Investor profile at InvestingByTheBooks: The book The World’s 99 Greatest Investors: The Secret of Success provides a unique opportunity to learn form the most prominent investors globally. In the book they generously share their experiences, advice and insights and we are proud to present these excerpts. Magnus Angenfelt, previously a top ranked sell side analyst and hedge fund manager, will be presenting one investor per month. For those who cannot wait for the monthly columns, we strongly recommend you to buy the book. The investor himself writes the first section below and then Angenfelt describes the background of the investor and comments on his investment philosophy. Enjoy.
Philip Carret’s twelve commandments for speculators:
1. Never hold fewer than ten different securities covering five different fields of business.
2. At least once every six months reappraise every security held.
3. Keep at least half the total fund in income-producing securities.
4. Consider yield the least important factor in analysing any stock.
5. Be quick to take losses, reluctant to take profits.
6. Never put more than 25 % of a given fund into securities about which detailed information is not readily and regularly available.
7. Avoid ‘inside information’ like the plague.
8. Seek facts diligently; advice never.
9. Ignore mechanical formulas [such as price–earnings ratios] for valuing securities.
10. When stocks are high, money rates rising, and business prosperous, at least half a given fund should be placed in short-term bonds.
11. Borrow money sparingly and only when stocks are low, money rates low or falling, and business depressed.
12. Set aside a moderate proportion of available funds for the purchase of long-term options on stocks of promising companies whenever available.
BORN Lynn, Massachusetts, USA 1896. Died 1998.
EDUCATION He graduated from Harvard College and spent one year at business school.
CAREER Carret first spent a couple of years working in the financial industry. Then, while a reporter and feature writer for the financial magazine Barron’s he began managing money for family and friends in 1924. He went on to establish what evolved into the Pioneer Fund in 1928. Later he founded Carret Zane Capital in 1962. He kept managing the fund until 1983, aged 87.
INVESTMENT PHILOSOPHY The title of one of his books, The Art of Speculation, gives the false image of a short-term trader. Carret was the opposite, being the first famous value investor. He did his own research, analysed data, and only invested in a company if its stock price did not reflect the company’s real value, and if he saw potential for growth. His remark ‘There is no substitute for buying quality assets and allowing them to compound over the long term. Patience can produce uncommon profits’ described his main objective. Small over-the-counter stocks represented a substantial part of his portfolio and he preferred to buy semi-listed stocks, which were not so often subject to course manipulation. A strong balance sheet was a crucial prerequisite for investment. He believed that options were useful when the market was bad, and as a rule he even kept cash available just for that. Leverage was used only when the market was low and there was extreme fear. He was mainly a stock market investor, but also used the bond market from time to time. He regarded the footnotes appended to annual reports as the most useful source of information.
OTHER Carret is famous for having the longest history of investing. His had 55 excellent compounded gain years as a fund manager despite major depressions, recessions, and world war. He founded the Pioneer Fund six years before Benjamin Graham first published Security Analysis. He was said to be a voracious reader. Warren Buffett and Carret exchanged ideas on a regular base for several years. At the 1996 Berkshire Hathaway Annual Meeting, Warren Buffett said: ‘The main thing is to find wonderful businesses, like Phil Carret, who’s here today, always did. He’s one of my heroes, and that’s an approach he’s used. If you’ve never met Phil, don’t miss the opportunity. You’ll learn more talking with him for fifteen minutes than by listening to me here all day.’ Carret wrote two books and continued to work on Wall Street even after he had turned a hundred. He was an avid chaser of eclipses and travelled the world to view them. His grandfather had been Napoleon’s paymaster general.
Sources: Philip Carret’s twelve commandments for speculators; Pioneer Fund; Pioneer Investment; Wikipedia.