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Will Danoff on Innovation and Investments (Podcast) · Masters in Business

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  Speaker 1: This is Masters in Business with Barry Ridholts on Bloomberg Radio.
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  Speaker 1: This week on the podcast, I have such an extra
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  Speaker 1: special guest. His name is Will Danoff. He runs Fidelities
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  Speaker 1: Country Funds. It's the largest single manager fund with about
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  Speaker 1: a hundred and thirty billion dollars, and the track record
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  Speaker 1: of the fund is just outstanding. He has crushed all
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  Speaker 1: the competition over thirty years. He's beat large cap growth
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  Speaker 1: by four hundred basis points. He's beat the SMP five
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  Speaker 1: hundred three hundred basis points. Not only has he outperformed
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  Speaker 1: on an annual basis, if you put money into his
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  Speaker 1: fund versus the SMP five hundred he started, his fund
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  Speaker 1: is now worth two and a half times more than
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  Speaker 1: the index is. This is really a master class on
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  Speaker 1: how to think about active management, what you need to
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  Speaker 1: do to engage in stock picking, why it's so difficult,
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  Speaker 1: and why you need a powerful team of experts around
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  Speaker 1: you to help you with this. He has worked with
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  Speaker 1: all of the greats at Fidelity and explains why Fidelity
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  Speaker 1: is such a key aspect of this. I could babble
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  Speaker 1: about the conversation forever. Rather than do that, let me
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  Speaker 1: just stop and say with no further ado. My conversation
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  Speaker 1: with the Fidelity Contra Funds Will Danoff. This is Masters
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  Speaker 1: in Business with Verry Ridholts on Bloomberg Radio. My extra
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  Speaker 1: special guest this week is Will Danoff. He has been
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  Speaker 1: running Fidelities Contra funds for just about thirty years. The
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  Speaker 1: fund is the largest actively managed mutual fund run by
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  Speaker 1: one person. It's about a hundred and thirty billion dollars.
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  Speaker 1: And since September when he took over the funds, he
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  Speaker 1: has outperformed the benchmark SMP index by more than three
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  Speaker 1: hundred basis points annually. Will then off, Welcome to Bloomberg.
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  Speaker 1: Thanks Berry, It's great to be with you. So that
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  Speaker 1: track record is really quite astonishing. You you've returned on
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  Speaker 1: average compounded annually. Your benchmark, the SMP five hundred is
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  Speaker 1: ten percent. The average large cap growth funds has returned
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  Speaker 1: about nine. So what is the secret of your success? Yeah, Berry,
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  Speaker 1: I think you know, sometimes you lose track of the percentages.
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  Speaker 1: But I think if you had invested ten thousand dollars
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  Speaker 1: in the SMP, and you should have your fact checkers
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  Speaker 1: figure this out. But I think that after thirty years
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  Speaker 1: of being up whatever it is, ten percent a year
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  Speaker 1: you're at like two hundred thousand, and if you are
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  Speaker 1: invested in contrafund, you'd be closer to like four and
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  Speaker 1: eighty thousands. So really can make a difference. Compounding is
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  Speaker 1: an important concept for your listeners when it comes to investing,
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  Speaker 1: and to the extent you can find a fund or
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  Speaker 1: a company that can compound over time, it really does
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  Speaker 1: make a difference over the decades. But i'd say Barry
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  Speaker 1: for For me, the north star has been the importance
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  Speaker 1: of analyzing companies, keeping an open mind, working really hard
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  Speaker 1: and staying flexible, having a great team, and then maybe
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  Speaker 1: just bringing it all back to the earnings per share
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  Speaker 1: of the underlying companies and trying to think about, you know,
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  Speaker 1: what the company could earn looking out five seven years,
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  Speaker 1: you know, will this company be bigger and better? So
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  Speaker 1: I do believe that the growth discipline is a superior discipline.
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  Speaker 1: And then you know, once you've determined what you think
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  Speaker 1: the company might earn looking out to the extent you
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  Speaker 1: can look out and you have to be honest and say,
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  Speaker 1: you know, I really am not sure. You know. In
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  Speaker 1: the in the world of technology, you have to be
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  Speaker 1: really careful about extrapolating growth rates. But then ideally you're
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  Speaker 1: trying to pay the the best price you can for
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  Speaker 1: you know, as well positioned growth company with you know,
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  Speaker 1: a good brand and great management and strong cash flow
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  Speaker 1: and stuff like that. But I'd say, you know, cast
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  Speaker 1: a wide net, be flexible, and then you know, continue
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  Speaker 1: to monitor what your your investments are doing and what
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  Speaker 1: your managements are doing. I'm much more of an advocate
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  Speaker 1: of the you know, sort of the poker game approach.
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  Speaker 1: I think it's hard to say, you know, X y
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  Speaker 1: Z is going to be a buy and hold for
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  Speaker 1: ten years, but you know, and this is the greatest
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  Speaker 1: thing since sliced bread, and therefore we're all in. Some
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  Speaker 1: investors can do that. I think over over thirty years,
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  Speaker 1: you you make a lot of mistakes, You accept your mistakes,
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  Speaker 1: you learn from your mistakes. But one idea I have
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  Speaker 1: is just to say, listen, I think you know, you're
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  Speaker 1: you know, we're playing poker. I have an ace, you're
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  Speaker 1: showing a three. I think this is starting out to
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  Speaker 1: be a good hand for me. So I'm going to
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  Speaker 1: bet some and start to build a position, and then
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  Speaker 1: if I'm served another ace, meaning the company, you know,
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  Speaker 1: says it's going to expand into California, or expand in India,
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  Speaker 1: or you know, introduce the new product, and the results
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  Speaker 1: show that those efforts are going really well, then you
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  Speaker 1: bet more so again for me, it's a little more
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  Speaker 1: incremental and a little less Aha, the light bulb went off.
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  Speaker 1: You know, plastics are you know, we're all in on
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  Speaker 1: plastical plastics without data. So I would say, you know,
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  Speaker 1: let's start with the facts. You know, Fidelity is just
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  Speaker 1: an unbelievable place to manage money. We've got an unbelievable
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  Speaker 1: research team, we have you know, experts and virtually every
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  Speaker 1: industry that matters. We have experts in virtually every region
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  Speaker 1: of the world that matters. We have experts in all
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  Speaker 1: disciplines in the market value, growth, small, mid, large, all
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  Speaker 1: parts of the cap table, you know, investment grade, high yields,
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  Speaker 1: convertibles and so, you know, Fidelity sort of the big
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  Speaker 1: city hospital Barry. And you know, for your listeners, you know,
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  Speaker 1: do you want to have the brain surgery and you know,
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  Speaker 1: a small regional hospital in the middle of nowhere are
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  Speaker 1: probably not. But if you go to a big city
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  Speaker 1: hospital where they're doing large numbers of these procedures, you're
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  Speaker 1: probably going to feel better. You know, everybody makes mistakes,
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  Speaker 1: but we see more companies, we attend more meetings, we
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  Speaker 1: interview more management teams, and through that process, hopefully we're
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  Speaker 1: going to be able to identify changes that are important
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  Speaker 1: in different industries and also just identify what we consider
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  Speaker 1: truly world class management teams that are doing things a
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  Speaker 1: little better. And you know, you try to keep track
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  Speaker 1: and you do your best, and you know, I've just
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  Speaker 1: survived frankly in a very competitive industry, Barry. But you
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  Speaker 1: know the Fidelity Hall of Fame managers, I mean, Joel
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  Speaker 1: tilling Has, who's managing the Low Price Stock Fund, has
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  Speaker 1: done phenomenally well. Steve y Umer, who runs our Growth fund,
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  Speaker 1: is done phenomenally well. We've got a whole cast of
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  Speaker 1: other folks in our starting lineup who are doing exceptionally well.
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  Speaker 1: And then, of course you know the long history going
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  Speaker 1: back to you know, George Vanderheyde and Peter Lynch, Bruce Johnstone,
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  Speaker 1: but even before that, you know Ned Johnson, Jerry Sigh.
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  Speaker 1: The idea of doing bottoms up fundamental company analysis is
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  Speaker 1: not going away. You mentioned the index, Barry, and you
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  Speaker 1: know the index is very hard to peak. Let's understand
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  Speaker 1: that there is survivor bias in the index. The better
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  Speaker 1: companies like Microsoft and Google and Amazon grow and become
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  Speaker 1: a larger part of the index, and the weaker companies,
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  Speaker 1: you know, slow down and don't grow and therefore don't
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  Speaker 1: appreciate in value and therefore are smaller part of the index.
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  Speaker 1: So the index is hard to beat. And I agree
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  Speaker 1: with Warren buff that, you know, the S and P
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  Speaker 1: five hundred or even the Dow now is not the
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  Speaker 1: the Dow or the S and P of of seventy
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  Speaker 1: or eighty years ago. You know, it's it's a much
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  Speaker 1: more cash generative, much more growth oriented. You know, globalization
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  Speaker 1: has been very positive for you know, corporate profits and
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  Speaker 1: I think very positive for society in the world. But
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  Speaker 1: we can get into that later. So you know, i'd say,
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  Speaker 1: work really hard, know yourself, know your companies. You know,
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  Speaker 1: continue to monitor your companies, try to upgrade on weakness,
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  Speaker 1: and you know, try to be patient and long term.
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  Speaker 1: You know, you mentioned earlier the sort of so much
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  Speaker 1: noise now in the market, and people worried about every tick.
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  Speaker 1: You know, I think if you step back and say,
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  Speaker 1: what do I own you know, you know, can I imagine,
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  Speaker 1: you know, just look around you and say, gosh, you know,
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  Speaker 1: my kids can't live without their smartphones, and they they
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  Speaker 1: love their smartphones. You know. In in Fideliti's case, we're
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  Speaker 1: able to talk to Luca my Street, who's the CFO
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  Speaker 1: of Apple, and you know, he shared with us recently
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  Speaker 1: that in the America's Apple's customer satisfaction with the iPhone
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  Speaker 1: is and you know, it's like, oh my god, that's unbelievable.
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  Speaker 1: And then you step back and say, well, gosh, you know,
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  Speaker 1: ten years ago, no one had you know, iPhones, everyone
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  Speaker 1: had blackberries. And now you know, I have two smartphones.
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  Speaker 1: I have a MacBook Air, i have an iPad, and
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  Speaker 1: I've got EarPods, you know, and it's I'm really happy
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  Speaker 1: they all work. And you know, so you've got to
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  Speaker 1: be aware of what's happening in the world. And I
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  Speaker 1: think that's often where some Wall Street folks, particularly the
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  Speaker 1: the value discipline, can you know, get a little confused.
