Source: Kigaku Club

1. Caret and Pioneer Fund

Philip Carrett was born in 1896 and is the only child in the family. At age 21, he graduated from Harvard University majoring in chemistry, and later served for a short time, working in many different occupations such as a bond broker, journalist, and researcher.

In May 1928, Carrett founded the Pioneer Fund, with a size of only 25,000 US dollars. The shareholders are all family members or friends. For the next half century, Carrett personally managed the fund. Even in the later stages, its size exceeded 225 million US dollars, and his employees were only his two sons and one granddaughter, and a few employees.　

Carrett's Pioneer Fund had some “bad times” at the beginning. The collapse of the stock market in 1929 dealt a heavy blow to the capital market and economy, and the Dow Jones index did not return to the level before the stock crash until 25 years later.

The stock market disaster hit Carrett's fund hard at the beginning of its establishment, but from the mid-1930s until Carlet's retirement, he maintained a long-term investment performance of more than 10%. Over the 55 years it has managed the fund, its compound annual return has reached 13%.　　

Summarizing Carrett's investment characteristics, it can be said that he has a lot in common with Buffett: he likes to hold shares centrally, has never held more than ten types of stocks at the same time, covers no more than five industries, and holds shares for a long time.

He once said, “Changing hands often means mistakes in judgment. It's extremely difficult to know when to sell which stock”. He argues that no individual stock should exceed 1/4 of the total investment, and that half of the investment amount should preferably be short-term bonds to reduce capital liquidity risk.

In terms of liking unpopular stocks, Carrett and Buffett do have amazing similarities. Their friendship continued for half a century. When Buffett disbanded his fund, he recommended Carrett to shareholders.　

In 1963, Carrett sold most of his shares in Pioneer Fund and kept only a small portion. He founded his own investment company, Carret & Company, which managed assets for large institutions and individuals until he retired at age 87.

2. 55 years of compound income

Caret established the Pioneer Foundation in May 1928. At the time, there were about 25 shareholders, all his family and friends. He managed the fund for half a century until his retirement. Over that 55-year period, Pioneer Fund's compound annual return was 13% (15% if calculated from the depths of the Great Depression).　

This means that if someone invests 10,000 dollars when the fund was founded and the investment income received every year is put back into the fund, then by the time Carlet retires, he will be able to receive more than $8 million. Of course, this investment will suffer a 50% loss in the early 1930s.

Today, a return of 13% isn't a remarkable figure, but when inflation is low, it's still quite impressive. In any case, maintaining even a very low compound interest rate for a long time can work miracles.　　

Now Pioneer Management is a listed company, and Carlet only holds a small portion of the company's shares. Initially, Pioneer Fund was operated independently by him; later, he merged the management company and sold most of the company's shares.

There were three eighty old men on the board of directors of the Pioneer Foundation at the same time: Caret himself, Jerome Preston (Jerome Preston), and Phil Cooley (Phil Cooley). Sometimes shareholders wonder if these three old men are out of date. Caret has always been confident in dispelling such doubts: he is convinced that age brings wisdom.

3. Investment preferences

“I love stocks traded on the OTC market. Still, I'm more conservative than most people. Many people think 'conservative' means GE, IBM, etc. But all I chose were stocks that weren't very popular.

Stocks traded on the OTC market are not as susceptible to manipulation as stocks traded on the New York Stock Exchange, nor are they susceptible to popular mentality.”

At this point, Caret can be considered to some extent an “old version” of Warren Buffett. Indeed, they are also similar in appearance: round heads and love to grin.

They both have a rebellious personality: they seek what no one else wants. They both prefer unpopular stocks such as water companies or bridge companies, and don't care that these stocks are snubbed by the market for a long time.

In particular, they all have the patience that successful value investors should have. They have maintained regular communication for many years.　　

Caret likes stocks that are growing in profit, but added, “If a company's profits have been increasing for 15 years, the next year is likely to be worse.” 　　

“I love reading a good balance sheet. I get lots of annual reports. I've watched them all, and at least have a quick look. If the equity ratio in the statement is very low, or the current ratio is very low, I won't look further.

I don't want to see the word debt, and the current ratio must be at least 2. If this is a utility company, I would like to see reasonable financial ratios, favorable market segments, and a good regulatory climate.”

4. Owner management

“Another important criterion for me is that management must own a significant percentage of the company's shares. I have passed a letter with the chairman of National Gypsum (National Gypsum). He had 20,000 shares of the company, but they were all sold by him for $20.

Today, so many stocks are worth a lot of money, but they only sold for 400,000 dollars at the time. I noticed that the company's president only had 500 shares of the company, so I wrote a letter to the company's chairman. However, I was shocked by the response: 'How much stock Mr. Brown owns is his own business; no one else cares. '

I totally disagree with this view. A company executive should invest at least one year's salary in company stocks. If he doesn't have that much loyalty to the company, he shouldn't be the company's main manager.

If they don't want this stock themselves, why should I buy it?” Caret countercriticized and added that he always uses letters of attorney signed by shareholders to find companies with large insiders.　　

“Commercial principles are principles, and it is dangerous to deviate from them. Some people are savvy enough to do this, such as fast in and out, but there are very few people like that.

I've read a report that studies the average lifespan of margin accounts for securities trading. The average lifespan of these accounts is only two or three years. There was a customer who persisted for 13 years before losing all of his money, and his initial capital was several million dollars.

5. 12 mottos

Regarding investment principles, Caret has 12 mottos:

1. Hold more than 10 stocks, and these stocks must cover 5 different industries.

2. Every security held is revalued at least once every 6 months.　　

3. Securities accounting for more than half of total assets must be guaranteed to be profitable.　　

4. Earnings should be the last factor to consider when analyzing any stock.

5. Handle losing positions decisively, but don't rush to close profitable positions.

6. Don't invest more than 25% of your capital into securities you don't know enough about.　　

7. Dodge “inside information” like a plague.　　

8. Look for facts, not others' opinions.　　

9. When valuing securities, don't rely too much on those rigid formulas.　　

10. When the stock market is running high, interest rates are rising, and the economy is booming, at least half of the capital should be invested in short-term bonds.　

11. Borrow as little as possible or only when the stock market is sluggish, interest rates are low or falling, and the economy is in a slump.

12. An appropriate proportion of capital should be used to buy long-term stock call options for companies with very optimistic prospects.

Editor/jayden