Ask a portfolio manager: Does farm experience help when it comes to picking stocks?
Growing up on a dairy farm, Daniel Dupont learned about hardship and risks. Now, the award-winning Fidelity manager builds wealth with caution and patience
By: GAIL JOHNSON
Date: November 07,2014
Daniel Dupont grew up on a dairy farm in Saint-Herménégilde, a tiny village about 50 kilometres southeast of Sherbrooke in Quebec’s Eastern Townships, where he witnessed firsthand just how difficult life on a farm can be.
Over the years, the portfolio manager for Fidelity Investments witnessed his parents endure, and overcome, financial hardship. As a result, the backbone of his investment strategy is risk reduction.
“Surprises on a farm are always negative; they’re never positive,” Mr. Dupont explains. “You never have a cow that gives you four times more milk than you were counting on.
“When you grow up a farm, the cash flow disappears,” he adds. “I remember family meetings saying ‘For a little while, we’re not going to be buying these extra little things.’ I’ve always been very cautious. I learned about trying to avoid mistakes on the farm, and that’s the way I’ve approached investing from day one.”
Mr. Dupont is the portfolio manager of the Fidelity Canadian Large Cap Fund, which won the 2014 Lipper award for Canadian Focused Equity Fund over the 10-year period and the Lipper award in same category last year in 2013 over the three, five and 10 years periods.
With investments primarily in equity securities of Canadian and international mid- and large-capitalization companies, the fund aims to deliver superior long-term growth. It was valued at $3.963-billion as of Sept. 30, with the top three sectors at the time being information technology, financials and consumer staples.
Mr. Dupont’s interest in the market goes back to those early days in Quebec’s Coaticook region. When he was about 16, he picked up a biography of Warren Buffett; from there, he read about Peter Lynch. He realized he enjoyed learning about the financial aspects of the family farm, even if the books weren’t always in the black.
“I started reading about how these people invested, then I compared that to the cash flow drain of the farm,” he recalls. “I thought, ‘How wonderful would it be to invest in a business that would allow me to grow quickly in capital yet still have enough money for dessert when it comes dinner time?’ ”
Starting out as a research analyst, Mr. Dupont joined Fidelity in 2001. (His only brother, who had taken over the farm, is now a portfolio manager as well, but at another firm. His parents sold the farm and still live on a portion of land they retained.)
While mitigating risk forms the cornerstone of Mr. Dupont’s investing approach, three other fundamentals drive his decisions: purchasing high-quality companies with above-average balance sheets; never attempting to predict the unpredictable; and being infinitely patient. As long as the risk of losing much money remains low, he can afford to wait when it comes to gains.
“I try to embrace my ignorance,” says Mr. Dupont. “I try to limit the number of stocks in the fund that are impacted by macro factors, things that are unpredictable like commodity prices and interest rates. I make sure there are not any negative surprises that could come from left field. I look at the amount of debt and structure of the debt, I look at large contracts, and I look at accounts receivable. I look at a lot of places that are boring but that are potentially really impactful.
“One of the best managed companies in Canada is Metro [Inc.],” Mr. Dupont says of the network of food stores in Quebec and Ontario. “They’re very quiet in an industry that’s quite competitive, but they have been able to manage it in such a way that they’ve been compounding money annually for shareholders at 20 per cent plus. They do this in a very consistent manner by buying back shares, increasing dividends, and making sure every dollar of capital expenditures is intelligently spent. So the returns for shareholders are maximized.
“You have to look hard to find these companies because they don’t advertise themselves; typically they’re people who don’t like to go around bragging about what they’re doing.”
There’s one more test of Mr. Dupont’s picks, and that’s how well-rested he feels.
“People like my parents are typically the kind of clients of funds I like to manage – people who’ve spent a lot of time building wealth one day at a time, who put in a lot of effort and time, and even if they have enough to retire, they can’t squander it,” he says.
“I want to make sure these people sleep well at night. I want to make sure that their capital is really well protected so that I can sleep at night too.”