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  Speaker 1: It's like, you know, the classic value trap. It's a
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  Speaker 1: really you know, cheap stock, but it's not going in
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  Speaker 1: I mean, it's not going to get cheaper, right, you know,
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  Speaker 1: it's a capital intensive, cyclical business and you've got to
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  Speaker 1: make sure your assumptions are appropriately conservative. So let's stay
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  Speaker 1: with with talking about Fidelity a little bit. You mentioned
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  Speaker 1: some of the the murderers row the twenty Yankees lineup,
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  Speaker 1: you guys, have you started it Fidelity in But if
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  Speaker 1: my research is correct, it wasn't as a fund manager, right,
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  Speaker 1: You came in as an analyst, Yes, Barry, an interesting
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  Speaker 1: footnote for your listeners. I applied for a summer job
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  Speaker 1: in and I was rejected, So Barry, one must always persevere.
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  Speaker 1: And you know, I think the decision was probably the
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  Speaker 1: right one. I was a bit immature and not as experience,
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  Speaker 1: but luck really I was accepted and for the full
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  Speaker 1: time job as an analyst in And I think it's
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  Speaker 1: important when you think about companies as investments as employers,
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  Speaker 1: to understand the culture of the company. And you know,
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  Speaker 1: I'm so grateful and lucky that Fidelity was and still
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  Speaker 1: is a research oriented, you know, active manager and everyone
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  Speaker 1: you know that I mentioned earlier, all the great fund
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  Speaker 1: managers all started as analysts at Fidelity. You know, does
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  Speaker 1: that include Peter Lynch? He started as an analyst. Oh, yes, yes, yes, yes, yes,
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  Speaker 1: Peter started as an analyst. George was an analyst. Bruce,
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  Speaker 1: of course, everyone came up from the ranks. Ned was
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  Speaker 1: an analyst. Abby Johnson, who is the curren CEO, was
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  Speaker 1: an analyst and then a fund manager. So when you
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  Speaker 1: have that common experience and common language, it's just so helpful.
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  Speaker 1: So you would be between you and Lynch, right, So yeah,
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  Speaker 1: one um Jeff Finnick, of course, you know, an unbelievably
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  Speaker 1: talented analyst, UM and fund manager and investor started my year.
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  Speaker 1: But he started in the spring because he had taken
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  Speaker 1: a job in New York and then decided he wanted
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  Speaker 1: to work for Fidelity, so he started in the spring.
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  Speaker 1: But there were about seven of us, including Joel Tilling
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  Speaker 1: has to started a little later that year, and Frankly Berry,
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  Speaker 1: I was probably below average from my class. We you know,
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  Speaker 1: we had a very strong class. But I was lucky
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  Speaker 1: that I was assigned the retail stocks. And the retails
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  Speaker 1: stocks were it was a large group of stores. You know,
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  Speaker 1: consumer spending is something like two thirds of the US economy,
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  Speaker 1: and they had all sorts of different stocks. You know,
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  Speaker 1: Kmart and Sears were stodgy potential turnarounds, and then you
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  Speaker 1: had the membership warehouse clubs were sort of the new
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  Speaker 1: shiny concept that you had to really think hard about,
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  Speaker 1: you know, what's this industry going to look like? And
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  Speaker 1: then the department stores were sort of slower growers but
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  Speaker 1: generating free cash flow. And you know, the Walmart was
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  Speaker 1: the thorough bred, and you know it was really fun
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  Speaker 1: and great and it was relatively understandable. So I think
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  Speaker 1: I was exposed to many different types of stocks and managements.
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  Speaker 1: All were people sort of people people, so you didn't
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  Speaker 1: have to try to understand technology or science. It was
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  Speaker 1: just you know, going into a store with a CEO
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  Speaker 1: or a CFO and you know, seeing how they interacted
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  Speaker 1: with the customer and looking at the prices and you know,
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  Speaker 1: is this store appealing? So anyway, but you know, the
• 15:13
  Speaker 1: beauty of fidelities were all in the trenches together, and
• 15:17
  Speaker 1: you know, Peter and George and Bruce were in these
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  Speaker 1: meetings with me and many others, and you know, it
• 15:24
  Speaker 1: was a really great sort of apprenticeship to watch, you know,
• 15:30
  Speaker 1: these great investors analyze different companies and understand, you know,
• 15:35
  Speaker 1: the idea of unit growth. If I think when I
• 15:40
  Speaker 1: first met Bernie Marcus, the founder of the Home Depot.
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  Speaker 1: He might have had like forty stores and now they
• 15:45
  Speaker 1: have two thousand. But you know, the the thought was,
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  Speaker 1: if it's working in Atlanta, Georgia, it can work in Florida.
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  Speaker 1: And I remember when they first opened their stores and
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  Speaker 1: they acquired some stores to expand in exist which didn't
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  Speaker 1: work out as well. But when they first opened the
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  Speaker 1: stores in California, you know, I mean it was literally
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  Speaker 1: there was another concept across the street, and you know,
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  Speaker 1: the Home Depot parking lot was near full and the
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  Speaker 1: other store was sort of going into a bowling alley.
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  Speaker 1: You know, it was virtually empty. So you know, part
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  Speaker 1: of it is being practical, you know, sort of what
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  Speaker 1: is actually happening. As I said earlier, Barry earnings per
• 16:23
  Speaker 1: share becomes sort of the north star for a growth investor.
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  Speaker 1: And you know, if Colone Deepot was opening new stores
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  Speaker 1: a year and they're old stores were generating let's say,
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  Speaker 1: you know, five or ten percent growth and the margins
• 16:39
  Speaker 1: were going up and the r o I on the
• 16:41
  Speaker 1: new stores was high, you know, you start projecting out
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  Speaker 1: growth and whatever that works out too, but you know,
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  Speaker 1: doubling of earnings and three years with you know, the
• 16:54
  Speaker 1: potential for many, many more stores. So that was a
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  Speaker 1: great insight for me. That helped me, you know, and
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  Speaker 1: again I over thirty years. All I can tell you
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  Speaker 1: is that I was there and I should have. You know,
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  Speaker 1: the one of the great lessons learned Berry is I
• 17:10
  Speaker 1: should have bought more of these great growth stocks like
• 17:14
  Speaker 1: the Home Depot or you know, I was there when
• 17:17
  Speaker 1: Howard Schultz went public. I mean, you can't, you can't.
• 17:22
  Speaker 1: I mean it was two but again I was a
• 17:25
  Speaker 1: young fund manager. But picture this. You know, Schultz had
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  Speaker 1: a hundred I think a hundred and forty cafes when
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  Speaker 1: he opened up. They were all in Seattle and Portland.
• 17:37
  Speaker 1: I remember someone sitting next to me on the road
• 17:40
  Speaker 1: show lunch saying, you know, it might work in the
• 17:43
  Speaker 1: Pacific Northwest, but you know, they're tree huggers there and
• 17:47
  Speaker 1: they like, you know, to sit around in a coffee shop.
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  Speaker 1: But it's not gonna work in New York, or it's
• 17:53
  Speaker 1: not gonna work in San Francisco. But the data showed,
• 17:57
  Speaker 1: you know, I believe or In Smith, who was a
• 17:59
  Speaker 1: CEF at the time, said they had opened a couple
• 18:02
  Speaker 1: of stores in San fran and they were all exceeding
• 18:04
  Speaker 1: their expectations, and you know the r O I s
• 18:08
  Speaker 1: and the new units were through the roof. I think
• 18:11
  Speaker 1: they were arithmetic was because they were leased units. It
• 18:16
  Speaker 1: costs two hundred fifty thousand dollars to open a Starbucks
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  Speaker 1: way back when the stores were doing six hundred fifty
• 18:23
  Speaker 1: thousand of revenue and like year two and at twenty
• 18:28
  Speaker 1: percent EVA DOC or cash on cash unit volumes, so
• 18:33
  Speaker 1: they were you know, for two hundred fifty thousand, you
• 18:35
  Speaker 1: were getting a hundred and twenty five thousand dollars of
• 18:38
  Speaker 1: cash in like year two, which meant you could finance
• 18:43
  Speaker 1: rapid growth. And it was working. And you know, the
• 18:46
  Speaker 1: camp store sales, you know, the comp cafe snails were
• 18:50
  Speaker 1: double digit for the last three years. It was the
• 18:52
  Speaker 1: perfect story. So here's the lesson to your listeners. Barry.
• 18:56
  Speaker 1: The stock pops on day one or day two, and
• 19:00
  Speaker 1: it was always very expensive for what it was. It
• 19:05
  Speaker 1: was like thirty five thirty times the out ear estimate.
• 19:08
  Speaker 1: But the company continued to grow and grow and it
• 19:11
  Speaker 1: stayed expensive for like fifteen years. But it was a
• 19:15
  Speaker 1: great Yeah, it kept growing, it stayed expensive. So sometimes
• 19:20
  Speaker 1: an expensive stock that executes really well can be a
• 19:24
  Speaker 1: great story. You know, they added frappuccinos. They went out
• 19:28
  Speaker 1: to the overseas and it worked in China, but it
• 19:31
  Speaker 1: worked everywhere in the US, and you know, no one
• 19:33
  Speaker 1: else was able to replicate. I remember Pets came in
• 19:38
  Speaker 1: and this one and that one, and you know McDonald's
• 19:41
  Speaker 1: was going to offer you know, cheaper coffee and try
• 19:44
  Speaker 1: to upgrade. But anyway, so sometimes you have to say,
• 19:49
  Speaker 1: a truly outstanding franchise with a great management team and
• 19:53
  Speaker 1: a great business model can be a great stock. I mean,
• 19:57
  Speaker 1: the analogy in sports would be, you know, what do
• 20:01
  Speaker 1: you pay Michael Jordan's or one of these truly exceptional
• 20:05
  Speaker 1: athletes whatever, if they you know, hit the three pointers
• 20:12
  Speaker 1: and win the championship, You're going to pay them a
• 20:15
  Speaker 1: lot of money. So one of the lessons is that,
• 20:18
  Speaker 1: you know, better businesses are going to trade at higher
• 20:21
  Speaker 1: pease and you just have to accept that. Now, of course,
• 20:25
  Speaker 1: your listeners have to monitor. You know, a retail investor
• 20:29
  Speaker 1: can go into the stores. They're out there comparing you
• 20:34
  Speaker 1: know what Starbucks is doing, the quality of the coffee,
• 20:37
  Speaker 1: the experience in the cafe. You know how is the
• 20:40
  Speaker 1: mobile order and pay experience, you know how is the app,
• 20:44
  Speaker 1: is it easy to use? Is it delighting me? You know,
• 20:47
  Speaker 1: some of the great entrepreneurs in the last decade of
• 20:50
  Speaker 1: talk to me about, you know, what would the world
• 20:53
  Speaker 1: look like without my company? And you know, during the
• 20:56
  Speaker 1: COVID pandemic, I think a lot of people have said,
• 21:00
  Speaker 1: you know, if I didn't have Amazon, my world would
• 21:04
  Speaker 1: be significantly worse. And isn't that a great place to
• 21:08
  Speaker 1: be if you're a partner with you know, Jeff Bezos
• 21:12
  Speaker 1: and the Amazon team, or you know, there are other
• 21:16
  Speaker 1: a handful of companies that are you know, Costco, I
• 21:20
  Speaker 1: think is one of those special companies that have delighted
• 21:23
  Speaker 1: their members over many years. And you know, so many
• 21:27
  Speaker 1: people said, my gosh, do you believe you know, when
• 21:29
  Speaker 1: I just got a Costco it was such high quality
• 21:32
  Speaker 1: and such a great price. That's the type of company
• 21:37
  Speaker 1: that over thirty years, you know, used there to say, gosh,
• 21:42
  Speaker 1: I wish I had owned more of those. And by
• 21:45
  Speaker 1: the way, it's it's not it's a little easier than
• 21:49
  Speaker 1: you know. When I first started in the early nineties
• 21:52
  Speaker 1: as a fund manager, I was trying to find companies
• 21:56
  Speaker 1: that no one else had heard of, that no one
• 21:58
  Speaker 1: else owned, and you know, there are a lot of
• 22:03
  Speaker 1: tough businesses that are selling cheap, and I was running
• 22:07
  Speaker 1: around saying cheap and getting better, Let's try to find
• 22:10
  Speaker 1: a turnaround. And you know, turnarounds sometimes work. They can
• 22:15
  Speaker 1: be really awesome stocks when they do work. But the
• 22:19
  Speaker 1: degree of difficulty is higher than just saying, my gosh.
