Fertile Fields: The Inventor of Growth Investing

"The growth-stock theory requires patience, but is less stressful than trading and likely to be more profitable." — T. Rowe Price Jr.

T. Rowe Price Jr. formalised growth investing as a discipline in the 1930s — at a time when Wall Street was dominated by buying statistically cheap stocks, and paying above book value was seen as reckless.

His founding insight, reached managing money during the Depression, was simple: the best long-term investments are not the cheapest businesses today, but those that will be worth the most in ten or twenty years. Compounded earnings growth, he argued, creates more wealth over time than any discount to book value.

Three ideas underpin the approach:

1. Fertile fields. Growth is not uniform. Certain industries are in the early stages of secular growth cycles that last decades. The investor's job is to identify such a field early — before the growth is obvious — and own it for the whole cycle.
2. The qualities of a growth company. Strong research and development relative to sales, limited cut-throat competition, relative freedom from heavy regulation, and above all a capable management team with a long-term outlook.
3. The life cycle. Every growth company passes through growth, maturity and decline. The valuation discipline differs at each stage — accept a higher multiple during genuine growth, watch closely for deceleration in maturity, and sell in decline regardless of how cheap the shares look.

Illustrative example: a pioneering growth fund

Price launched one of the first growth-oriented funds around 1950, focusing on companies he judged to be in fertile fields with decades of expansion ahead. The approach helped establish growth investing as a credible discipline alongside traditional value investing.