Was Philip Carret a better investor than Warren Buffett?
The falling Australian dollar sparked by the RBA’s decision to cut official interest rates last Tuesday has seen the share prices of Cochlear Limited (ASX: COH) and CSL Limited (ASX:CSL) racing towards all-time highs. With both companies deriving large percentages of their revenue from overseas, any decline in the Australian dollar will flow straight through to their bottom line.
No doubt the current rise will be welcomed by all shareholders. Unfortunately the ride for shareholders is rarely a smooth one. As recently as March both companies’ share prices declined over 7% on global economic concerns and at that point in time a persistently strong Australian dollar.
Shareholders who sold during that period will be regretting that they were unable to take a longer view of their investments. It is no secret that Warren Buffett is considered the king of taking a long-term view, but where does he draw his inspiration from?
During the 1996 Berkshire Hathaway Annual Meeting, Warren Buffett declared:
“The main thing is to find wonderful businesses, like Phil Carret. He’s one of my heroes, and that’s an approach he’s used. You’ll learn more talking with him for 15 minutes than by listening to me here all day”
High praise indeed. So who is Philip Carret and what have his returns been like?
In 1928, Philip started his own fund with $25,000 from family and friends. Interestingly, the fund was then known as the Fidelity Investment Trust (no connection to today’s Fidelity). It was later renamed the Pioneer Fund. It is little wonder that Warren Buffett considers Philip one of America’s great investors when you learn that Philip was able to beat the S&P500 index by 5% per annum on average for over 55 years!
Sadly Philip passed away in 1998 at the ripe old age of 101. Friends and colleagues of Philip often joked that when Philip turned 100 he would “split the stock”.
So what can we learn from Philip?
I think Philip summed up his approach best when he was interviewed by the New York Times in 1995.
“It is always the long view that matters…Trading in and out of the market is the pinnacle of stupidity…This old man buys enduring companies, not faceless stocks”
Philip was particularly famous for his patience and the ability to find household names well before they became so.
Philp’s 12 commandments for investing were.
- Never hold fewer than 10 different securities, covering five different fields of business
- At least once every six months, reappraise every security held
- Keep at least half the total fund in income-producing securities
- Consider (dividend) yield the least important factor in analysing any stock
- Be quick to take losses and reluctant to take profits
- Never put more than 25% of a given fund into securities about which detailed information is not readily and regularly available;
- Avoid inside information as you would the plague
- Seek facts diligently, advice never
- Ignore mechanical formulas for value in securities
- When stocks are high, money rates rising and business prosperous, at least half a given fund should be placed in short-term bonds
- Borrow money sparingly and only when stocks are low or money rates low
- Set aside a moderate proportion of available funds for the purchase of long-term options on stocks in promising companies whenever available
Scott Phillips the head advisor for the Motley Fool Share advisor service is well acquainted with the benefits of “taking the long view”. One of his many successful recommendations actually declined 30% after being recommended before going on to soar over 140% from its lows! Scott was not swayed by the market gyrations and maintained his view of the company.
While we may never be as successful as Warren Buffett or Philip Carret, it is important as investors that we never stop learning. Investors can do themselves a favour by following Philip and Scott’s common sense approach when considering their next purchase.
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Motley Fool contributor Alun Edmunds has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
The falling Australian dollar sparked by the RBA?s decision to cut official interest rates last Tuesday has seen the share prices of Cochlear Limited (ASX: COH) and CSL Limited (ASX:CSL) racing towards all-time highs. With both companies deriving large percentages of their revenue from overseas, any decline in the Australian dollar will flow straight through to their bottom line.
No doubt the current rise will be welcomed by all shareholders. Unfortunately the ride for shareholders is rarely a smooth one. As recently as March both companies? share prices declined over 7% on global economic concerns and at that point in time a persistently strong Australian dollar.
Shareholders who sold during that period will be…