• 22:24
  Speaker 1: You know, Google is just unbelievable. You know, how did
• 22:27
  Speaker 1: we live without Google? Or you know, how did we live,
• 22:31
  Speaker 1: you know, without Amazon? For example, You're coming up on
• 22:34
  Speaker 1: your thirtieth anniversary right by the time this broadcast, it
• 22:37
  Speaker 1: will be September. You started at the contra funds in September?
• 22:45
  Speaker 1: Did you ever and then imagine you would be running
• 22:48
  Speaker 1: these same exact funds for thirty years? Honestly buried? No,
• 22:55
  Speaker 1: I think you know, again, as I said, Fidelity is
• 22:58
  Speaker 1: a great place to manage money. There's some very very
• 23:01
  Speaker 1: talented and and fun people, and we you know, continue
• 23:05
  Speaker 1: to attract some really good people. But it's it's the
• 23:08
  Speaker 1: kind of place where ordinary folks can do extraordinary things
• 23:13
  Speaker 1: when they work together and they communicate. And you know,
• 23:17
  Speaker 1: I'm sort of the Woody Allen of Fidelity. I just
• 23:20
  Speaker 1: show up, and you know, I show up to more meetings,
• 23:23
  Speaker 1: and you know, I remember one year I had an
• 23:27
  Speaker 1: odd seven am meeting, which is early. Usually our meeting
• 23:31
  Speaker 1: start at eight am, but somebody wanted to see me
• 23:35
  Speaker 1: or somebody was there, so we did a seven am meeting.
• 23:39
  Speaker 1: So then the meeting ends at eight and I'm kind
• 23:42
  Speaker 1: of hungry, and I see that somebody else is hosting
• 23:46
  Speaker 1: an eight am meeting that hadn't started. So I go
• 23:50
  Speaker 1: in to grab a muffin, and then the host and
• 23:54
  Speaker 1: the management walk in. I think it was Joel hosting
• 23:58
  Speaker 1: an Irish bank, so I was like, oh, hi, and
• 24:01
  Speaker 1: they thought I was there to see the meeting. What
• 24:03
  Speaker 1: I really wanted a muffin, But anyway, I was like, yeah, sure,
• 24:08
  Speaker 1: I'll listen to your story. You know, I had to
• 24:11
  Speaker 1: fudge it, and so we listened, and it turned out
• 24:15
  Speaker 1: that the Irish economy was coming back, and I don't
• 24:19
  Speaker 1: know because it was Ireland. The stock was like an
• 24:23
  Speaker 1: eight times earnings and there were only like three banks
• 24:26
  Speaker 1: of any size in Ireland. And you know, it turned
• 24:30
  Speaker 1: out there's a certain serendipity involved with the business that
• 24:33
  Speaker 1: again the fidelity, there's so many companies. Sometimes Joel and
• 24:36
  Speaker 1: I are just like what do you you know, what's
• 24:40
  Speaker 1: going on right now? Is there a call that could
• 24:42
  Speaker 1: be of interest? There's there a company management coming in,
• 24:46
  Speaker 1: you know every week, you know, on Fridays, I look
• 24:49
  Speaker 1: at the schedule for the next week and it's just like, oh,
• 24:52
  Speaker 1: these are two companies that are in at the same time.
• 24:54
  Speaker 1: We've got to move one of them, or wow, you know,
• 24:57
  Speaker 1: I definitely have to see this company because you know,
• 25:01
  Speaker 1: oil and gas is way out of favor, and you know,
• 25:04
  Speaker 1: this management team has done a decent job surviving over time,
• 25:08
  Speaker 1: and you know, the ability to stay current on lots
• 25:14
  Speaker 1: of industries and lots of geographies, and and then there's
• 25:17
  Speaker 1: sort of luck every once in a while you meet
• 25:20
  Speaker 1: managements that help you. I mean again, over thirty years,
• 25:26
  Speaker 1: Verry one important. You know clearly that the you know,
• 25:32
  Speaker 1: the oh one Internet bubble burst was you know, an
• 25:39
  Speaker 1: important event. But what was most important, I think was
• 25:42
  Speaker 1: the aftermath. In this sort of O three oh four period,
• 25:48
  Speaker 1: most growth investors were still hiding under their desks, they
• 25:52
  Speaker 1: were shelf stocked. In many cases, they were experiencing outflows.
• 25:57
  Speaker 1: And I remember again and just you know, seeing on
• 26:02
  Speaker 1: our meeting schedule a company meeting for ask Jeeves a
• 26:09
  Speaker 1: s kJ early early search engine exactly, and I believe
• 26:15
  Speaker 1: it's now owned by Interactive Group. But you know, again,
• 26:19
  Speaker 1: it's like what motivated me to say, I think I
• 26:23
  Speaker 1: should go and hear the story. The stock had I
• 26:27
  Speaker 1: think had gone from like five to a hundred and
• 26:31
  Speaker 1: was back to like bottomed at two, and it was
• 26:34
  Speaker 1: at eight. So I said, you know, a hundred to
• 26:38
  Speaker 1: eight means expectations are low. Maybe I'll learn something, you know,
• 26:44
  Speaker 1: and again at Fidelity, you can you know, between you
• 26:47
  Speaker 1: and me, I can go in in an half hour,
• 26:50
  Speaker 1: learn something and then politely leave the You know, I
• 26:54
  Speaker 1: guess I take my job very seriously. You know, I
• 26:57
  Speaker 1: have pictures of my shareholders in my office, and I
• 27:02
  Speaker 1: just decided, you know, if I'm going to do my job,
• 27:06
  Speaker 1: I'm in the I'm in the fashion industry. I've got
• 27:08
  Speaker 1: to look and consider all possibilities of management has come
• 27:14
  Speaker 1: I think, asked Jeeves was based in New York, not
• 27:17
  Speaker 1: in California. But you know, if management has traveled all
• 27:20
  Speaker 1: the way to Boston right to our offices to tell
• 27:24
  Speaker 1: us what's going on, I should at least attend, and
• 27:29
  Speaker 1: I should be ideally prepared. I've just told you two stories,
• 27:33
  Speaker 1: Barry where I wasn't prepared, but you know, engage with management,
• 27:38
  Speaker 1: asked some intelligent questions. Try to understand and empathize with management,
• 27:44
  Speaker 1: you know, sort of what has happened, Where are you going?
• 27:46
  Speaker 1: What your goal is? So asked Jeeves had hired a
• 27:50
  Speaker 1: new CEO, right young man, and he said, our niche
• 27:55
  Speaker 1: is natural language search, which means in Google you would
• 28:00
  Speaker 1: hype in, you know, population Morocco, and Google would figure
• 28:05
  Speaker 1: out what you wanted. But and asked Jeeves, you would
• 28:07
  Speaker 1: type in what is the population of Morocco and that
• 28:12
  Speaker 1: you know, they had like one, one or two percent
• 28:14
  Speaker 1: market share and the goal was to go to five
• 28:17
  Speaker 1: or six and that was going to sort of lead
• 28:20
  Speaker 1: them to profitability and in a much bigger business. So
• 28:26
  Speaker 1: at some point I forget we had a young search
• 28:30
  Speaker 1: engine analysts. I guess I can't remember who was hosted
• 28:32
  Speaker 1: in a meeting, maybe a small cap analyst or fund manager.
• 28:35
  Speaker 1: But I said, can we just step back and explain,
• 28:40
  Speaker 1: you know, the lay of the land for search engines?
• 28:44
  Speaker 1: So you know, he sort of flippantly said, well, you know,
• 28:49
  Speaker 1: Google was crushing everybody. They have market share, plus they're
• 28:54
  Speaker 1: doing the search for I think it was a o
• 28:58
  Speaker 1: L so they had forty percent plus the fifteen or
• 29:02
  Speaker 1: that was a o L related search, So they had
• 29:04
  Speaker 1: market share and they were crushing everybody. And then I
• 29:09
  Speaker 1: think Yahoo had bought overture and maybe Microsoft had some
• 29:14
  Speaker 1: skin in the game somewhere. But you know, it was
• 29:17
  Speaker 1: like fifty five to sixty then player and then a several,
• 29:23
  Speaker 1: you know, very smaller players. So again, you know, Barry,
• 29:26
  Speaker 1: I don't know what happened, but I just you know,
• 29:29
  Speaker 1: what's the key to my success? I just say why
• 29:32
  Speaker 1: you know, or please elaborate. So I said, God, why
• 29:37
  Speaker 1: is Google doing so well? And the answer was, you know,
• 29:44
  Speaker 1: they have a better algorithm, they have a larger index
• 29:49
  Speaker 1: because they have so much market share, they're seeing more searches,
• 29:53
  Speaker 1: and you know, they're just innovating faster. And I think,
• 29:57
  Speaker 1: you know, as I said, you know the wout and
• 30:00
  Speaker 1: I would have to check my notes, and if you want, Barry,
• 30:02
  Speaker 1: I do have my notes from that meeting. You know,
• 30:05
  Speaker 1: they are crushing everybody. There is no way we're going
• 30:09
  Speaker 1: to catch Google. We do our our plan does not
• 30:13
  Speaker 1: We don't need to beat Google at what they're doing.
