On Discovering The Art of Speculation (1930) by Philip Carret

An investor lauded by Warren Buffet as possessing “the best truly long-term investment record of anyone I know” deserves more attention than he’s hitherto received. 

Philip Carret’s under-appreciated classic The Art of Speculation – published in 1930 - was a welcome serendipitous discovery on a recent visit to one of the university libraries I occasionally frequent.

Published four years before Benjamin Graham’s The Intelligent Investor, Carret’s text is pithy, stylish and full of timeless investment insights.

Who was Philip Carret?

Born in 1896 and living to the age of 101, Carret founded what became the Pioneer Fund, one of the first mutual funds in the USA. Under Carret’s 55 year management of the fund an initial investment of $10000 became $8m. The firm he established in 1963, Carret Asset Management, still trades today.

What I’ve learnt from The Art of Speculation

Firstly, and fundamentally, Carret questions the sharp distinction Benjamin Graham went on to make in The Intelligent Investor between investment and speculation. As Carret rightly points out, as we face an uncertain future all investment decisions involve an element of speculation. The difference between the two is a function of temperament and time horizon.

Secondly, Carret sprinkles The Art of Speculation with many illuminating remarks about how financial markets work:

“Limitless horizons stretch before the would-be speculator”.

“Successful speculation requires capital, courage and judgement”.

“Like the ocean, the stock market is never still”.

“Fashions play their part in the stock market as in other affairs of life”.

“Finance has its anatomy and its physiology. The former is studied through the medium of balance sheets, the latter through income statements”.

“One of the essential qualifications of the successful speculator is patience”.

“The most important factor affecting the value of any single security at any given moment is the unknown factor”.

Thirdly, the very title “The Art of Speculation” embodies Carret’s view of investment as a thoroughly human activity which should not be reduced to the dogmatic and mechanistic application of formulae and rules:

“The speculator will never be a success if he attempts to follow any set of rules blindly. There will always be exceptions, he must apply his intelligence keenly in any given situation”.

Fourth, although not all of Carret’s Twelve Commandments (listed below) are either applicable today or beyond question, each is as stimulating as I found The Art of Speculation as a whole. Available for about £7 online Carret’s book is at the least the equal of Graham’s better-known text.

Carret’s Twelve Commandments for Speculators

(1) Never hold fewer than ten different securities covering five different fields of business.

(2) At least once in six months reappraise every security held.

(3) Keep at least half the total fund in income-producing securities.

(4) Consider yield the least important factor in analyzing any stock.

(5) Be quick to take losses, reluctant to take profits.

(6) Never put more than 25% of a given fund into securities about which detailed information is not readily and regularly available.

(7) Avoid "inside information" as you would the plague.

(8) Seek facts diligently, advice never.

(9) Ignore mechanical formulas [such as price-earnings ratios] for valuing securities.

(10) When stocks are high, money rates rising, business prosperous, at least half a given fund should be placed in short-term bonds.

(11) Borrow money sparingly and only when stocks are low, money rates low or falling, and business depressed.

(12) Set aside a moderate proportion of available funds for the purchase of long-term options on stocks of promising companies whenever available.

More on Philip Carret

Interview with Jason Zweig, Forbes Magazine, June 20^th 1994.

Value Walk Carret Resource Page.

New York Times Obituary.

Extract from 1995 TV interview on Wall Street Walk.