WEBVTT - Will Danoff on Innovation and Investments (Podcast) 0:00:02.200 --> 0:00:06.800 This is Masters in Business with Barry Ridholts on Bloomberg Radio. 0:00:07.400 --> 0:00:10.800 This week on the podcast, I have such an extra 0:00:10.880 --> 0:00:15.560 special guest. His name is Will Danoff. He runs Fidelities 0:00:15.760 --> 0:00:19.960 Country Funds. It's the largest single manager fund with about 0:00:20.000 --> 0:00:23.160 a hundred and thirty billion dollars, and the track record 0:00:23.200 --> 0:00:26.520 of the fund is just outstanding. He has crushed all 0:00:26.560 --> 0:00:31.320 the competition over thirty years. He's beat large cap growth 0:00:31.800 --> 0:00:34.920 by four hundred basis points. He's beat the SMP five 0:00:35.000 --> 0:00:39.839 hundred three hundred basis points. Not only has he outperformed 0:00:39.880 --> 0:00:42.960 on an annual basis, if you put money into his 0:00:43.080 --> 0:00:48.600 fund versus the SMP five hundred he started, his fund 0:00:48.720 --> 0:00:51.599 is now worth two and a half times more than 0:00:51.680 --> 0:00:55.080 the index is. This is really a master class on 0:00:55.280 --> 0:00:58.760 how to think about active management, what you need to 0:00:58.800 --> 0:01:03.520 do to engage in stock picking, why it's so difficult, 0:01:04.040 --> 0:01:07.640 and why you need a powerful team of experts around 0:01:07.640 --> 0:01:10.200 you to help you with this. He has worked with 0:01:10.240 --> 0:01:14.040 all of the greats at Fidelity and explains why Fidelity 0:01:14.120 --> 0:01:17.400 is such a key aspect of this. I could babble 0:01:17.600 --> 0:01:21.600 about the conversation forever. Rather than do that, let me 0:01:21.680 --> 0:01:25.360 just stop and say with no further ado. My conversation 0:01:25.680 --> 0:01:31.800 with the Fidelity Contra Funds Will Danoff. This is Masters 0:01:31.800 --> 0:01:36.319 in Business with Verry Ridholts on Bloomberg Radio. My extra 0:01:36.360 --> 0:01:39.640 special guest this week is Will Danoff. He has been 0:01:39.720 --> 0:01:44.959 running Fidelities Contra funds for just about thirty years. The 0:01:44.959 --> 0:01:49.760 fund is the largest actively managed mutual fund run by 0:01:49.840 --> 0:01:54.440 one person. It's about a hundred and thirty billion dollars. 0:01:54.480 --> 0:02:00.120 And since September when he took over the funds, he 0:02:00.160 --> 0:02:05.280 has outperformed the benchmark SMP index by more than three 0:02:05.400 --> 0:02:10.960 hundred basis points annually. Will then off, Welcome to Bloomberg. 0:02:11.280 --> 0:02:13.920 Thanks Berry, It's great to be with you. So that 0:02:14.000 --> 0:02:17.680 track record is really quite astonishing. You you've returned on 0:02:17.880 --> 0:02:24.480 average compounded annually. Your benchmark, the SMP five hundred is 0:02:24.600 --> 0:02:29.160 ten percent. The average large cap growth funds has returned 0:02:29.200 --> 0:02:34.919 about nine. So what is the secret of your success? Yeah, Berry, 0:02:34.960 --> 0:02:37.680 I think you know, sometimes you lose track of the percentages. 0:02:37.800 --> 0:02:40.919 But I think if you had invested ten thousand dollars 0:02:40.919 --> 0:02:43.919 in the SMP, and you should have your fact checkers 0:02:44.560 --> 0:02:48.320 figure this out. But I think that after thirty years 0:02:48.360 --> 0:02:50.919 of being up whatever it is, ten percent a year 0:02:51.720 --> 0:02:54.480 you're at like two hundred thousand, and if you are 0:02:54.520 --> 0:02:58.200 invested in contrafund, you'd be closer to like four and 0:02:58.280 --> 0:03:03.320 eighty thousands. So really can make a difference. Compounding is 0:03:03.480 --> 0:03:07.760 an important concept for your listeners when it comes to investing, 0:03:07.840 --> 0:03:11.720 and to the extent you can find a fund or 0:03:11.760 --> 0:03:15.680 a company that can compound over time, it really does 0:03:15.760 --> 0:03:19.080 make a difference over the decades. But i'd say Barry 0:03:19.360 --> 0:03:23.000 for For me, the north star has been the importance 0:03:23.040 --> 0:03:28.280 of analyzing companies, keeping an open mind, working really hard 0:03:29.480 --> 0:03:34.600 and staying flexible, having a great team, and then maybe 0:03:34.639 --> 0:03:38.760 just bringing it all back to the earnings per share 0:03:39.400 --> 0:03:43.720 of the underlying companies and trying to think about, you know, 0:03:44.240 --> 0:03:49.920 what the company could earn looking out five seven years, 0:03:50.600 --> 0:03:55.320 you know, will this company be bigger and better? So 0:03:55.840 --> 0:04:01.800 I do believe that the growth discipline is a superior discipline. 