• 30:16
  Speaker 1: We're going to play in this little niche. So again,
• 30:19
  Speaker 1: by that point, Barry, I was already thirteen years into
• 30:23
  Speaker 1: contrafund and I had developed this idea of the best
• 30:26
  Speaker 1: of breed and I, you know, listen politely to the
• 30:31
  Speaker 1: Asketeves story for another couple of minutes, and I excuse myself,
• 30:36
  Speaker 1: and in my mind I was thinking I want to
• 30:40
  Speaker 1: own Google. I don't you know, That's what I was
• 30:43
  Speaker 1: hearing between the lines. They competitive exactly. So again, you know,
• 30:49
  Speaker 1: by attending meetings, by paying attention, you know, listen, your
• 30:53
  Speaker 1: readers can listen to podcasts, they can listen to YouTube interviews,
• 30:58
  Speaker 1: which I would highly recommend they do. They can read
• 31:01
  Speaker 1: the papers, they can pay attention. They can watch what
• 31:03
  Speaker 1: their kids are doing, they watch what their friends are doing.
• 31:05
  Speaker 1: But you know, that was a data point by a
• 31:10
  Speaker 1: well placed competitor that clearly showed that Google was doing
• 31:15
  Speaker 1: special things and was a special company. So, and I
• 31:18
  Speaker 1: think at that time, maybe it was oh three, they
• 31:22
  Speaker 1: were already perhaps a couple of articles about you know,
• 31:25
  Speaker 1: Google hiring Eric Schmidt as a CEO, preparing to go public,
• 31:29
  Speaker 1: whatever it was. There was some ground swell of articles
• 31:33
  Speaker 1: about Google um and so I was very interested when
• 31:39
  Speaker 1: Google announced that we're going to go public, and again
• 31:42
  Speaker 1: the backdrop was the growth investor was struggling the mark.
• 31:47
  Speaker 1: I can't remember exactly what was happening in the market,
• 31:49
  Speaker 1: but they came public in August of O four. August.
• 31:55
  Speaker 1: You know, here we are in August of you know,
• 31:58
  Speaker 1: things quiet down a little bit, people are taking vacation.
• 32:03
  Speaker 1: But I was there front and center. Sarah gey Brand
• 32:06
  Speaker 1: and Eric Schmidt, you know, came on the road show
• 32:09
  Speaker 1: and again, you know, do a little preparation opened the perspectus.
• 32:14
  Speaker 1: And Google had doubled the revenue in O two, double
• 32:18
  Speaker 1: the revenue and oh three, and doubled the revenue in
• 32:21
  Speaker 1: the first quarter of OH four. It was like, oh
• 32:25
  Speaker 1: my gosh, they are doing something right. You know, by
• 32:28
  Speaker 1: the way operating margins were like or even then they
• 32:33
  Speaker 1: had a billion dollars of cash on the balance sheet
• 32:35
  Speaker 1: before they went public. That's amazing. Yeah, aga, I'm gonna share.
• 32:42
  Speaker 1: I'm gonna share a very quick Google story. And it
• 32:45
  Speaker 1: was that period. It was two thousand and two and
• 32:48
  Speaker 1: I had been publishing for a few years on Yahoo
• 32:51
  Speaker 1: Yahoo Geo Cities, and I get an invite to be
• 32:55
  Speaker 1: a beta tester for one of the early versions of Google,
• 32:59
  Speaker 1: and you just had to use it for ten minutes
• 33:02
  Speaker 1: in Oh my god, this is so much better than anything.
• 33:06
  Speaker 1: You could find whatever you want almost instantly. So I
• 33:09
  Speaker 1: right back and say happy to be a beta tester.
• 33:12
  Speaker 1: By the way, I'm in finance. Do you guys need
• 33:15
  Speaker 1: any money? I'd love to make an investment day Right back,
• 33:18
  Speaker 1: We're good. Thanks. Anyway, I want to say that was
• 33:21
  Speaker 1: on or O two, but um, it was so clearly,
• 33:25
  Speaker 1: so clearly superior. So will let's talk a little bit
• 33:28
  Speaker 1: about your process. How do you look at a company?
• 33:32
  Speaker 1: Where do you begin? Not every Google falls into your
• 33:37
  Speaker 1: lap through competitors, how do you start the process of
• 33:40
  Speaker 1: deciding what you want to think about purchasing. Yeah, that's
• 33:45
  Speaker 1: a great question, Barry, and I would just urge your
• 33:49
  Speaker 1: listeners that if you want to invest, you know wisely
• 33:55
  Speaker 1: over the long term. You know you have to make
• 33:58
  Speaker 1: a commitment. You know it's a very competitive world, but
• 34:02
  Speaker 1: you know, know yourself, stay within your circle of competence.
• 34:06
  Speaker 1: I mean, Warren Buffett is you know, the greatest investor
• 34:09
  Speaker 1: of our generation, and you know he's out there on YouTube.
• 34:12
  Speaker 1: Please listen to a couple of interviews with Warren Buffett.
• 34:15
  Speaker 1: He always talks about staying within his area of expertise,
• 34:19
  Speaker 1: and you know, he knows the insurance industry really well,
• 34:22
  Speaker 1: the financial industry knows consumer products very well and in
• 34:26
  Speaker 1: a fascinating way. Barry, he always says, you know, when
• 34:30
  Speaker 1: the Internet hit, you know, I was curious if the
• 34:33
  Speaker 1: Internet was going to affect the people are gonna be
• 34:35
  Speaker 1: drinking coca cola or chewing gum, and he decided not.
• 34:37
  Speaker 1: But you know, you have to monitor what's happening. But
• 34:42
  Speaker 1: you know, I'm interested in companies that I think are
• 34:44
  Speaker 1: going to be bigger and better in the next you
• 34:48
  Speaker 1: know call of three to five, seven years. And I'm
• 34:51
  Speaker 1: interested in companies that are doing well or getting better
• 34:55
  Speaker 1: right now. That was one of the great you know
• 34:58
  Speaker 1: insights you talking to Peter Lynch, working with Peter Lynch,
• 35:02
  Speaker 1: watching Peter Lynch, you know, especially the small and MidCap companies.
• 35:07
  Speaker 1: I mean, you know, as we talked about with Google,
• 35:09
  Speaker 1: I mean, if if you're a billion in revenues, you know,
• 35:13
  Speaker 1: why shouldn't you be growing much faster than a company
• 35:16
  Speaker 1: with a hundred billions of revenues? And you know, so
• 35:19
  Speaker 1: if you really have something special, consumers should know it
• 35:24
  Speaker 1: and see it and you know, want it. So I
• 35:28
  Speaker 1: am intrigued with the subset of companies that are growing
• 35:34
  Speaker 1: quickly and usually, frankly Berry, it's easier to find, you know,
• 35:40
  Speaker 1: to go from the specific company to the sort of
• 35:45
  Speaker 1: neighborhood or the general theme that it is to start
• 35:49
  Speaker 1: a priori and say, oh, gosh, the Internet. Therefore, you know,
• 35:54
  Speaker 1: I'm going to find some internet companies for me. It's
• 35:57
  Speaker 1: you know, starting bottoms up. And you know, I think
• 36:01
  Speaker 1: your listeners and you know, potential investors are well served
• 36:05
  Speaker 1: by saying, Okay, what has this company done in the
• 36:10
  Speaker 1: last five years? You know, have they grown their revenues,
• 36:14
  Speaker 1: have they improved their margins? You know, have they expanded
• 36:18
  Speaker 1: into new markets? You know, and then try to understand
• 36:23
  Speaker 1: what management wants to do in the next five years
• 36:26
  Speaker 1: and try to decide, you know, what you think the
• 36:31
  Speaker 1: likelihood of that management team to execute on their plan.
• 36:36
  Speaker 1: And you know, so I'm a little concerned when you know,
• 36:41
  Speaker 1: these special purpose acquisition companies are coming and you know,
• 36:45
  Speaker 1: they really don't have a track record. So you know,
• 36:48
  Speaker 1: I always say, let's see what you buy and what
• 36:51
  Speaker 1: you pay and try to assess the management team that's
• 36:54
  Speaker 1: doing the buying, and you know, what have they done
• 36:57
  Speaker 1: if they sort of good at you know, rolling up
• 37:00
  Speaker 1: companies but not so good at integrating them. I'm not
• 37:03
  Speaker 1: that interested. How much of this is art and how
• 37:06
  Speaker 1: much of this is science? I was going to ask
• 37:08
  Speaker 1: it is this a qualitative assessment? Is this a quantitative assessment?
• 37:12
  Speaker 1: But you strike me as someone who is pre naturally
• 37:17
  Speaker 1: insightful at evaluating companies, managements, and products. It's not just
• 37:24
  Speaker 1: here's the numbers. Anybody can look at the cage or
• 37:26
  Speaker 1: anybody can look at the IBADA. Not everybody can consistently
• 37:30
  Speaker 1: pick companies that beat the index. So so, how much
• 37:34
  Speaker 1: of this is will dan Off magic and how much
• 37:37
  Speaker 1: of this is something else? It's probably a lot of
• 37:41
  Speaker 1: something else, Barry, because I don't have that much magic,
• 37:46
  Speaker 1: and I certainly after thirty years, I'm not sure if
• 37:48
  Speaker 1: I have any magic left. But it's it's competitive and
• 37:52
  Speaker 1: you have to play to your strengths. And you know,
• 37:55
  Speaker 1: as I said, one of the advantages of of you know,
• 37:59
  Speaker 1: a fidelity as the management teams are willing to talk
• 38:03
  Speaker 1: to us and and you know, share some of the
• 38:07
  Speaker 1: insights that they have and ideally, you know, you're in
• 38:12
  Speaker 1: the business of asking good questions. I'm in the business
• 38:14
  Speaker 1: of asking good questions. So I do try to empathize
• 38:19
  Speaker 1: with management. And you'd be surprised, Barry, even the most
• 38:24
  Speaker 1: successful CEOs like to be recognized. They like to be
• 38:29
  Speaker 1: thanked for their efforts. You know, they like to be
• 38:33
  Speaker 1: treated as you know, sort of guests and as you know,
• 38:38
  Speaker 1: special people. So when these managements come to Boston, you know,
• 38:42
  Speaker 1: I like to be prepared. I like to offer them,
• 38:45
  Speaker 1: you know, some water or coffee or a doughnut or
• 38:48
  Speaker 1: whatever they want. And you know, sometimes we have lunches
• 38:51
  Speaker 1: and it's just a matter of you know, what do
• 38:54
  Speaker 1: you like for lunch? You know, I don't want you
• 38:57
  Speaker 1: to have a cheeseburger if you don't like cheeseburger. So anyway,
• 39:01
  Speaker 1: you know, I do think that a little empathy as
• 39:06
  Speaker 1: an investor goes a long way. And you know, I
• 39:12
  Speaker 1: do think that if if you step back and try
• 39:16
  Speaker 1: to put yourself in the shoes of an entrepreneur and
• 39:20
  Speaker 1: think about, you know, what is you know this CEO
• 39:25
  Speaker 1: really thinking about, And you know that I think makes
• 39:30
  Speaker 1: you a better investor as well, because so often, you know,
• 39:35
  Speaker 1: they've had a big idea. They've had an insight, you know,
• 39:39
  Speaker 1: the Michael Dell let's go direct. You know, the PC
• 39:43
  Speaker 1: business was it was a commodity business, but he figured out,
• 39:47
  Speaker 1: you know, a better way to get closer to his customer.
