If I could only talk to one fund manager from any fund firm about where to invest my hard earned dollars, if I could only invest my hard dollars in one fund manager, it would be Fidelity Low-Priced Stock Fund (MUTF:FLPSX).
If there were such a thing as a water cooler around which all other Fidelity managers gathered to eavesdrop on the insights and input of one manager, Joel Tillinghast would be that manager. If there was a watering hole, he’d be the lion in the switchgrass that the antelopes never saw coming.
If you passed by this manager in the hallway of your building, or sat next to him on your flight, or shared an Uber ride from the train station to your next meeting you’d never know it. He’s quiet, unassuming, concentrated on the one thing he values most in life: your returns.
FLPSX is a Fidelity fund that is unlike any other fund in its Fidelity class or beyond it. Joel created this fund way back in 1989 — it is his baby, now all grown up.
Joel’s fund is unique in many ways. Long before the crowd decided that it mattered less whether you owned classic growth or classic value stocks, Joel pursued the hidden value in both types of stocks. He created more than a moniker; “low-priced stocks” are, by his definition, stocks that are currently selling for $35 or less. (When Joel began this fund, the litmus test was $15. A decade later, that inflated to $25. Another decade and it stands where it is at $35.)
What drives Joel’s buying decisions is the hidden value he thinks he can unlock – whether it be inside a growth or value stock.
The number of Joel’s stock holdings is unique: he usually own between 800 and 1200 names, with the top 10 positions accounting for roughly 25% of his fund’s net assets — currently, the heaviest weights go to UnitedHealth Group Inc. (NYSE:UNH), Seagate Technology PLC (NASDAQ:STX) and Next plc. In a world where concentrated bets may or may not pan out, Joel’s track record stands out: Since inception, a $10,000 investment in his fund would be worth almost $300,000 today — vs. roughly $74,000 for the Russell 2000 and $104,000 for the S&P 500.
FLPSX holds a unique cash stake: on average 10%. That’s right, he’s earned his outperformance stripes while always keeping his cash guard up. Ask any manager you think most highly of if they could have accomplished their track record while keeping 10% in cash and you’ll be told in no uncertain terms, “no.”
Joel was one of the original global investors, and he is the original small- and mid-cap global investor. His fund places about a third of its assets in established foreign markets. Unique.
Joel’s Fidelity mentor was unique, too. It was perhaps the world’s most famous fund manager, Peter Lynch; he of the “buy what you know” investment philosophy ran the once mighty Fidelity Magellan Fund (MUTF:FMAGX). Joel does not chase gimmicks, fads or fashions. He prefers Autozone, Inc. (NYSE:AZO) to Tesla Motors Inc (NASDAQ:TSLA), Best Buy Co Inc (NYSE:BBY) to Bloomingdale’s, Microsoft Corporation (NASDAQ:MSFT) to Alibaba Group (NYSE:BABA). He’s a meat-and-potatoes stock picker who consistently puts food on his shareholders’ tables.
Now, there is a hidden “weakness” to Joel and his fund. You don’t want to own him when there’s a stock market bubble. You will want to hold him through the period when everyone is pointing a finger at him and his underperformance and telling you he’s lost his stock picking skill. They said it of him in 1999. They said it of him in 2007. They’ll say it again – and they’ll wrong as ever. In fact, I use Joel’s fund as a canary in the coal mine: if he starts to lag the S&P 500 by a wide margin inside a quarter or two, I review everything I own with an eye toward believing little that everyone else tells me I should see.
When the market crashed in the 2000-02 meltdown, Joel’s fund delivered a 27% return vs. -19% for the Russell 2000 and -43% for the S&P 500. In the 2008-09 crash, Joel’s fund los 49%, sure … but that was better than the 51% loss delivered by the S&P 500, or the 53% that the Russell 2000 bled.
That brings me to another way in which Joel and his Fidelity fund are unique: Joel tends to run with a mid-cap tilt. But in times of corrections and crashes the whole market can come to Joel, even mega-caps in ultra-bear markets (like the one we got in 2008) when the biggest names were selling below $35 and no one (but Joel) is buying. And he can hold the names he buys at $35 or less in perpetuity … or until Joel thinks their value has run its course. That’s why, for example, you’ll find Microsoft in his top 10 holdings.
And if the name of this inimitable fund may still sound gimmicky, it isn’t. In fact, it’s what I often call “the secret sauce” to this fund’s beefy historical returns. Not only can Joel buy low, he can also avoid buying high. Price is one way to both mitigate risk and increase the probability of returns: If you’re buying a stock at a 20% discount, you mitigate the risk of losing that 20% and you create, so long as Joel has done his homework well, a springboard for upside potential.
One, three, five, 10, 15, 20 years — you name the frame, Joel’s outperformance picture is clear to see. This year?
In 2015, I think foreign markets offer attractive bargain-basement opportunities … so long as you are traveling through those markets with managers with longstanding expertise. I also like the prospects here at home; valuations aren’t as attractive, and there aren’t as many stocks selling below $35 as there were back in 2009, but there are treasures in our attic that I think Joel will find.
If I could only buy one fund, it would be Fidelity Low-Priced Stock. It’s a sure-fire way to build long-term wealth.