Investment-nuggets!!!!!

Investment Nuggets

T. Rowe Price is a professional investor who showedthat it is possible to beat the market averages consistently over time.He also founded an investment firm in his name — T. Rowe PriceAssociates. Price was very much an entrepreneur rather than a manager.His favourite companies — Avon Products and Black and Decker — actuallybecame known as “T Rowe Price stocks”. Price published a sample familyportfolio to show how he had turned $1,000 invested in 1934 into$271,201 by end-1972. Price was known to be a strong-willed man. Henever deviated from the daily agenda he set himself, or from hisdecisions about when to buy and sell stocks. He demanded the same zealand discipline from his employees. This unforgiving work ethic turnedhis firm into one of the largest asset managers of his day. Here aresome takeaways from T. Rowe Price.

“Growth stocks’ can be defined as shares in businessenterprises that have demonstrated favourable underlying long-termgrowth in earnings and that, after careful research study, giveindications of continued secular growth in future...Secular growthextends through several business cycles, with earnings reaching newhigh levels at the peak of each subsequent major business cycle

…”“Even the amateur investor who lacks training and time todevote to managing his investments can be reasonably successful byselecting the best-managed companies in fertile fields for growth,buying their shares and retaining them until it becomes obvious thatthey no longer meet the definition of a growth stock.

”“Concentrate on industry leaders. These can usually beidentified by their competitive advantages, including: Outstandingmanagement, leading-edge research and development, Patents, licensesand other legally enforceable product rights, relative protection fromgovernment regulation, low labour costs but good labour relations.

”These advantages usually go hand-in-hand with:

A strong balance sheet

A high return on capital

Consistently above-average earnings growth

If these financial ratios are improving, that is often a good indicator that the company is still in its growth phase.

”“The best time to consider buying is when growth stocksare out of fashion. The time to start selling is when the stock is 30per cent above your upper buying price limit. Also, consider selling ifyou can be reasonably certain the bull market has peaked, the companyappears to be entering the mature phase or the stock price collapses onwidespread selling.

”“Look for companies in the earliest identifiable phase of growth. This growth is of two kinds:

Cyclical — growth in unit volumes of sales and in netearnings, which peaks at progressively higher levels at the top of eachsucceeding business cycle. These stocks are ideal for investors lookingfor capital gains during the recovery stage of the business cycle.

Stable — growth in unit volumes and in net earnings, whichpersists through the downturn in the business cycle. These stocks aresuitable for investors who need relatively stable income.”.