• 39:49
  Speaker 1: But you know, when you think back to you know
• 39:53
  Speaker 1: someone I think he was in high school and he
• 39:55
  Speaker 1: started to you know, take computers apart and put them
• 39:59
  Speaker 1: back together and add certain features. You know, I think
• 40:03
  Speaker 1: he was adding sloppy disk drives or hard disk drives.
• 40:07
  Speaker 1: I forget he you know, he he was able to
• 40:09
  Speaker 1: soup up you know, a basic IBM PC and then
• 40:13
  Speaker 1: other PCs to make them better. You know, it's just
• 40:16
  Speaker 1: like this guy has a passion for what he's doing
• 40:21
  Speaker 1: and try to tap into you know, where do you
• 40:25
  Speaker 1: see the bigger opportunities, Why are you doing well? Where
• 40:29
  Speaker 1: do you think your vulnerabilities are? And if you have
• 40:33
  Speaker 1: these discussions early on, you know, in your learning about
• 40:38
  Speaker 1: a company, maybe later, you know, three or four years
• 40:43
  Speaker 1: down the road, that becomes a really important issue that
• 40:48
  Speaker 1: you know, these entrepreneurs often have a sixth sense of
• 40:53
  Speaker 1: you know, what they need to do. And and then
• 40:56
  Speaker 1: of course hopefully they're planting seas and you know, strengthening
• 41:01
  Speaker 1: their company, hiring new executives that can you know, prepare
• 41:05
  Speaker 1: them for whatever competitive onslaught or the change in the
• 41:09
  Speaker 1: market so that they can capitalize on it. But you know,
• 41:13
  Speaker 1: you do you have to decide, you know, is the
• 41:16
  Speaker 1: executive in it for the money or in it to
• 41:19
  Speaker 1: build something really special. I mean we talked about, you know,
• 41:23
  Speaker 1: am I trying to build a company where people are
• 41:26
  Speaker 1: going to say, my gosh, I can't. You know the
• 41:28
  Speaker 1: world is a better place because of you know, Instagram
• 41:32
  Speaker 1: or What's app or um you know whatever. You know, Microsoft,
• 41:39
  Speaker 1: you know teams. You know, it's a different it's a
• 41:42
  Speaker 1: it's a it's another way of looking at things. And
• 41:45
  Speaker 1: you know, I think something like a new company like
• 41:47
  Speaker 1: Shopify really is dedicated to making entrepreneurs, you know, more successful,
• 41:54
  Speaker 1: helping merchants sell online in a very sort of easy way.
• 42:01
  Speaker 1: And you know they're building you know what seems to
• 42:04
  Speaker 1: be a very powerful business and you know it's taking
• 42:07
  Speaker 1: off and Covid has been a huge tail wind for them.
• 42:10
  Speaker 1: But again, when you listen to management and you know,
• 42:13
  Speaker 1: you can go on Twitter and follow the founders there,
• 42:17
  Speaker 1: or you know, go on YouTube and listen to some
• 42:20
  Speaker 1: interviews and decide for yourself. Are these the sorts of
• 42:24
  Speaker 1: people I want to partner with? Quite interesting? So well,
• 42:28
  Speaker 1: let's talk a little bit about the nuts and bolts
• 42:32
  Speaker 1: of running a fund more or less as a single manager.
• 42:37
  Speaker 1: How does that affect your decision making versus so many
• 42:42
  Speaker 1: funds that seem to be run by committees. That's a
• 42:45
  Speaker 1: great question. Barry ned Johnson, who you know, I believe
• 42:49
  Speaker 1: is the chairman emeritus the fidelity. Now, who built the firm?
• 42:54
  Speaker 1: You know, from the mid seventies through let's say so
• 42:59
  Speaker 1: a great four the year run. Believed in accountability and
• 43:04
  Speaker 1: I think, you know, in life, we all have to
• 43:08
  Speaker 1: be accountable. So he really liked the idea of having
• 43:13
  Speaker 1: single managers responsible for individual funds. I am responsible for
• 43:19
  Speaker 1: the performance of the Contra fund. I have a great
• 43:22
  Speaker 1: team of analysts that I work closely with, and in
• 43:26
  Speaker 1: some cases I will buy a stock the recommendation of
• 43:31
  Speaker 1: an analyst, but usually I work and say, you know, okay,
• 43:36
  Speaker 1: what are you covering, what do you like? Why do
• 43:39
  Speaker 1: you like it? And if this is your very best
• 43:43
  Speaker 1: idea and you think this company is doing something special
• 43:47
  Speaker 1: and they're going to gain market share profitably, over time.
• 43:50
  Speaker 1: Let's just call the company together. Let me know next
• 43:53
  Speaker 1: time you're going to do an update call or a
• 43:56
  Speaker 1: post quarterly earnings call, and I'll just hear the story myself.
• 44:01
  Speaker 1: And you know, Peter Hinch used to joke and say,
• 44:03
  Speaker 1: we're just asking for a picture after someone offers you
• 44:07
  Speaker 1: a blind date. You know, we want to do some
• 44:10
  Speaker 1: basic work. And you know, Doltill and Half my great,
• 44:14
  Speaker 1: you know, longtime colleague. Just as you know, if you
• 44:17
  Speaker 1: would simply avoid unprofitable companies that you know would improve
• 44:23
  Speaker 1: your performance significantly. Now the world has changed in thirty years,
• 44:28
  Speaker 1: and the biotech industry has become bigger and better and
• 44:32
  Speaker 1: leveraged all these great insights into the human genome so
• 44:37
  Speaker 1: that you can go from losing a lot of money
• 44:39
  Speaker 1: to FDA approval of a drug that turns into a
• 44:43
  Speaker 1: billion dollar blockbuster very quickly. But you know, for the
• 44:47
  Speaker 1: most part, I think you know, there are certain lessons
• 44:50
  Speaker 1: that we've learned. But you know, when do you sell
• 44:52
  Speaker 1: a stock berry You sell a stock when you have
• 44:54
  Speaker 1: a better idea or when the fundamentals deteriorates. So if
• 44:58
  Speaker 1: you're casting a wide now at your you know, attending
• 45:02
  Speaker 1: a lot of company meetings. You're listening to a lot
• 45:04
  Speaker 1: of calls. You know, I don't know, I think over
• 45:08
  Speaker 1: thirty years, Barry, the numbers are. You know, Let's say,
• 45:11
  Speaker 1: on average, I talked to five management teams a day.
• 45:14
  Speaker 1: That's twenty five management teams a week, fifty weeks. You know,
• 45:19
  Speaker 1: in a working year, companies a year over thirty years,
• 45:25
  Speaker 1: you know, some crazy number of company meetings, you know,
• 45:28
  Speaker 1: thirty thousand. You know interviews I've had said, you know,
• 45:34
  Speaker 1: as I said the poker game. You know, this one
• 45:37
  Speaker 1: sounds a little better, I'm going to buy this one.
• 45:39
  Speaker 1: This one sounds a little worse. I'm going to sell
• 45:41
  Speaker 1: this one. It's sort of like tasting. I'm a chef
• 45:46
  Speaker 1: making the master stew that everyone is going to hopefully love.
• 45:50
  Speaker 1: And you know, but you've got to taste the stew
• 45:53
  Speaker 1: all the time. It needs a little more pepper, is
• 45:55
  Speaker 1: a little more solid, a little less of this. You know.
• 45:58
  Speaker 1: That's sort of the date at a operation. But hopefully,
• 46:03
  Speaker 1: you know, every year I can find you know, one name,
• 46:08
  Speaker 1: you know, maybe one name a year that I can
• 46:11
  Speaker 1: make a large position. So I have so many questions
• 46:15
  Speaker 1: about that exact thing, and I'll ask a short one
• 46:19
  Speaker 1: and then a more nuts and bolts longer question. So
• 46:23
  Speaker 1: you're doing, over the course of your career tens of
• 46:26
  Speaker 1: thousands of company calls, how finely tuned is your BS detector?
• 46:34
  Speaker 1: And let me let me phrase it a little more nicely.
• 46:38
  Speaker 1: When you're speaking to a manager, do you get a
• 46:41
  Speaker 1: pretty immediate sense of Hey, this guy is telling a
• 46:45
  Speaker 1: great story because there's a really something substantial underneath, Or hey,
• 46:50
  Speaker 1: this guy's a salesman and he's selling me a line
• 46:53
  Speaker 1: of stuff that I'm not I'm not biting, Like, how
• 46:56
  Speaker 1: how do you read people in those calls? Yeah? No, Verry,
• 47:01
  Speaker 1: you made a very good point earlier that you know,
• 47:04
  Speaker 1: your emotional quotation is very important in this business. But
• 47:08
  Speaker 1: I would say sitting across the table and asking some
• 47:13
  Speaker 1: very basic questions can give you a very good sense
• 47:17
  Speaker 1: of management. You know, are they humble, are they honest?
• 47:21
  Speaker 1: Are they willing to you know, be realistic? But you
• 47:27
  Speaker 1: know you have to understand, as I said, Okay, you
• 47:31
  Speaker 1: know this management has traveled halfway around the world to
• 47:34
  Speaker 1: talk to Fidelity. You know, yeah, maybe we are the
• 47:37
  Speaker 1: largest shareholder, or maybe we could be the largest shareholder,
• 47:41
  Speaker 1: but there's a reason why this management team is here.