0:04:02.680 --> 0:04:05.640 And then you know, once you've determined what you think 0:04:05.680 --> 0:04:09.560 the company might earn looking out to the extent you 0:04:09.600 --> 0:04:13.160 can look out and you have to be honest and say, 0:04:13.200 --> 0:04:15.520 you know, I really am not sure. You know. In 0:04:15.560 --> 0:04:18.440 the in the world of technology, you have to be 0:04:18.520 --> 0:04:23.240 really careful about extrapolating growth rates. But then ideally you're 0:04:24.000 --> 0:04:28.520 trying to pay the the best price you can for 0:04:29.080 --> 0:04:33.200 you know, as well positioned growth company with you know, 0:04:33.279 --> 0:04:36.360 a good brand and great management and strong cash flow 0:04:36.400 --> 0:04:39.880 and stuff like that. But I'd say, you know, cast 0:04:39.920 --> 0:04:44.279 a wide net, be flexible, and then you know, continue 0:04:44.320 --> 0:04:48.080 to monitor what your your investments are doing and what 0:04:48.160 --> 0:04:52.479 your managements are doing. I'm much more of an advocate 0:04:52.520 --> 0:04:55.680 of the you know, sort of the poker game approach. 0:04:56.760 --> 0:04:59.279 I think it's hard to say, you know, X y 0:04:59.360 --> 0:05:01.080 Z is going to be a buy and hold for 0:05:01.160 --> 0:05:04.760 ten years, but you know, and this is the greatest 0:05:04.760 --> 0:05:07.400 thing since sliced bread, and therefore we're all in. Some 0:05:07.560 --> 0:05:11.599 investors can do that. I think over over thirty years, 0:05:11.640 --> 0:05:14.240 you you make a lot of mistakes, You accept your mistakes, 0:05:14.240 --> 0:05:18.240 you learn from your mistakes. But one idea I have 0:05:18.480 --> 0:05:22.800 is just to say, listen, I think you know, you're 0:05:22.960 --> 0:05:26.000 you know, we're playing poker. I have an ace, you're 0:05:26.040 --> 0:05:29.800 showing a three. I think this is starting out to 0:05:29.880 --> 0:05:31.960 be a good hand for me. So I'm going to 0:05:32.040 --> 0:05:36.200 bet some and start to build a position, and then 0:05:36.240 --> 0:05:40.160 if I'm served another ace, meaning the company, you know, 0:05:40.640 --> 0:05:44.680 says it's going to expand into California, or expand in India, 0:05:45.640 --> 0:05:49.640 or you know, introduce the new product, and the results 0:05:50.000 --> 0:05:56.279 show that those efforts are going really well, then you 0:05:56.400 --> 0:06:00.320 bet more so again for me, it's a little more 0:06:00.360 --> 0:06:04.839 incremental and a little less Aha, the light bulb went off. 0:06:05.000 --> 0:06:08.240 You know, plastics are you know, we're all in on 0:06:08.360 --> 0:06:13.320 plastical plastics without data. So I would say, you know, 0:06:14.040 --> 0:06:17.080 let's start with the facts. You know, Fidelity is just 0:06:17.120 --> 0:06:20.039 an unbelievable place to manage money. We've got an unbelievable 0:06:20.080 --> 0:06:24.200 research team, we have you know, experts and virtually every 0:06:24.200 --> 0:06:28.680 industry that matters. We have experts in virtually every region 0:06:28.720 --> 0:06:33.039 of the world that matters. We have experts in all 0:06:33.920 --> 0:06:39.039 disciplines in the market value, growth, small, mid, large, all 0:06:39.160 --> 0:06:43.320 parts of the cap table, you know, investment grade, high yields, 0:06:44.360 --> 0:06:48.600 convertibles and so, you know, Fidelity sort of the big 0:06:48.640 --> 0:06:52.960 city hospital Barry. And you know, for your listeners, you know, 0:06:53.800 --> 0:06:56.440 do you want to have the