Actually, Rich Howard was fund manager of PRWCX until August 1, 2001 when he turned the fund over to Stephen Boesel. Although subsequent fund managers have done a credible job, Howard was one of a kind and is mostly responsible for the awesome historical record and reputation for capital preservation that PRWCX enjoys today. His knowledge and acumen for investing in convertible securities probably rivals that of the legendary John Calamos. It was a sad day when Howard left the TRP firm.
Here is a link to his final commentary: Rich Howard Farewell
Here's a cut/paste of the last few paragraphs, my favorites.
CAUTION, SECURITIES ANALYSTS AT WORK
The great stock market crash of 1929 and the economic depression that
followed provided a stimulus to systematize security analysis. Such fundamental
subjects as asset-class differentiation, the impact of economic forces on
corporate results, and the interplay of balance sheets and income statements
began to be studied in a rigorous manner. The major role of psychology and
related behavior in securities markets was also recognized. Speculators,
investors, brokers, insiders, managers, outside experts, and government all
brought motivation to their decisions and roles.
By the 1970s, when I became a chartered financial analyst (CFA), there
totaled fewer than 5,000 analysts so qualified, but the profession, with its
significant body of knowledge, was truly launched. The securities industry has
steadily evolved--a recent full disclosure ruling, which attempts to give all
investors equal access to all information, has been a notable development.
However, perhaps the biggest change I see is the sheer number of analysts
themselves. This year alone over 86,000 hopefuls (including my son) took the CFA
exams!
Many, of course, will search for the truth, driven by intellectual
curiosity, professional pride, and honest greed. Some also are lazy. Instead of
developing a rigorous understanding of the elements that go into corporate
earnings, lesser analysts simply look at the bottom line itself and seek out the
honey pot of high earnings growth. Many corporate managements recognize
and--even worse--embrace this glossed-over view, allowing their reported results
to be manipulated to generate the rosiest possible output at the expense of
common sense. Huge companies exposed to the vagaries of the world economy simply
do not grow their earnings consistently at 12% quarter after quarter. Yet by
reporting such numbers--even if misleading and basically dishonest--managers can
be lauded and paid handsome bonuses while watching their shares accorded high
valuations. Security analysis has gone from evaluating corporate performance to
dictating what is often reported as performance. When and how this will change I
don't know--but reality remains reality and eventually it will assert itself.
We continue to consider the economy, interest rates, and stock valuations
as the bare necessities in the outlook for financial markets and your fund. As
usual, there are many positives and negatives related to these building blocks,
but it's always important to remember the obvious. The time to buy is when most
other investors want to sell, and they want to sell when they perceive a poor
outlook. This sort of discipline is what allows an investor to qualify as a
"rightful owner," as defined by Mr. Baruch.
The economy seems a particular negative going into the second half of 2001.
Its weakness, exacerbated by a drastic drop-off in technology spending, has
significantly contributed to poor corporate earnings performance. Vicious
competition has hurt areas burdened with excessive overcapacity. Historical
experience suggests that sometime in the next 12 months, perhaps even tomorrow,
the economy will start turning up. Of course, once it does and people recognize
the change, it may be too late to benefit--equity prices will probably be
significantly above their lows.
..............................................
The time to buy is when most
other investors want to sell,
and they want to sell when they
perceive a poor outlook.
..............................................
Interest rates are a strong positive. Rate cuts reduce corporate expenses
by billions, boosting earnings. Lower rates also heighten investor interest in
equities over fixed-income securities. Furthermore, the Fed's easy-money policy
is probably not over. Stock market valuation significantly improved over the
past 18 months. It is, however, still not particularly good. Comparisons to
historic average price/earnings ratios, book values, and dividend yields all
suggest that stocks remain expensive. Some of this higher valuation makes sense
given the steady decline of inflation over the past 20 years--but even that
positive is two-sided. Inflation is not likely to fall much from today's low
level, and it might well go up.
Investor psychology, while not one of my three primary outlook factors,
seems especially important today. Disappointing stock market returns over the
last 15 months have caused the public to dramatically slow its buying of mutual
funds. If, however, disappointment leads to a loss of faith in future returns,
we might expect outright redemptions. That's when you find yourself facing not a
Winnie-the-Pooh sort of bear market, but a grizzly.
Given the above discussion, you should not be surprised that we expect an
unexciting stock market going forward. Of course, this was also my conclusion
six months ago and, while largely correct, it didn't prevent your fund from
performing well. We have used sensible criteria to choose what we own, and we
understand what we own. We have a quality organization that supports our work.
We face the uncertain future with confidence.
A PERSONAL NOTE
---------------
After 12-1/2 years as your portfolio manager, I will be turning over the
Capital Appreciation Fund to Stephen W. Boesel on August 1, 2001. Steve is a
well-seasoned veteran whose cautious style and talents are appropriate for this
fund. As for myself, a career change is in order--one that (mercifully for
investors) will not involve developing shareholder reports with themes such as
bears, pilots, sailors, or other assorted topics. In closing, I'd like to thank
each of you for your investment in the fund and the confidence thereby expressed
in T. Rowe Price.
Respectfully submitted,
/s/
Richard P. Howard