing that would be to watch for:
- Decreasing sales
- Declining earnings and profit margins over several quarters
- Lower return on invested capital for several quarters
- Sharply increasing taxes and detrimental regulations or unfavorable court decisions
- Negative changes in management
- Saturation of markets/increasing competition
- Substantial increases in cost of raw materials and labor.
Scale selling: Price waited until a stock had risen 30% over its upper buying limit. After that, he sold 10% of his position and after that, he sold 10% more when the price rose another 10%. He would sell sooner if a bull markets topped out or if the stock was falling because of bad news from the company.