brain surgery and you know, 0:06:56.560 --> 0:07:00.200 a small regional hospital in the middle of nowhere are 0:07:00.360 --> 0:07:05.800 probably not. But if you go to a big city 0:07:05.839 --> 0:07:09.800 hospital where they're doing large numbers of these procedures, you're 0:07:09.800 --> 0:07:13.400 probably going to feel better. You know, everybody makes mistakes, 0:07:13.520 --> 0:07:20.360 but we see more companies, we attend more meetings, we 0:07:20.440 --> 0:07:26.440 interview more management teams, and through that process, hopefully we're 0:07:26.480 --> 0:07:30.080 going to be able to identify changes that are important 0:07:30.160 --> 0:07:36.800 in different industries and also just identify what we consider 0:07:37.080 --> 0:07:41.000 truly world class management teams that are doing things a 0:07:41.040 --> 0:07:44.880 little better. And you know, you try to keep track 0:07:44.960 --> 0:07:47.360 and you do your best, and you know, I've just 0:07:47.440 --> 0:07:51.280 survived frankly in a very competitive industry, Barry. But you 0:07:51.320 --> 0:07:54.160 know the Fidelity Hall of Fame managers, I mean, Joel 0:07:54.240 --> 0:07:58.120 tilling Has, who's managing the Low Price Stock Fund, has 0:07:58.160 --> 0:08:01.880 done phenomenally well. Steve y Umer, who runs our Growth fund, 0:08:01.960 --> 0:08:04.520 is done phenomenally well. We've got a whole cast of 0:08:04.720 --> 0:08:08.280 other folks in our starting lineup who are doing exceptionally well. 0:08:09.000 --> 0:08:11.760 And then, of course you know the long history going 0:08:11.800 --> 0:08:15.600 back to you know, George Vanderheyde and Peter Lynch, Bruce Johnstone, 0:08:16.200 --> 0:08:19.400 but even before that, you know Ned Johnson, Jerry Sigh. 0:08:21.720 --> 0:08:26.880 The idea of doing bottoms up fundamental company analysis is 0:08:26.920 --> 0:08:30.120 not going away. You mentioned the index, Barry, and you 0:08:30.120 --> 0:08:33.840 know the index is very hard to peak. Let's understand 0:08:33.920 --> 0:08:38.400 that there is survivor bias in the index. The better 0:08:38.440 --> 0:08:43.400 companies like Microsoft and Google and Amazon grow and become 0:08:43.440 --> 0:08:46.920 a larger part of the index, and the weaker companies, 0:08:47.760 --> 0:08:51.640 you know, slow down and don't grow and therefore don't 0:08:51.640 --> 0:08:55.680 appreciate in value and therefore are smaller part of the index. 0:08:55.720 --> 0:08:59.240 So the index is hard to beat. And I agree 0:08:59.240 --> 0:09:01.959 with Warren buff that, you know, the S and P 0:09:02.120 --> 0:09:06.520 five hundred or even the Dow now is not the 0:09:06.520 --> 0:09:09.280 the Dow or the S and P of of seventy 0:09:09.600 --> 0:09:11.920 or eighty years ago. You know, it's it's a much 0:09:12.720 --> 0:09:17.520 more cash generative, much more growth oriented. You know, globalization 0:09:17.600 --> 0:09:21.480 has been very positive for you know, corporate profits and 0:09:21.600 --> 0:09:24.840 I think very positive for society in the world. But 0:09:24.880 --> 0:09:27.880 we can get into that later. So you know, i'd say, 0:09:28.120 --> 0:09:33.440 work really hard, know yourself, know your companies. You know, 0:09:33.520 --> 0:09:37.920 continue to monitor your companies, try to upgrade on weakness, 0:09:38.600 --> 0:09:41.080 and you know, try to be patient and long term. 0:09:41.160 --> 0:09:44.640 You know, you mentioned earlier the sort of so much 0:09:44.720 --> 0:09:48.560 noise now in the market, and people worried about every tick. 0:09:48.720 --> 0:09:52.000 You know, I think if you step back and say, 0:09:52.040 --> 0:09:55.760 what do I own you know, you know, can I imagine, 0:09:55.840 --> 0:09:59.520 you know, just look around you and say, gosh, you know, 0:10:00.720 --> 0:10:05.640 my kids can't live without their smartphones, and they they 0:10:06.080 --> 0:10:09.960 love their smartphones. You know. In in Fideliti's case, we're 0:10:10.000 --> 0:10:13.560 able to talk to Luca my Street, who's the CFO 0:10:13.640 --> 0:10:16.760 of Apple, and you know, he shared with us recently 0:10:16.920 --> 0:10:23.160 that in the America's Apple's customer satisfaction with the iPhone 0:10:23.280 --> 0:10:28.360 is and you know, it's like, oh my god, that's unbelievable. 