• 47:46
  Speaker 1: Why is it? You know? And often you know, there
• 47:50
  Speaker 1: is a reason. You know, they want to do a
• 47:52
  Speaker 1: secondary offering and raise money. They want to do an acquisition,
• 47:56
  Speaker 1: and therefore they want to hire stock price so they
• 47:58
  Speaker 1: have a richer currency to do the acquisition. But you know,
• 48:02
  Speaker 1: I would say that the management teams that we talked
• 48:06
  Speaker 1: to are honest. And you know, once in a while,
• 48:11
  Speaker 1: you know, different people do tell the stories more humbly
• 48:17
  Speaker 1: or more arrogantly. But you want to see, as I
• 48:21
  Speaker 1: said earlier, you know, management with passion. I would say,
• 48:25
  Speaker 1: one way to reduce the risk of you know, the
• 48:29
  Speaker 1: arrogant CEO is to watch how the entire management team
• 48:35
  Speaker 1: interacts and ideally, you see, you know, more than just
• 48:40
  Speaker 1: one great leader, but an entire team, you know, the CEO,
• 48:44
  Speaker 1: the CFO, the cso. You know, does the entire c
• 48:50
  Speaker 1: suite sing the same you know song from the hymn book?
• 48:54
  Speaker 1: You know, are they all on the same page? Do
• 48:57
  Speaker 1: they work well together? Do they seem to you know?
• 49:00
  Speaker 1: I remember, you know again it all goes back to
• 49:02
  Speaker 1: you know, I was the retail analyst. I'm you know,
• 49:05
  Speaker 1: at a dinner with the great Sam Walton. You know,
• 49:09
  Speaker 1: one of the you know, truly great you know, post war. Yeah,
• 49:14
  Speaker 1: and you know, people are asking all sorts of questions
• 49:17
  Speaker 1: and Sam was like, well, you know, Jack Schumacher, why
• 49:21
  Speaker 1: don't you answer that one? Don Soder quest why don't
• 49:23
  Speaker 1: you take that one? Paul Carter, why don't you take
• 49:25
  Speaker 1: that one? David Glass, why don't you take that one?
• 49:28
  Speaker 1: And you know, he was a very effective leader, and
• 49:33
  Speaker 1: you know, you just realized that this was a very
• 49:36
  Speaker 1: powerful culture. You know, we're going to lower prices and
• 49:40
  Speaker 1: you know sort of enable you know, middle class Americans
• 49:44
  Speaker 1: and rural Americans, you know, deliver better life by you know,
• 49:48
  Speaker 1: sort of being more efficient, you know, embracing you know,
• 49:51
  Speaker 1: you think back and again I didn't appreciate it at
• 49:54
  Speaker 1: the time, but Sam and his team were aware of
• 49:58
  Speaker 1: salt prices New Price Club, which was the membership warehouse club.
• 50:03
  Speaker 1: They copied it or experimented themselves. You know, they were
• 50:07
  Speaker 1: open to a new idea and they you know, started
• 50:10
  Speaker 1: the Sam's Club business. And I think with Sam's then
• 50:15
  Speaker 1: they sort of learned about the food business, which became
• 50:18
  Speaker 1: very important, and started opening supercenters, you know, and they
• 50:22
  Speaker 1: were aware of Carrefour in France and I don't know
• 50:25
  Speaker 1: how it's pronounced m E I j E r S.
• 50:28
  Speaker 1: Which was a hypermarket up and the Upper Midwest. So
• 50:32
  Speaker 1: you know, again you want to see managements that are
• 50:34
  Speaker 1: open to new ideas, open to adjacent markets, willing to experiment.
• 50:40
  Speaker 1: You know. I like the management that you know, we're
• 50:43
  Speaker 1: going to try a few things. They may not work,
• 50:45
  Speaker 1: they may not You know, I did really well early
• 50:49
  Speaker 1: on with George Sherman at dana Her. You know, and
• 50:53
  Speaker 1: George used to always talk about, you know, one business
• 50:57
  Speaker 1: reviews and the dana Her business system, and you know,
• 51:00
  Speaker 1: he had studied the great plants, you know, the manufacturing
• 51:05
  Speaker 1: techniques in Japan, the Toyota business system. Dr oh no,
• 51:09
  Speaker 1: and then he went to Korea. But you know, I
• 51:12
  Speaker 1: was like, George, you know, tell me about this, and
• 51:14
  Speaker 1: you know, chucka chucka, which was I think the either
• 51:19
  Speaker 1: the Japanese or Korean term for justin time inventory and
• 51:23
  Speaker 1: the idea of reducing waste. Garry, this is like, you know,
• 51:28
  Speaker 1: waste his time, it's waste his inventory. Waste is like
• 51:33
  Speaker 1: if you have to move from you know, one part
• 51:36
  Speaker 1: of the kitchen to the other part of the kitchen,
• 51:38
  Speaker 1: you know, you just sort of say, this guy can
• 51:40
  Speaker 1: go deep and you know, so, yes, there is some
• 51:44
  Speaker 1: arrogance for a successful executive and you want to be
• 51:49
  Speaker 1: careful about that. But again, when you know, what I've
• 51:53
  Speaker 1: what I've loved during this COVID period is to be
• 51:55
  Speaker 1: able to zoom with management teams. And there are a
• 51:59
  Speaker 1: law proportion, frankly of American management teams that have emphasized
• 52:06
  Speaker 1: and prioritize the health and safety of their colleagues. And
• 52:10
  Speaker 1: it's been you know, very inspiring to hear. You know,
• 52:14
  Speaker 1: these these great executives understand that they have to be
• 52:18
  Speaker 1: on the front line. They have to make sure their
• 52:21
  Speaker 1: people are are safe. And a lot of the companies
• 52:24
  Speaker 1: have invested a lot of money, you know, in protective
• 52:27
  Speaker 1: gear and you know, thinking hard about the return to
• 52:31
  Speaker 1: work and you know, so anyway, yes it is a concern.
• 52:36
  Speaker 1: And again I would urge your listeners YouTube these executives
• 52:40
  Speaker 1: decide if you like their arc. You know, how did
• 52:44
  Speaker 1: you come to this company? And you know what was
• 52:46
  Speaker 1: the great insight? And I mean, let's let's remember, you know,
• 52:51
  Speaker 1: Bernie Marcus was fired by Handy Dan and you know
• 52:55
  Speaker 1: he started the home depot in his forties, so You
• 52:57
  Speaker 1: don't have to be a college dropout at you know,
• 53:00
  Speaker 1: twenty years old to start the latest tech company. You
• 53:04
  Speaker 1: experience matters, and if you are dedicated and you know,
• 53:08
  Speaker 1: have the right skill set, you can you know, be
• 53:11
  Speaker 1: a great success later in life. I do like smart, motivated,
• 53:17
  Speaker 1: passionate folks who have done it before. As I said,
• 53:20
  Speaker 1: you know, what have you done for me in the
• 53:22
  Speaker 1: last five years? What are you going to do in
• 53:23
  Speaker 1: the future. I mean, I remember when Mark Zuckerberg came
• 53:26
  Speaker 1: out on the I P O road Show and you know,
• 53:28
  Speaker 1: you know, what's the right question for a twenty seven
• 53:31
  Speaker 1: year old who I think at the time had three
• 53:34
  Speaker 1: quarters of a billion, seven hundred and fifty million daily
• 53:38
  Speaker 1: active users. You know, it's just like what you have
• 53:40
  Speaker 1: accomplished is remarkable, you know, and then try to learn
• 53:44
  Speaker 1: from these folks and anyway, and you want to try
• 53:48
  Speaker 1: to go ahead? Yeah, no, no, no, I mean it
• 53:52
  Speaker 1: was I remember Mark showed up in a T shirt
• 53:55
  Speaker 1: and a hoodie and I was like, that's great, that's
• 53:57
  Speaker 1: what we want. We want somebody to be who they are.
• 54:00
  Speaker 1: But I will tell you that I projected my Facebook account,
• 54:05
  Speaker 1: which had like thirty friends onto you know, the conference
• 54:10
  Speaker 1: room wall, just to try to make him feel a
• 54:12
  Speaker 1: little more comfortable. It was just like, we're engaged with
• 54:15
  Speaker 1: our product. And when Evan's eagle from Snapchat came public,
• 54:20
  Speaker 1: the analysts made a Snapchat story when he came in
• 54:24
  Speaker 1: and we showed it to Evan and he loved it.
• 54:27
  Speaker 1: You know, you gotta kind of try to connect with
• 54:29
  Speaker 1: these executives at their level, you know, like when I
• 54:33
  Speaker 1: was the stores analysts and even now as a fund manager,
• 54:37
  Speaker 1: when these companies come around, it's just like, we should
• 54:41
  Speaker 1: go shopping together. Let's go to your store together. You
• 54:44
  Speaker 1: don't want to be in a conference room. I don't
• 54:46
  Speaker 1: want to be necessarily be in a conference room. Let's
• 54:48
  Speaker 1: go out there. And Jason Weiner was one of my
• 54:52
  Speaker 1: close colleagues. He's done a great job with some of
• 54:55
  Speaker 1: the Fidelity funds and growth funds, and you know, for
• 54:58
  Speaker 1: a while there, every time management was coming in early
• 55:02
  Speaker 1: and sort of the early days of the internet, he
• 55:04
  Speaker 1: was going onto their website and it's like, you know,
• 55:07
  Speaker 1: you talk about you know, what management says and what
• 55:10
  Speaker 1: they're doing is like this all sounds great, but I
• 55:12
  Speaker 1: don't see any of those initiatives on the front page.
• 55:15
  Speaker 1: Of your website, and it was just like, oh, you know,
• 55:19
  Speaker 1: why not a good question? Yeah, so anyway, but the
• 55:24
  Speaker 1: other point, Barry and your listeners have to keep in
• 55:27
  Speaker 1: mind that whatever management says, there is accountability. You know,
• 55:34
  Speaker 1: every quarter. You know, Warren Buffett doesn't like quarterly earnings.
• 55:39
  Speaker 1: You know, Jamie Diamond doesn't like quarterly earnings. But the
• 55:41
  Speaker 1: reality is every quarter you have more fundamental data by
• 55:48
  Speaker 1: which to at least analyze what has happened. And every
• 55:53
  Speaker 1: industry is cyclical. Every industry is affected by COVID, the
• 56:00
  Speaker 1: global financial crisis, or the Internet bubble. But it should
• 56:05
  Speaker 1: make sense. Oh god, you know, Argentina, oil prices spiked
• 56:12
  Speaker 1: in the last quarter. Therefore our raw material costs went
• 56:16
  Speaker 1: through the roof. Our gross margins were down. But guess what,
• 56:20
  Speaker 1: it's a two quarter phenomenon, and we're going to be
• 56:22
  Speaker 1: back to more normal level. You know. The airline, Oh god,
• 56:26
  Speaker 1: oil prices, you know, jet fuel went way up. Our
• 56:28
  Speaker 1: margins were down, but that's going to affect everybody in
• 56:31
  Speaker 1: our industry. So we're gonna be relatively okay. We're still expanding.
