Learn from a legend
Fidelity fund manager Joel Tillinghast Ė heís been compared to Warren Buffet Ė shares 25 years of investing advice in this rare interview.
By: VIKRAM BARHAT
Date: May 06,2015
Joel Tillinghast is a vice-president and portfolio manager at Fidelity Investments. Based in Boston, Mr. Tillinghast manages a portion of the Fidelity NorthStar Fund, for Canadian investors. He also manages the Fidelity Low-Priced Stock Fund, a value-oriented equity fund that invests in small- to medium-sized companies on behalf of U.S. investors.
The legendary investor, who rarely grants interviews, is known for his photographic memory and encyclopedic knowledge of the companies he owns. Before joining Fidelity in 1986, Mr. Tillinghast spent four years as a financial futures research analyst at Drexel Burnham Lambert in Chicago.
We spoke to Mr. Tillinghast about how he got into the business, his investment approach and where he sees opportunities today.
How did you get started in investing?
Iíve liked numbers since I was a child. My grandparents had a subscription to Value Line Investment Survey, a stock analysis newsletter. I would read through them, pages and pages of numbers. It intrigued me.
I was entrepreneurial enough to cut my neighboursí lawn, sell vegetables from our garden and do some other things, and saved up about $200. I then convinced my parents to open a brokerage account where I held Central Main Power, a dividend-paying utility company, and Beckman Instruments, a company that made laboratory instruments, which fascinated me because my dad was a biochemist who used Beckmanís products. He was very enthusiastic about their quality and usefulness.
After I graduated, my first job was as an equity analyst at Value Line Investment Survey because it had this magnetic attraction to me.
Whatís your investment approach? How do you pick investments?
I lean towards industries that I understand and stay away from those I donít. To my dadís great disappointment, I donít understand the biochemical industry very well. I also donít understand airlines very well. But I do understand consumer companies so I always end up finding more attractive investment ideas in that area. I buy geographies I know. I like countries from the former British empire where they speak English. Markets like the U.S., Canada, U.K., and Hong Kong are parts of the world where I want to go. I donít understand China as much as I want to, but the burden is on me to educate myself and Iím trying to do that. I feel the same about India.
What are the most important tenets of your investment philosophy?
Donít lose money and the way to not lose money is to stay away from stuff you donít understand. I also stay away from companies with aggressive accounting, or with bad business models.
How do you evaluate asset classes?
Small caps provide better returns as well as better opportunity because most overpriced and underpriced stocks are likely to be small caps. Today, the price-to-earnings ratios of small caps are higher than large caps, so small caps as an asset class are probably not compelling, but that doesnít mean there arenít stocks within the asset class that are attractive.
In terms of countries, we have a contrarian weakness for countries that are not particularly popular, like Japan and parts of Europe. Itís really a function of valuation. The challenging economic environment in Japan and Europe has weighed on investor sentiment and the valuation multiples of many companies. The market often pays you to go to places where it doesnít necessarily feel good and those areas fit that profile.
Where do you see value opportunities in the current environment? Any wild cards?
Energy is probably the biggest wild card. Thereís massive uncertainty around energy. Right now thereís a big discrepancy between price and value. Those are really equivalent to Warren Buffett investing in General Foods in the 1980s when it was trading at a P/E of 6. I canít forecast what energy is going to do, but on a price-to-historic-cost basis, energy is where the opportunities are.
There are opportunities in Japanese and Korean small-cap companies. The South Korean small-caps are pretty attractively valued, because that market has many geopolitical worries. The won has not fallen as much as the Japanese yen so itís lost its export competitiveness and thatís what people are worrying about.
What are your sources of market information?
Fidelity is an information-rich place with hundreds of analysts in Boston and around the world. I also read newspapers like the Financial Times and, in Canada, the Globe and Mail Ė theyíre the best for stock-picking purposes. I also read magazines like the U.K.ís Investors Chronicle, which is a fantastic source for investment ideas. I go to some financial conferences, too. There is a lot of interesting information that companies present themselves.
Are there any opportunities youíve missed?
The opportunities that I regret are questions of ďHow much more?Ē rather than ďmissed.Ē The best stock Iíve ever had in the Fidelity Low-Priced Stock Fund is a company called Monster Beverage Corp. Its stock is selling for over $100 (U.S.) and split-adjusted about a dozen years ago at 25 cents per share. Iím kicking myself that I didnít buy more of it. I really should have gone for it more than I did.
Also, AOL, which was an amazing stock in the 1990s. I did actually hold the stock, but I kick myself for not staying with it longer. Most of my regrets are I shouldíve got more of the successes.