T. Rowe Price

Chapter NineTHE GROWTH STOCK PHILOSOPHY

Mr. Price was well known in investment circles for the development of the “Growth Stock Philosophy of Investing.” By rigorously following this deceptively simple philosophy, he established one of the best investment records in the financial industry during his investment career. The Growth Stock Theory remained fundamentally unchanged during his forty‐five‐year career as an investment manager, although he did modify the wording slightly and added some additional sentences over the years. His final version would appear in a brochure published by the firm in April 1973: “A Successful Investment Philosophy based on The Growth Stock Theory of Investment.” (Mr. Price often used Growth Stock Philosophy and Growth Stock Theory together. Theory meant the facts behind the overall philosophy.) “A growth stock,” the brochure read, “is defined as a share in a business enterprise which has demonstrated long‐term growth of earnings, reaching a new high level per share at the peak of each succeeding business cycle, and which gives indications of reaching new high earnings at the peaks of future business cycles. Earnings growth per share should be at a faster rate than the rise in the cost of living, to offset the expected erosion in the purchasing power of the dollar. The goal is a portfolio of companies that will double earnings over a 10‐year period. It is believed that dividends and market value would do the same.”

His Model Inflation Portfolio began ...