0:10:28.360 --> 0:10:30.440 And then you step back and say, well, gosh, you know, 0:10:31.559 --> 0:10:34.240 ten years ago, no one had you know, iPhones, everyone 0:10:34.240 --> 0:10:37.599 had blackberries. And now you know, I have two smartphones. 0:10:38.280 --> 0:10:41.960 I have a MacBook Air, i have an iPad, and 0:10:42.000 --> 0:10:45.480 I've got EarPods, you know, and it's I'm really happy 0:10:45.520 --> 0:10:48.680 they all work. And you know, so you've got to 0:10:48.760 --> 0:10:51.800 be aware of what's happening in the world. And I 0:10:51.840 --> 0:10:57.080 think that's often where some Wall Street folks, particularly the 0:10:57.400 --> 0:11:01.000 the value discipline, can you know, get a little confused. 0:11:01.040 --> 0:11:04.160 It's like, you know, the classic value trap. It's a 0:11:04.160 --> 0:11:07.719 really you know, cheap stock, but it's not going in 0:11:08.040 --> 0:11:10.160 I mean, it's not going to get cheaper, right, you know, 0:11:10.200 --> 0:11:13.080 it's a capital intensive, cyclical business and you've got to 0:11:13.120 --> 0:11:20.200 make sure your assumptions are appropriately conservative. So let's stay 0:11:20.200 --> 0:11:23.520 with with talking about Fidelity a little bit. You mentioned 0:11:23.559 --> 0:11:27.760 some of the the murderers row the twenty Yankees lineup, 0:11:27.760 --> 0:11:33.040 you guys, have you started it Fidelity in But if 0:11:33.040 --> 0:11:36.600 my research is correct, it wasn't as a fund manager, right, 0:11:36.679 --> 0:11:41.360 You came in as an analyst, Yes, Barry, an interesting 0:11:41.360 --> 0:11:45.280 footnote for your listeners. I applied for a summer job 0:11:45.320 --> 0:11:51.600 in and I was rejected, So Barry, one must always persevere. 0:11:52.679 --> 0:11:55.480 And you know, I think the decision was probably the 0:11:55.559 --> 0:11:58.720 right one. I was a bit immature and not as experience, 0:11:58.880 --> 0:12:03.400 but luck really I was accepted and for the full 0:12:03.440 --> 0:12:09.400 time job as an analyst in And I think it's 0:12:09.440 --> 0:12:15.000 important when you think about companies as investments as employers, 0:12:15.280 --> 0:12:19.160 to understand the culture of the company. And you know, 0:12:19.240 --> 0:12:25.000 I'm so grateful and lucky that Fidelity was and still 0:12:25.240 --> 0:12:32.760 is a research oriented, you know, active manager and everyone 0:12:33.200 --> 0:12:36.440 you know that I mentioned earlier, all the great fund 0:12:36.440 --> 0:12:40.839 managers all started as analysts at Fidelity. You know, does 0:12:40.880 --> 0:12:45.400 that include Peter Lynch? He started as an analyst. Oh, yes, yes, yes, yes, yes, 0:12:45.559 --> 0:12:49.280 Peter started as an analyst. George was an analyst. Bruce, 0:12:49.360 --> 0:12:53.280 of course, everyone came up from the ranks. Ned was 0:12:53.320 --> 0:12:56.240 an analyst. Abby Johnson, who is the curren CEO, was 0:12:56.280 --> 0:13:00.160 an analyst and then a fund manager. So when you 0:13:00.240 --> 0:13:05.520 have that common experience and common language, it's just so helpful. 0:13:05.960 --> 0:13:09.920 So you would be between you and Lynch, right, So yeah, 0:13:10.040 --> 0:13:15.480 one um Jeff Finnick, of course, you know, an unbelievably 0:13:15.559 --> 0:13:26.640 talented analyst, UM and fund manager and investor started my year. 0:13:27.360 --> 0:13:29.880 But he started in the spring because he had taken 0:13:29.880 --> 0:13:34.439 a job in New York and then decided he wanted 0:13:34.480 --> 0:13:37.319 to work for Fidelity, so he started in the spring. 