A great Phil Carret interview:
When I asked Warren Buffett (at a recent press conference in Omaha) which mutual funds employed investment styles similar to his, he replied that the three funds that I myself had named Sequoia, Clipper, and Tweedy, Brownewere similar . . . and dissimilar.
He then mentioned that when he was in his 20s he had been impressed by Phil Carret, who had started the Pioneer Fund in 1928, and had met him and learned a good deal from him. By coincidence, I interviewed Carret a few years before he died, in 1998, at age 101. He was an easygoing, unpretentious gentleman with a logical, nononsense mind.
I had first run into him around 1990, when he and two other giants of the investment world, Max Heine of the Mutual Series Fund and Julian Lerner of the AIM funds, took part in a memorable discussion. The panel had been set up by Bill Lippmann, who now runs a few Franklin funds. What impressed everyone about that discussion was how much all three money managers loved investing, Carret in particular. And how differently the three men investedyet with similar, most excellent results. As Max Heine, an urbane, witty gentleman, said at the conferences conclusion, All roads lead to Jerusalem.
Carret had an unusual hobby: viewing eclipses from around the world. As I recall, he had seen around 50. He was also one of the few investors who had lost money in both 1929 and 1987.
Here are excerpts from my 1994 interview with Carret at his office in New York City:
Questions and Answers
Q. Is it true that you influenced Warren Buffett?
P.C. I dont influence Warren. He influences me. I sent him a telegram the other day when his stock hit $20,000. I wrote: $20,000 WOW CONGRATULATIONS. [The stock is now around $70,000 a share.]
Q. Are you worried about how popular mutual funds have be come?
P.C. No, I think mutual funds are ideal for the average citizen who doesnt want to bother to or doesnt have the necessary equipment to make judgments on his own. But they should understand that they will not make a lot of money out of it. Ten dollars will grow to $12 or $15, not to $150.
Q. Did you foresee the amazing popularity of mutual funds? P.C. (laughs) No. I can remember thinking that if the Pioneer Fund ever got to $25 million I really would have arrived. Now, with $25 million you couldnt possibly cover even the overhead.
Q. How do you feel about investing abroad?
P.C. There are great companies abroad, but they keep books differently or they used to. I had a good friend, and I told him I didnt understand foreign bookkeeping. Why do they keep three sets of books? He said that one was for the stockbrokers, one for management, and one for the real insiders. But I think things have changed, and now they keep the books in an up-to-date fashion. We get questions all the time, why not 5 percent abroad? But if we buy Coca-Cola, at least 60 percent of its revenue comes from abroad. We dont buy it. I dont like the drink.
Q. Dont let Warren hear you say that.
P.C. But I own some Berkshire Hathaway, so indirectly I own some Coca-Cola. For the small investor, I might recommend maybe 10 percent in foreign stocks. But if one is an American, brought up here, you understand the way things are done its much simpler to invest here instead of trying to figure out the mental processes of Amsterdam or Zurich. Our clients feel more comfortable with American companies rather than if you go fishing around the world.
Q. Like Buffett, you buy and hold, dont you? Your strategy is similar to Buffetts?
Executive: Maybe Buffetts strategy is similar to Phils. P.C. Warren is obviously much smarter than I am. Ive known Warren for probably 40 years, and if I phoned, he would take the call. But I dont bother him.
Q. How often are you right about the direction of the stock market? P.C. Ten percent. Unfortunately, the contrary opinion school has a great deal of validity. When everyone is bullish, why, you should be very concerned. I was in Rome in 1987 when the market fell out of bed and lost 500 points in one day, and I still dont know why it happened. I hadnt foreseen anything. But I didnt owe anyone any moneyI never do.
Q. Buffett has commented that you went through both the crash of 1929 and the crash of 1987. Were they similar?
P.C. [The crash of] 1929 was much worse. If it had stopped by January 1930, it would not have been so bad. But it was kind of exciting, you know. Those on margin in a big way were of course devastated.
Q. Do you market-time at all?
P.C. No. If youre doing the right things, a bear market is not going to kill you. And you should be philosophical. If the market is down 50 percent and your account goes down only 40 percent, why, thats a great triumph.
Q. Do you favor investing gradually in a stockdollar-cost averaging?
P.C. If you find something attractive, buy it.
Q. In evaluating a company, how important is management? P.C. Management is the important factor in a company. Anyone who gets to be chairman or president of a company is a fairly smooth operator, and talks a good fight, you know. You have to look at his recordhow much of his own money is in the stock (my yardstick is a years salary) and is he wildly optimistic or cautious? If he says things are pretty good and the results were very good, thats great. If he says things are fine and theres a lousy quarter, I dont want his stock.
Q. When do you sell?
P.C. I never sell anything, by and large, unless somebody takes it away from me. If you have a good stock, sit on it. Unless you find something thats obviously much better, cheaper.
Q. I understand that you believe that doctors are terrible investors, and you have turned down doctors as clients.
P.C. If a doctor doesnt believe his diagnosis and his prescription, he shouldnt be in the profession. He has to believe that hes almost God. And many of them carry this over and tell you how to invest.
Q. Have you heard the worrisome talk that Social Security may run out of money soon? It might have to be eliminated, or a means test set up.
P.C. Ill be gone. Ill let you worry about it.
Q. You knew Dean Witter? You knew Clarence Barron, who owned the Wall Street Journal?
P.C. Dean Witter was very sharp. Barron weighed 300 pounds, and was handsome from here up, with his white beard. They said that he hadnt seen his feet for 40 years.
Q. How many stocks do you need, as a minimum, to be diversified? P.C. For an individual, 25, I think.
Q. How many securities can one person follow?
P.C. I knew a brilliant man named Fred, and he was asked whether his fund should really own hundreds of different securities. I own 400 or 500, Fred said, and I cant watch them all. But if you buy them cheap enough, they watch themselves.
Q. Who is that on your coffee cup?
P.C. Ludwig van Mises, the greatest economist of the twentieth century, in my judgment. He was a founder of the Austrian economics movement, which has never taken off compared with Lord Keynes, and I regard Keynes as disastrous for all concerned. Van Mises was in favor of free enterpriseand so am I. Theres nothing like competition.
Q. Have you ever read Peter Lynchs books? P.C. Ive glanced through them.
Q. Lynch visited Buffett once, and Buffett said of him, A very clever young man. I figured that what that meant was I could have him for breakfast. (general laughter)
Q. What are the worst mistakes investors make?
P.C. The stupid thing we all do is to get more and more bullish as the market goes upand be frightened out of our wits when it goes down.
Q. How do you stay in such great health?
P.C. I carefully avoid exercise. I eat what I like. And I enjoy my work. But the greatest success of my life was my wife. I enjoyed 63 years of perfection. I used to tell her that she was 99.99 percent perfect. But I really thought she was 100 percent.