Image Credit: “The Triumph of Patience,” engraving, 1559, Dirck Volckertz Coornhert after Maerten van Heemskerck, The National Gallery of Art
By Jason Zweig | Oct. 28, 2015 11:30 pm ET
I recently turned up this piece that I wrote more than 20 years ago about one of the most remarkable portfolio managers I’ve ever met: Phil Carret, who began investing in 1919 and kept at it for the next 79 years until he died, aged 101, in 1998, four years after I wrote this profile.
I thought you might enjoy seeing it.
Buy ‘em Cheap and Hold ‘em
By Jason Zweig
Investing genius consists of one part patience and one part compound interest, says Philip Carret. He ought to know – he’s been investing successfully for more than 70 years.
How do you manage $500 million in private accounts at a time when the bond market is in upheaval and half the investment experts tell you that a stock-market correction is overdue? If you are Philip Carret, you saunter into your midtown Manhattan office at 9 a.m. You depart for a leisurely lunch at the Marco Polo Club in the nearby Waldorf Astoria Hotel at 12:15, return at 1:15 and quit for the day at 4:30 p.m.
This looks like lazy investing, but in fact it’s smart investing. It’s smart because it’s patient. Carret doesn’t spend his day trading like a frenetic hedge-fund operator. He doesn’t try to time the market, either. He buys and holds.
At 97, Phil Carret has well learned an essential truth about markets: Traders rarely die rich, patient investors often do.
“I’ve been involved in the market too long to get excited,” he says, talking about the aftermath of Alan Greenspan’s interest rate boosts.
Since 1919, through thick and thin, four U.S. wars, roaring inflation and deadening recessions, Philip Carret (rhymes with hurray) has been investing with success in stocks and bonds. Longevity pays in investing. It means that your successful stock picks compound, uninhibited by capital-gains taxes.
“There’s no point in taking profits and paying taxes,” Carret explains. “Turnover usually indicates a failure of judgment. It’s extremely difficult to figure out when to sell anything. So I’d rather have the stock taken away from me in a merger or a buyout. It’s much easier.”
With a buy-and hold portfolio and a fatalistic shrug on the matter of where the market is headed, an investor can work a short day. “Don’t worry too much,” advises Carret. “If you buy them cheap enough, they watch themselves.”
After studying chemistry at Harvard, flying a Sopwith Camel in World War I, and quitting Harvard Business School, Carret became a bond salesman. From 1922 to 1926 he was a writer for Barron’s. By 1927 he was chief economist at Blyth, Witter & Co. (an ancestor of today’s Paine Webber) and ran the firm’s American, British & Continental Corp. closed-end fund.
Striking out on his own, Carret founded the open-end Pioneer Fund in 1928 and steered it steadily through the Depression, World War II, the bear market of the 1970s, all the way up to 1983, when he resigned as portfolio manager. But he still manages money for private clients.
“I have a very simple strategy,” says Carret. “I buy good companies at attractive prices. Then I sit on them,” he adds, bearing down in his seat for emphasis. If that sounds a bit like Warren Buffett, it’s no coincidence. The two men are mutual admirers and friends. In 1946 Carret bought Greif Bros. Cooperage Co. on the recommendation of Warren Buffett’s father, who then ran a small brokerage firm in Omaha.
The Greif position is classic Carret—not a pure value stock (bought for its liquidation value) nor pure growth (the next Wal-Mart), but something in between. It is simply a steady grower with steady management bought at a reasonable price. Indeed, the same man who was running Greif when Carret bought the shares is running it today.
Over the years that little maker of wooden barrels diversified into cardboard boxes, multiwall bags and fiber drums. The stock split many times. Each share that Carret bought at around $15 is now equal to 40 shares of Greif Bros. Co., worth $1,505.
Carret doesn’t hold all his stocks for 48 years, but he really does hate to sell. By buying into Blue Chip Stamp Co. in 1968 he ended up with shares of Berkshire Hathaway at a cost of 235 (recent price: 16,300). He bought Ncutrogena Corp. at around 1, split-adjusted, in 1977 (recent price: 18 ¾); Arden Group, which operates supermarkets and distributes fax machines, in 1961 at 10 (recent price: 40); Calcasieu Real Estate & Oil Co., a Louisiana-based property outfit, in 1964 at 52 cents (recent price: 1 ½ ).
Considering where the market has gone in the meantime, the Louisiana oil company is not a winner. Still, Carret sees no point in unloading it. At its current price it’s not overvalued. And if he sold, even though he’d be merelv breaking even after inflation, he’d have to pay 35 cents a share in capital-gains taxes.
Like Buffett, Carret is no fan of dividends (you have to pay tax on them) but he prefers companies that could pay dividends if they wanted to. They may invest their cash flow to expand their business or use it to buy in shares. Carret likes low debt, steady earnings growth and a current ratio—current assets divided by current liabilities—of at least 2-to-1. And he loves to buy what analysts have taken off their buy lists. ”I don’t give a damn what they say,” says Carret. “They’re frequently wrong.”
Consider Integon Corp., the North Carolina-based insurer of high-risk drivers. “The market says I’m wrong,” says Carret, “but I can’t see where I’m wrong.” At a recent 18 5/8, or seven times last year’s earnings, the stock has lost nearly half its value since last year. “It’s very profitable,” he says. “You can charge an arm and a leg to insure had drivers.”
Carret thinks another insurer, MBIA Inc., is also cheap at 55 3/8, or nine times earnings, after falling 32% since last tall. MBIA guarantees the timely payment of principal and interest on municipal bonds. “They’ve only paid one claim in 20 years,” says Carret. “It’s a foolproof business.”
Lately Carret has been buying such banged-up blue chips as IBM, American Express and Merck. And he thinks regional banks have gotten cheap in the panic over rising interest rates. Carret likes retail-minded Norwest Corp., the nation’s fourteenth-largest Bank, and tiny Pawling, N.Y.-based Progressive Bank (assets, $639 million), which he considers an attractive takeover candidate.
Carret is working on his fourth book, appropriately titled The Patient Investor. In a conversation he boils his 75 years of experience in the market down to a handful of rules:
”Don’t speculate. Buy for the long pull.
“Never borrow. I had a margin call in 1924, and I swore I never would buy on margin again. That’s one of the main reasons I got through the 1930s.”
Don’t press him as to where he thinks the market is headed next.
“The market always surprises me,” he laughs, adding: “Always stay fully invested. Keep your portfolio well diversified. I used to have 400 to 500 different securities in the Pioneer Fund.”
Carret is not a big buyer of bonds, but there’s one favorite he’s had in his portfolio for a while. It’s the Canadian Pacific Railroad noncallable perpetual 4% issue issued in 1889. At a recent 46 on the New York Stock Exchange, the bond yields 8.6%. It may be the only security he’s owned that is both older than he is and certain to outlive him.
Forbes, June 20, 1994
Note (Oct. 25, 2016):
A correction: John Carey, co-manager of the Pioneer Fund, tells me that the fund didn’t hold “400 to 500 different securities,” as I quoted Mr. Carret saying. The fund typically owned fewer than 100 holdings while Mr. Carret ran it, says Mr. Carey. More than 20 years after I wrote the article and nearly as long since Mr. Carret’s death in 1998, I can’t possibly reconstruct how I made this error, but it isn’t too late to correct it.