0:13:37.400 --> 0:13:40.760 But there were about seven of us, including Joel Tilling 0:13:40.880 --> 0:13:45.120 has to started a little later that year, and Frankly Berry, 0:13:45.200 --> 0:13:49.560 I was probably below average from my class. We you know, 0:13:49.640 --> 0:13:53.520 we had a very strong class. But I was lucky 0:13:53.760 --> 0:13:59.920 that I was assigned the retail stocks. And the retails 0:14:00.000 --> 0:14:04.520 stocks were it was a large group of stores. You know, 0:14:04.600 --> 0:14:08.480 consumer spending is something like two thirds of the US economy, 0:14:08.679 --> 0:14:12.679 and they had all sorts of different stocks. You know, 0:14:12.880 --> 0:14:18.400 Kmart and Sears were stodgy potential turnarounds, and then you 0:14:18.480 --> 0:14:22.200 had the membership warehouse clubs were sort of the new 0:14:22.400 --> 0:14:26.440 shiny concept that you had to really think hard about, 0:14:26.680 --> 0:14:29.360 you know, what's this industry going to look like? And 0:14:29.400 --> 0:14:32.360 then the department stores were sort of slower growers but 0:14:32.480 --> 0:14:35.960 generating free cash flow. And you know, the Walmart was 0:14:36.560 --> 0:14:40.800 the thorough bred, and you know it was really fun 0:14:40.920 --> 0:14:45.880 and great and it was relatively understandable. So I think 0:14:46.240 --> 0:14:52.120 I was exposed to many different types of stocks and managements. 0:14:52.160 --> 0:14:55.520 All were people sort of people people, so you didn't 0:14:55.560 --> 0:14:58.520 have to try to understand technology or science. It was 0:14:58.600 --> 0:15:02.120 just you know, going into a store with a CEO 0:15:02.480 --> 0:15:05.360 or a CFO and you know, seeing how they interacted 0:15:05.400 --> 0:15:08.960 with the customer and looking at the prices and you know, 0:15:09.560 --> 0:15:13.600 is this store appealing? So anyway, but you know, the 0:15:13.600 --> 0:15:16.520 beauty of fidelities were all in the trenches together, and 0:15:17.000 --> 0:15:20.560 you know, Peter and George and Bruce were in these 0:15:20.600 --> 0:15:24.000 meetings with me and many others, and you know, it 0:15:24.160 --> 0:15:29.960 was a really great sort of apprenticeship to watch, you know, 0:15:30.040 --> 0:15:35.240 these great investors analyze different companies and understand, you know, 0:15:35.320 --> 0:15:39.920 the idea of unit growth. If I think when I 0:15:40.040 --> 0:15:42.800 first met Bernie Marcus, the founder of the Home Depot. 0:15:42.920 --> 0:15:45.600 He might have had like forty stores and now they 0:15:45.640 --> 0:15:49.960 have two thousand. But you know, the the thought was, 0:15:50.000 --> 0:15:54.160 if it's working in Atlanta, Georgia, it can work in Florida. 0:15:54.200 --> 0:15:57.520 And I remember when they first opened their stores and 0:15:57.560 --> 0:16:00.800 they acquired some stores to expand in exist which didn't 0:16:00.840 --> 0:16:02.800 work out as well. But when they first opened the 0:16:02.840 --> 0:16:05.160 stores in California, you know, I mean it was literally 0:16:05.760 --> 0:16:08.960 there was another concept across the street, and you know, 0:16:09.120 --> 0:16:11.880 the Home Depot parking lot was near full and the 0:16:11.880 --> 0:16:14.400 other store was sort of going into a bowling alley. 0:16:14.440 --> 0:16:18.000 You know, it was virtually empty. So you know, part 0:16:18.000 --> 0:16:20.120 of it is being practical, you know, sort of what 0:16:20.360 --> 0:16:23.720 is actually happening. As I said earlier, Barry earnings per 0:16:23.800 --> 0:16:29.880 share becomes sort of the north star for a growth investor. 0:16:30.040 --> 0:16:33.560 And you know, if Colone Deepot was opening new stores 0:16:33.600 --> 0:16:36.320 a year and they're old stores were generating let's say, 0:16:36.760 --> 0:16:39.160 you know, five or ten percent growth and the margins 0:16:39.160 --> 0:16:41.640 were going up and the r o I on the 0:16:41.680 --> 0:16:45.240 new stores was high, you know, you start projecting out 0:16:46.440 --> 0:16:49.800 growth and whatever that works out too, but you know, 0:16:50.080 --> 0:16:54.840 doubling of earnings and three years with you know, the 0:16:54.880 --> 0:16:58.120 potential for many, many more stores. So that was a 0:16:58.200 --> 0:17:01.520 great insight for me. That helped me, you know, and 0:17:01.560 --> 0:17:05.080 again I over thirty years. All I can tell you 