• 56:38
  Speaker 1: We still have you know, a low cost operation because
• 56:42
  Speaker 1: we only use the same bowing seven three seven's and
• 56:45
  Speaker 1: the other guys are going to struggle blah blah blah.
• 56:48
  Speaker 1: So it makes sense. I remember meeting the great Herb
• 56:52
  Speaker 1: caliher and I think one of my questions one, you
• 56:57
  Speaker 1: know again, Fidelity is a great place to man of money.
• 57:00
  Speaker 1: For whatever reason, Herb came in and everybody was at
• 57:06
  Speaker 1: a tech conference or everybody was at a healthcare conference.
• 57:09
  Speaker 1: I think there were two other investors and me in
• 57:13
  Speaker 1: the meeting, and I was like Herb, the gray Warren
• 57:17
  Speaker 1: Buffett says, you know he got you know, he lost
• 57:20
  Speaker 1: a lot of money in US air How can you
• 57:23
  Speaker 1: make money in the airline industry? He said, Warren better
• 57:27
  Speaker 1: than the wrong airline. But we talked a little bit
• 57:32
  Speaker 1: about the idea of flexibility and you know what his
• 57:35
  Speaker 1: managements supposed to be doing. Management has to pay attention.
• 57:38
  Speaker 1: And he gave some example that when Midway Airlines was
• 57:42
  Speaker 1: opening up or there were some new gates, they called
• 57:45
  Speaker 1: and said, hey, someone canceled on us. We've got six gates.
• 57:50
  Speaker 1: You know, it was like a Thursday afternoon. But do
• 57:52
  Speaker 1: you want them? You gotta let us know A S
• 57:55
  Speaker 1: A P. And Herb and his team like pulled an
• 57:57
  Speaker 1: all nighter and by Friday afternoon they said, we want them,
• 58:01
  Speaker 1: and here are the terms that we want, and they negotiated.
• 58:04
  Speaker 1: But you know, that's sort of what an active manager
• 58:06
  Speaker 1: should be doing. We you know, you have to pay
• 58:08
  Speaker 1: attention and hopefully you bet big when you see a
• 58:12
  Speaker 1: big opportunity. Quite fascinating. So well, You've mentioned so many
• 58:17
  Speaker 1: fascinating stories about so many companies Walmart and Starbucks and
• 58:22
  Speaker 1: Costco and Amazon and Southwest and Home Depot. I gotta
• 58:27
  Speaker 1: ask how many of these companies are you still long
• 58:30
  Speaker 1: or more generally, when you find a company like a
• 58:34
  Speaker 1: Home Depot or a Starbucks, how long do you stay
• 58:38
  Speaker 1: with them? And how can you tell when something is
• 58:41
  Speaker 1: just a temporary wobble or a more significant threat to
• 58:46
  Speaker 1: the business model. That's a great question, Barry. And again,
• 58:49
  Speaker 1: we're always learning, we're always trying to improve, and I've
• 58:54
  Speaker 1: made so many mistakes over the years. But I'd say
• 58:59
  Speaker 1: maybe in the last fifteen years I realized that lowering
• 59:05
  Speaker 1: my turnover would change my process to think longer term
• 59:12
  Speaker 1: and therefore sort of raise the bar of the companies
• 59:17
  Speaker 1: that I was buying. To say, hey, if you think
• 59:20
  Speaker 1: about it, Verry, if I am going to own the
• 59:22
  Speaker 1: stock for the next ten years, it better be a
• 59:25
  Speaker 1: really high quality company, and I better have a high
• 59:29
  Speaker 1: degree of conviction that the company is going to be
• 59:32
  Speaker 1: bigger and better in the next five years. So maybe
• 59:34
  Speaker 1: I want to do another couple of months of research
• 59:37
  Speaker 1: to make sure I really understand the company's competitive advantages.
• 59:42
  Speaker 1: I really know the management team and the entire you know,
• 59:46
  Speaker 1: culture of the company and why they're going to do
• 59:48
  Speaker 1: so well, and better understand their product roadmap and the
• 59:53
  Speaker 1: innovation and the competitive sets. So that's helped me a lot.
• 59:58
  Speaker 1: And so you know, I've I've tried to stay in
• 1:00:04
  Speaker 1: companies and not be faked out. And sort of again,
• 1:00:08
  Speaker 1: what is sort of market noise, you know, worried about
• 1:00:12
  Speaker 1: some tweet or you know, some concern about inflation or
• 1:00:17
  Speaker 1: you know, the dollar moving this way or that way,
• 1:00:19
  Speaker 1: which is sort of irrelevant in most cases to the
• 1:00:23
  Speaker 1: strength and long term profitability of a company. I would say,
• 1:00:28
  Speaker 1: and I'd urge your listeners, and I'd urge you to
• 1:00:30
  Speaker 1: think about this idea of when in doubt, check the fundamentals.
• 1:00:35
  Speaker 1: When in doubt, listen to the latest quarterly webcast. When
• 1:00:41
  Speaker 1: in doubt, look at the latest presentation to investors when
• 1:00:46
  Speaker 1: in doubt. You know, if you were if you can
• 1:00:50
  Speaker 1: call the company, that's really intriguing. And I have to
• 1:00:54
  Speaker 1: ask you. Most people go out, they buy a thousand
• 1:00:57
  Speaker 1: shares of stock. They can jump all in or all
• 1:00:59
  Speaker 1: out very easily. You're obviously swinging around a lot more weight.
• 1:01:05
  Speaker 1: How do you enter any given stock? Is it a
• 1:01:08
  Speaker 1: position that you put a tone in the water and
• 1:01:10
  Speaker 1: build over time? Do you have a specific strategy? I
• 1:01:14
  Speaker 1: know some people like to add to what's working and
• 1:01:17
  Speaker 1: subtract to what's not. How do you own an Amazon
• 1:01:21
  Speaker 1: or a home depot? Is it? Is it a slow
• 1:01:25
  Speaker 1: gradual process or what's the method behind that? Yeah? As
• 1:01:29
  Speaker 1: I mentioned earlier, Barry, we all would love to have
• 1:01:34
  Speaker 1: huge amount of conviction, you know, And I think about
• 1:01:37
  Speaker 1: some of the great investors I know, you know, the
• 1:01:39
  Speaker 1: Bill Miller's, the Henry ellen Bogan's, you know, I think
• 1:01:43
  Speaker 1: they have more conviction than I do, or they get
• 1:01:47
  Speaker 1: it earlier. I'm trying to improve. And you know, often
• 1:01:53
  Speaker 1: it can be a meeting where you just you know,
• 1:01:56
  Speaker 1: meet someone who's running in an important division or a
• 1:02:01
  Speaker 1: smaller division, and you're like, wow, I was out at
• 1:02:06
  Speaker 1: Taypal and I met someone there who I thought was
• 1:02:10
  Speaker 1: really exceptional. And again, when you can visit with the
• 1:02:14
  Speaker 1: management team and get beyond you know, the CFO or
• 1:02:18
  Speaker 1: the treasurer or even the CEO, and meet some of
• 1:02:21
  Speaker 1: the people who were in the field who you truly
• 1:02:24
  Speaker 1: know the products set and the competitive set, you say, wow,
• 1:02:29
  Speaker 1: you know this makes sense to me. So anyway, whatever
• 1:02:32
  Speaker 1: it takes to get conviction. And you know, I've told
• 1:02:35
  Speaker 1: the analysts if you don't understand something, tell the management
• 1:02:38
  Speaker 1: you want to fly out to headquarters, and you know,
• 1:02:40
  Speaker 1: spend more time. It's okay, you know, no one the
• 1:02:44
  Speaker 1: light bulb. Sometimes I'm spending a lot of time when
• 1:02:48
  Speaker 1: I'm talking to management. They're like, well, why don't you
• 1:02:50
  Speaker 1: guys own more stock? And I've got to say, you know,
• 1:02:52
  Speaker 1: I made a mistake. But you know, one of the
• 1:02:55
  Speaker 1: great lessons over thirty years, Barry, and this is important
• 1:02:58
  Speaker 1: for all your listeners. If stock has doubled or even tripled,
• 1:03:03
  Speaker 1: you have not missed it. And I don't like to
• 1:03:06
  Speaker 1: give all my secrets, but if a stock has doubled
• 1:03:10
  Speaker 1: or tripled, you have not missed it. You have to say,
• 1:03:13
  Speaker 1: you know, have the mental white out that Peter Rentroys
• 1:03:15
  Speaker 1: talks about for the past and say what is going
• 1:03:18
  Speaker 1: to happen in the future, Because let's step back Bill Gates,
• 1:03:23
  Speaker 1: Michael Deal. They didn't sell after the first double, they
• 1:03:26
  Speaker 1: didn't sell after the first triple. So yes, I do
• 1:03:29
  Speaker 1: think it's an excellent idea to say I would like
• 1:03:33
  Speaker 1: to own this stock for the next decade or two
• 1:03:37
  Speaker 1: decades because I understand, you know, the niche that the
• 1:03:41
  Speaker 1: company is fulfilling. I think that they're in a big market.
• 1:03:44
  Speaker 1: I think the management team is going to continue to
• 1:03:46
  Speaker 1: innovate and continue to grow, make rational decisions about expanding
• 1:03:54
  Speaker 1: and developing new products, and they understand their customer. They
• 1:03:58
  Speaker 1: wanted to light their customer or blah blah blah. So
• 1:04:01
  Speaker 1: the reality is, Barry that I was influenced by Warren Buffett.
• 1:04:06
  Speaker 1: I was with Warren and he invited Fidelity to do
• 1:04:10
  Speaker 1: an MBA day in Omaha, and you know, we were all.
• 1:04:15
  Speaker 1: I was given a chance to ask him a question.
