Title: This Fidelity Manager Has Crushed the S&P 500 Since 1989—Here’s His Advice for Investors
Introduction
If there were a Hall of Fame for mutual fund managers, Joel Tillinghast would undeniably be a first-ballot inductee. As the lead manager of the Fidelity Low-Priced Stock fund since its inception in 1989, Tillinghast has consistently outperformed the benchmark indices and delivered impressive returns for investors. With an annualized total return of approximately 13%, his fund has significantly surpassed the roughly 9% of the benchmark Russell 2000 index and the slightly over 10% return of the S&P 500 index during the same period. Tillinghast’s successful track record speaks volumes, as an investment of $1,000 in Low-Priced Stock in 1989 would be worth over $57,000 today, compared to approximately $25,000 from an investment in an S&P 500 index fund.
The Strategy that Sets Tillinghast Apart
Tillinghast’s investment strategy focuses on identifying undervalued stocks that trade at a discount to their intrinsic value. Rather than chasing after the well-publicized stocks that dominate financial headlines, he looks for opportunities in small and mid-cap companies that tend to go unnoticed by most investors. This approach allows him to search in the less crowded and neglected corners of the market, increasing the chances of finding undervalued gems.
Value Investing and Long-Term Focus
Tillinghast’s definition of a value stock is centered on companies that can convert earnings into cash and return it to shareholders. He looks for companies where it is reasonable to estimate their earnings power over the next five to ten years. His fund’s long-term focus recognizes that value emerges gradually over time and that patient investors who hold onto undervalued stocks can reap significant rewards.
Differentiating from Benchmark Indices
While many small-company stock funds closely adhere to the benchmark index, Tillinghast’s approach is distinctive. The Fidelity Low-Priced Stock fund not only invests in stocks within the Russell 2000 but also has exposure to mid-cap and even large-cap stocks. Additionally, the fund has a significant allocation to international small caps, with a particular interest in Japanese companies. Tillinghast’s co-manager, Sam Chamovitz, brings valuable expertise in this area, having worked in Japan for several years. The fund’s broad portfolio gives it a unique advantage by allowing investors access to companies that are underfollowed and undervalued.
Evolving Investment Approach and Adapting to Change
Over his decades-long career, Tillinghast acknowledges the need for constant learning and adaptation. He emphasizes that investors must be open to change and stay attuned to the evolving landscape. While the abundance of information provided by news media and Wall Street is positive, Tillinghast cautions that investors can get easily distracted by short-term data points. He believes that valuing businesses based on their quality, barriers to entry, and customer perception of uniqueness is equally important as analyzing short-term information.
Learning from Big Winners
Tillinghast gained valuable insights from his investment in Monster Beverage (then known as Hansen’s Natural), a juice drink company that ventured into the energy drink market. He appreciates companies that embrace experimentation, even if not all ideas succeed. Monster Beverage’s innovative approach and willingness to explore new paths impressed Tillinghast, and he recognized the potential early. Investing in the company when it traded at around $4 per share in 2001 has yielded significant returns.
Related Facts
– Tillinghast will be stepping down at the end of the year, handing the reins to co-managers Morgan Peck and Sam Chamovitz.
– The Fidelity Low-Priced Stock fund has consistently beaten its benchmark index over various market cycles, affirming Tillinghast’s skill in stock selection.
– Tillinghast’s approach to investing encompasses analyzing business quality, management expertise, and technological changes that can impact long-term prospects.
Key Takeaway
Joel Tillinghast’s remarkable success as a mutual fund manager can be attributed to his disciplined and contrarian investment strategy. By seeking out undervalued stocks in neglected corners of the market, he has consistently outperformed the benchmark indices over the long term. Tillinghast’s emphasis on value investing, long-term focus, and adaptability to changing market conditions are invaluable lessons for investors.
Conclusion
If there were a Hall of Fame for mutual fund managers, Joel Tillinghast would undoubtedly secure a first-ballot induction. His Fidelity Low-Priced Stock fund’s extraordinary performance since 1989 demonstrates his ability to identify undervalued stocks and generate outsized returns. Tillinghast’s dedication to long-term investing, emphasis on business quality, and discernment of changing market dynamics provide valuable guidance for investors seeking to achieve similar success. As he prepares to step down, Tillinghast leaves behind an impressive legacy and a fund poised for continued success under the leadership of his experienced co-managers.