0:17:05.200 --> 0:17:08.080 is that I was there and I should have. You know, 0:17:08.160 --> 0:17:10.879 the one of the great lessons learned Berry is I 0:17:10.920 --> 0:17:14.239 should have bought more of these great growth stocks like 0:17:14.320 --> 0:17:17.480 the Home Depot or you know, I was there when 0:17:17.480 --> 0:17:22.000 Howard Schultz went public. I mean, you can't, you can't. 0:17:22.119 --> 0:17:25.439 I mean it was two but again I was a 0:17:25.480 --> 0:17:31.000 young fund manager. But picture this. You know, Schultz had 0:17:31.040 --> 0:17:34.920 a hundred I think a hundred and forty cafes when 0:17:34.920 --> 0:17:37.280 he opened up. They were all in Seattle and Portland. 0:17:37.359 --> 0:17:40.000 I remember someone sitting next to me on the road 0:17:40.040 --> 0:17:43.919 show lunch saying, you know, it might work in the 0:17:43.960 --> 0:17:47.520 Pacific Northwest, but you know, they're tree huggers there and 0:17:47.560 --> 0:17:49.960 they like, you know, to sit around in a coffee shop. 0:17:50.800 --> 0:17:53.040 But it's not gonna work in New York, or it's 0:17:53.040 --> 0:17:56.680 not gonna work in San Francisco. But the data showed, 0:17:57.040 --> 0:17:59.600 you know, I believe or In Smith, who was a 0:17:59.640 --> 0:18:02.560 CEF at the time, said they had opened a couple 0:18:02.600 --> 0:18:04.920 of stores in San fran and they were all exceeding 0:18:04.920 --> 0:18:08.240 their expectations, and you know the r O I s 0:18:08.280 --> 0:18:11.320 and the new units were through the roof. I think 0:18:11.400 --> 0:18:16.680 they were arithmetic was because they were leased units. It 0:18:16.800 --> 0:18:19.760 costs two hundred fifty thousand dollars to open a Starbucks 0:18:19.840 --> 0:18:23.480 way back when the stores were doing six hundred fifty 0:18:23.480 --> 0:18:28.280 thousand of revenue and like year two and at twenty 0:18:28.520 --> 0:18:33.560 percent EVA DOC or cash on cash unit volumes, so 0:18:33.560 --> 0:18:35.280 they were you know, for two hundred fifty thousand, you 0:18:35.320 --> 0:18:37.879 were getting a hundred and twenty five thousand dollars of 0:18:38.040 --> 0:18:42.480 cash in like year two, which meant you could finance 0:18:43.240 --> 0:18:46.560 rapid growth. And it was working. And you know, the 0:18:46.600 --> 0:18:50.080 camp store sales, you know, the comp cafe snails were 0:18:50.119 --> 0:18:52.280 double digit for the last three years. It was the 0:18:52.320 --> 0:18:56.040 perfect story. So here's the lesson to your listeners. Barry. 0:18:56.400 --> 0:18:59.800 The stock pops on day one or day two, and 0:19:00.480 --> 0:19:04.920 it was always very expensive for what it was. It 0:19:05.000 --> 0:19:07.760 was like thirty five thirty times the out ear estimate. 0:19:08.520 --> 0:19:11.639 But the company continued to grow and grow and it 0:19:11.800 --> 0:19:15.320 stayed expensive for like fifteen years. But it was a 0:19:15.320 --> 0:19:20.480 great Yeah, it kept growing, it stayed expensive. So sometimes 0:19:20.480 --> 0:19:24.879 an expensive stock that executes really well can be a 0:19:24.920 --> 0:19:28.240 great story. You know, they added frappuccinos. They went out 0:19:28.240 --> 0:19:30.720 to the overseas and it worked in China, but it 0:19:31.359 --> 0:19:33.920 worked everywhere in the US, and you know, no one 0:19:33.960 --> 0:19:37.840 else was able to replicate. I remember Pets came in 0:19:38.040 --> 0:19:41.400 and this one and that one, and you know McDonald's 0:19:41.400 --> 0:19:44.280 was going to offer you know, cheaper coffee and try 0:19:44.320 --> 0:19:47.919 to upgrade. But anyway, so sometimes you have to say, 0:19:49.000 --> 0:19:53.520 a truly outstanding franchise with a great management team and 0:19:53.560 --> 0:19:57.680 a great business model can be a great stock. I mean, 0:19:57.680 --> 0:20:01.440 the analogy in sports would be, you know, what do 0:20:01.560 --> 0:20:05.200 you pay Michael Jordan's or one of these truly exceptional 0:20:05.240 --> 0:20:12.119 athletes whatever, if they you know, hit the three pointers 0:20:12.320 --> 0:20:15.159 and win the championship, You're going to pay them a 0:20:15.200 --> 0:20:18.280 lot of money. So one of the lessons is that, 0:20:18.840 --> 0:20:21.600 you know, better businesses are going to trade at higher 0:20:21.680 --> 0:20:25.159 pease and you just have to accept that. Now, of course, 0:20:25.200 --> 0:20:29.760 your listeners have to monitor. You know, a retail investor 0:20:29.880 --> 0:20:34.159 can go into the stores. They're out there comparing you 0:20:34.200 --> 0:20:36.960 know what Starbucks is doing, the quality of the coffee, 0:20:37.000 --> 0:20:40.159 the experience in the cafe. You know how is the 0:20:40.200 --> 0:20:44.040 mobile order and pay experience, you know how is the app, 0:20:44.200 --> 0:20:47.439 is it easy to use? Is it delighting me? You know, 0:20:47.520 --> 0:20:50.680 some of the great entrepreneurs in the last decade of 0:20:50.960 --> 0:20:53.760 talk to me about, you know, what would the world 0:20:53.920 --> 0:20:56.840 look like without my company? And you know, during the 0:20:56.880 --> 0:20:59.440 COVID pandemic, I think a lot of people have said, 0:21:00.040 --> 0:21:04.040 you know, if I didn't have Amazon, my world would 0:21:04.040 --> 0:21:08.159 be significantly worse. And isn't that a great place to 0:21:08.240 --> 0:21:12.280 be if you're a partner with you know, Jeff Bezos 0:21:12.359 --> 0:21:16.160 and the Amazon team, or you know, there are other 0:21:16.680 --> 0:21:20.120 a handful of companies that are you know, Costco, I 0:21:20.160 --> 0:21:23.520 think is one of those special companies that have delighted 0:21:23.560 --> 0:21:27.560 their members over many years. And you know, so many 0:21:27.600 --> 0:21:29.760 people said, my gosh, do you believe you know, when 0:21:29.800 --> 0:21:32.680 I just got a Costco it was such high quality 0:21:32.760 --> 0:21:37.280 and such a great price. That's the type of company 0:21:37.320 --> 0:21:42.320 that over thirty years, you know, used there to say, gosh, 0:21:42.359 --> 0:21:45.480 I wish I had owned more of those. And by 0:21:45.520 --> 0:21:48.720 the way, it's it's not it's a little easier than 0:21:49.320 --> 0:21:51.960 you know. When I first started in the early nineties 0:21:52.600 --> 0:21:56.119 as a fund manager, I was trying to find companies 0:21:56.160 --> 0:21:57.960 that no one else had heard of, that no one 0:21:58.000 --> 0:22:01.359 else owned, and you know, there are a lot of 0:22:03.080 --> 0:22:07.000 tough businesses that are selling cheap, and I was running 0:22:07.040 --> 0:22:10.520 around saying cheap and getting better, Let's try to find 0:22:10.520 --> 0:22:15.440 a turnaround. And you know, turnarounds sometimes work. They can 0:22:15.480 --> 0:22:19.879 be really awesome stocks when they do work. But the 0:22:19.960 --> 0:22:23.960 degree of difficulty is higher than just saying, my gosh. 0:22:24.040 --> 0:22:27.480 You know, Google is just unbelievable. You know, how did 0:22:27.520 --> 0:22:31.000 we live without Google? Or you know, how did we live, 0:22:31.200 --> 0:22:34.439 you know, without Amazon? For example, You're coming up on 0:22:34.440 --> 0:22:37.480 your thirtieth anniversary right by the time this broadcast, it 0:22:37.520 --> 0:22:43.600 will be September. You started at the contra funds in September? 0:22:45.560 --> 0:22:48.320 Did you ever and then imagine you would be running 0:22:48.880 --> 0:22:54.639 these same exact funds for thirty years? Honestly buried? No, 0:22:55.520 --> 0:22:58.159 I think you know, again, as I said, Fidelity is 0:22:58.160 --> 0:23:01.600 a great place to manage money. There's some very very 0:23:01.600 --> 0:23:05.440 talented and and fun people, and we you know, continue 0:23:05.480 --> 0:23:08.600 to attract some really good people. But it's it's the 0:23:08.680 --> 0:23:13.280 kind of place where ordinary folks can do extraordinary things 0:23:13.320 --> 0:23:17.080 when they work together and they communicate. And you know, 0:23:17.440 --> 0:23:19.919 I'm sort of the Woody Allen of Fidelity. I just 0:23:20.000 --> 0:23:23.160 show up, and you know, I show up to more meetings, 0:23:23.200 --> 0:23:27.240 and you know, I remember one year I had an 0:23:27.280 --> 0:23:31.440 odd seven am meeting, which is early. Usually our meeting 0:23:31.480 --> 0:23:34.840 start at eight am, but somebody wanted to see me 0:23:35.080 --> 0:23:38.159 or somebody was there, so we did a seven am meeting. 0:23:39.600 --> 0:23:42.320 So then the meeting ends at eight and I'm kind 0:23:42.320 --> 0:23:46.760 of hungry, and I see that somebody else is hosting 0:23:46.760 --> 0:23:50.040 an eight am meeting that hadn't started. So I go 0:23:50.160 --> 0:23:54.119 in to grab a muffin, and then the host and 0:23:54.160 --> 0:23:58.520 the management walk in. I think it was Joel hosting 0:23:58.560 --> 0:24:01.879 an Irish bank, so I was like, oh, hi, and 0:24:01.920 --> 0:24:03.639 they thought I was there to see the meeting. What 0:24:03.800 --> 0:24:08.240 I really wanted a muffin, But anyway, I was like, yeah, sure, 0:24:08.480 --> 0:24:11.520 I'll listen to your story. You know, I had to 0:24:11.560 --> 0:24:15.320 fudge it, and so we listened, and it turned out 0:24:15.440 --> 0:24:19.760 that the Irish economy was coming back, and I don't 0:24:19.760 --> 0:24:23.159 know because it was Ireland. The stock was like an 0:24:23.200 --> 0:24:26.840 eight times earnings and there were only like three banks 0:24:26.880 --> 0:24:30.160 of any size in Ireland. And you know, it turned 0:24:30.160 --> 0:24:33.159 out there's a certain serendipity involved with the business that 0:24:33.280 --> 0:24:36.760 again the fidelity, there's so many companies. Sometimes Joel and 0:24:36.800 --> 0:24:40.000 I are just like what do you you know, what's 0:24:40.040 --> 0:24:42.760 going on right now? Is there a call that could 0:24:42.760 --> 0:24:45.400 be of interest? There's there a company management coming in, 0:24:46.080 --> 0:24:49.640 you know every week, you know, on Fridays, I look 0:24:49.720 --> 0:24:52.840 at the schedule for the next week and it's just like, oh, 0:24:52.840 --> 0:24:54.800 these are two companies that are in at the same time. 0:24:54.840 --> 0:24:57.720 We've got to move one of them, or wow, you know, 0:24:57.880 --> 0:25:01.080 I definitely have to see this company because you know, 0:25:01.119 --> 0:25:04.679 oil and gas is way out of favor, and you know, 0:25:04.760 --> 0:25:08.240 this management team has done a decent job surviving over time, 0:25:08.359 --> 0:25:14.040 and you know, the ability to stay current on lots 0:25:14.040 --> 0:25:17.880 of industries and lots of geographies, and and then there's 0:25:17.880 --> 0:25:20.040 sort of luck every once in a while you meet 0:25:20.119 --> 0:25:25.679 managements that help you. I mean again, over thirty years, 0:25:26.119 --> 0:25:32.439 Verry one important. You know clearly that the you know, 0:25:32.480 --> 0:25:39.240 the oh one Internet bubble burst was you know, an 0:25:39.240 --> 0:25:42.879 important event. But what was most important, I think was 0:25:42.960 --> 0:25:48.160 the aftermath. In this sort of O three oh four period, 0:25:48.960 --> 0:25:52.120 most growth investors were still hiding under their desks, they 0:25:52.119 --> 0:25:56.160 were shelf stocked. In many cases, they were experiencing outflows. 0:25:57.720 --> 0:26:02.320 And I remember again and just you know, seeing on 0:26:02.400 --> 0:26:09.119 our meeting schedule a company meeting for ask Jeeves a 0:26:09.480 --> 0:26:15.639 s kJ early early search engine exactly, and I believe 0:26:15.680 --> 0:26:19.600 it's now owned by Interactive Group. But you know, again, 0:26:19.720 --> 0:26:23.760 it's like what motivated me to say, I think I 0:26:23.760 --> 0:26:27.199 should go and hear the story. The stock had I 0:26:27.200 --> 0:26:31.359 think had gone from like five to a hundred and 0:26:31.720 --> 0:26:34.800 was back to like bottomed at two, and it was 0:26:34.840 --> 0:26:38.399 at eight. So I said, you know, a hundred to 0:26:38.520 --> 0:26:44.720 eight means expectations are low. Maybe I'll learn something, you know, 0:26:44.760 --> 0:26:47.359 and again at Fidelity, you can you know, between you 0:26:47.400 --> 0:26:49.400