• 1:04:17
  Speaker 1: I said, Warren, I'm managing a hundred billion dollars, what
• 1:04:20
  Speaker 1: advice would you give me? And he said, when you
• 1:04:21
  Speaker 1: have a good idea that big and if you look
• 1:04:24
  Speaker 1: back and you know we were influenced Joel and I
• 1:04:27
  Speaker 1: were influenced by Peter Lynch, who had like a thousand
• 1:04:30
  Speaker 1: stocks and in Magellan. And Joel still runs with a
• 1:04:33
  Speaker 1: huge number of stocks and low price stock fund. You know,
• 1:04:36
  Speaker 1: he's he's an exceptional intellect and can handle that. But
• 1:04:41
  Speaker 1: the number of stocks and counter fund fell. I literally
• 1:04:44
  Speaker 1: looked at I think I might have had five hundred
• 1:04:46
  Speaker 1: or six hundred stocks at the time, and I just said,
• 1:04:49
  Speaker 1: let's look at the bottom three hundred and say up
• 1:04:51
  Speaker 1: or out. And I looked at the top fifty. And
• 1:04:56
  Speaker 1: Peter always talks about this. You know, the best stocks
• 1:04:59
  Speaker 1: are probably ox you already own, you need to bet bigger.
• 1:05:02
  Speaker 1: So I was more concentrated, you know, but you mentioned
• 1:05:06
  Speaker 1: earlier what you know, what's really happening right now? Technology
• 1:05:11
  Speaker 1: has been a massive tidal way the Internet and software
• 1:05:16
  Speaker 1: great market reason, you know said it best software is
• 1:05:19
  Speaker 1: eating the world. It's it's more efficient, it makes less mistakes.
• 1:05:24
  Speaker 1: It's enabling you know, people all over the world to
• 1:05:28
  Speaker 1: connect with each other, and so the software of the sort.
• 1:05:37
  Speaker 1: The short answer is the software industry is growing rapidly.
• 1:05:43
  Speaker 1: It's highly profitable, and the you know, many parts of
• 1:05:47
  Speaker 1: the tech industry are not capital intensive. The great Apple.
• 1:05:52
  Speaker 1: You know, Steve Jobs is a genius to convince HANNAHI
• 1:05:55
  Speaker 1: Fox con to make the phones for him, so he
• 1:05:58
  Speaker 1: earns a high margin and he doesn't have to spend
• 1:06:02
  Speaker 1: a lot of money building factories. But you know, you
• 1:06:05
  Speaker 1: think about what you know Amazon has done generating a
• 1:06:09
  Speaker 1: lot of free cash flow. Apples generating a huge amount
• 1:06:11
  Speaker 1: of free cash flow. Facebook is generating a huge amount
• 1:06:14
  Speaker 1: of free cash flow. Microsoft is generating a huge amount
• 1:06:17
  Speaker 1: of free cash flow technology. The tech industry is knowledge
• 1:06:22
  Speaker 1: based its hire margin and for the moment, you know,
• 1:06:26
  Speaker 1: it's still growing because it's a global industry. Those are
• 1:06:30
  Speaker 1: three of your biggest holdings you just ran through there, ye,
• 1:06:33
  Speaker 1: Facebook and Microsoft. So someone I mentioned to a friend
• 1:06:38
  Speaker 1: I was interviewing you, and I said, if you're going
• 1:06:41
  Speaker 1: to ask, and he's a tech geek uh and runs
• 1:06:45
  Speaker 1: a tech focused hedge fund. I said, if you're gonna
• 1:06:47
  Speaker 1: ask will down Off a question about technology, what would
• 1:06:50
  Speaker 1: it be? And he surprised me with why the S
• 1:06:54
  Speaker 1: and P five hundred as a benchmark? Aren't you really
• 1:06:57
  Speaker 1: more of a nastac one hundred guy? And I thought
• 1:07:00
  Speaker 1: that was kind of an interesting observation. You know, there's
• 1:07:06
  Speaker 1: a lot of truth to that. I am much more
• 1:07:09
  Speaker 1: of a growth investor. I am, in my opinion, a
• 1:07:12
  Speaker 1: capital appreciation fund with a growth bias. So I do
• 1:07:16
  Speaker 1: have a go anywhere a large grow anywhere component. And
• 1:07:21
  Speaker 1: it's just the technology has been such a powerful tidal
• 1:07:24
  Speaker 1: wave that I've probably stayed in technology longer and bigger
• 1:07:30
  Speaker 1: than you know, I would have expected. Benchmarks are important,
• 1:07:36
  Speaker 1: and Fidelity, for legal reasons, does not want to change
• 1:07:41
  Speaker 1: the benchmark. It's actually sort of time consuming and cumbersome
• 1:07:45
  Speaker 1: to change benchmark. It probably makes hard enough to beat
• 1:07:49
  Speaker 1: as is. Yeah, you know, I mean there are some
• 1:07:52
  Speaker 1: of my larger, more institutional investors who do look at
• 1:08:00
  Speaker 1: you know, the Russell one thousand growth, you know, versus contra,
• 1:08:05
  Speaker 1: and there I'm not as frankly, the performance has not
• 1:08:08
  Speaker 1: been as good. And I don't know if if my
• 1:08:11
  Speaker 1: bench was the Russell one thousand growth, if I would
• 1:08:14
  Speaker 1: be even bigger in some of these names. But so interesting,
• 1:08:19
  Speaker 1: you know, yeah, I mean, I it is what it is.
• 1:08:23
  Speaker 1: I do think benchmarks are important. I mean what what
• 1:08:27
  Speaker 1: Larry Fink and you know, John Bogel did with passive
• 1:08:31
  Speaker 1: investing has been really good for the individual investor. You know,
• 1:08:36
  Speaker 1: you don't want to be in a situation when you know,
• 1:08:40
  Speaker 1: oh my god, Dan off Reinholds has lost their fastball.
• 1:08:45
  Speaker 1: I'm gonna sell the beauty of the index. If you
• 1:08:49
  Speaker 1: just buy an index is I'm gonna own the index
• 1:08:52
  Speaker 1: and I'm gonna I'm gonna buy the index every year
• 1:08:56
  Speaker 1: with my four oh one K contribution, and you know,
• 1:08:58
  Speaker 1: when I retire, I'm hopefully're going to have a nice
• 1:09:02
  Speaker 1: nest egg to retire with. As opposed to speaking with
• 1:09:08
  Speaker 1: individual funds, you've gotta you know, you're worried, and you
• 1:09:11
  Speaker 1: know human beings worry a lot. So I'm worrying a
• 1:09:15
  Speaker 1: lot for all of my investors. Berry trying my best,
• 1:09:20
  Speaker 1: so so I bet they're worried about when you're going
• 1:09:23
  Speaker 1: to retire. You've been there for thirty years. Do you
• 1:09:26
  Speaker 1: have any plan on leaving any time soon? Or are
• 1:09:29
  Speaker 1: you gonna run Contra for another thirty years? You know?
• 1:09:36
  Speaker 1: The stock answer, Barry is that I feel I can
• 1:09:41
  Speaker 1: add value, and as long as I feel I can
• 1:09:43
  Speaker 1: add value, I'm going to continue to run Contra fund.
• 1:09:46
  Speaker 1: As I said, Fidelity is a wonderful place to manage money.
• 1:09:51
  Speaker 1: We're hiring new analysts, young analysts all the time every year,
• 1:09:56
  Speaker 1: and it's those young analysts that provide extra entergy g
• 1:10:01
  Speaker 1: new insights, sort of an openness to new ideas. You know,
• 1:10:06
  Speaker 1: what do I know from Tinder and match dot com?
• 1:10:09
  Speaker 1: But you know, if I can ask the young analysts,
• 1:10:12
  Speaker 1: you know, what phones they're using, what apps they're using,
• 1:10:17
  Speaker 1: you know, tell me about this technology. You know, again,
• 1:10:22
  Speaker 1: if you think Airbnb is going to go public, you
• 1:10:25
  Speaker 1: and I if are we going to sleep on somebody
• 1:10:28
  Speaker 1: else's couch or in somebody else's apartment? Uber? Are you
• 1:10:32
  Speaker 1: going to get into somebody's car? Often when you hear
• 1:10:36
  Speaker 1: the story for the first time, you're like, no way.
• 1:10:39
  Speaker 1: But you have to keep an open mind. And by
• 1:10:42
  Speaker 1: working with my younger colleagues, they helped me stay open
• 1:10:47
  Speaker 1: and you know, try to embrace change in the new ideas.
• 1:10:51
  Speaker 1: And you know, when I think about the future, you know,
• 1:10:54
  Speaker 1: whatever power artificial intelligence and machine learning, they're going to
• 1:10:58
  Speaker 1: make this great software industry even more productive and even better.
• 1:11:05
  Speaker 1: The intersection of software and healthcare. If you think about
• 1:11:11
  Speaker 1: all the you know, hopefully the great advances that are
• 1:11:14
  Speaker 1: going to be made and health and preventive medicine through
• 1:11:19
  Speaker 1: you know, leveraging big data and AI. It's just remarkable
• 1:11:25
  Speaker 1: and you know, optimistic, and I think, you know, I
• 1:11:29
  Speaker 1: think the US as a leader in the software industry
• 1:11:33
  Speaker 1: and internet technology. You know, when you think about virtual
• 1:11:38
  Speaker 1: reality and artificial reality and you know, ambient computing. I
• 1:11:43
  Speaker 1: mean this whole idea of Alexa. You know Jeff Bezos,
• 1:11:46
  Speaker 1: you know, it's a great experiment er. He's a great
• 1:11:49
  Speaker 1: inventor and to you know, be able to walk into
• 1:11:53
  Speaker 1: a room and talk to the computer. And as I
• 1:11:57
  Speaker 1: understand it, pretty soon you're going to be walking down
• 1:12:00
  Speaker 1: you know, you're in New York. You're walking down Madison Avenue. Oh, Barry,
• 1:12:04
  Speaker 1: we know you like frappuccinos. There's a Starbucks around the corner.
• 1:12:09
  Speaker 1: You can get ten percent off. Right now, it sounds
• 1:12:12
  Speaker 1: like i've scene out of the movie Minority Report. Yeah, yeah,
• 1:12:16
  Speaker 1: you can imagine it's going to happen, you know. And
• 1:12:19
  Speaker 1: then of course all the innovation around the green industry
• 1:12:23
  Speaker 1: and e vs and solar and wind. I think that
• 1:12:28
  Speaker 1: it's going to be these US companies and and Silicon
• 1:12:31
  Speaker 1: Valley and the entrepreneurs are going to find better ways
• 1:12:37
  Speaker 1: to you know to do things and hopefully consumers are
• 1:12:40
  Speaker 1: going to benefit, but sounds optimistic. As investors, you know,
• 1:12:45
  Speaker 1: we have this great opportunity to partner with you know,
• 1:12:49
  Speaker 1: Elon Musk or you know other truly exceptional Jeff Bezos,
• 1:12:53
  Speaker 1: Mark Zuckerberg, Mark Bennie Off. I mean these these are
• 1:12:57
  Speaker 1: truly exceptional people. And you know here we are, you know,
• 1:13:02
  Speaker 1: John Q. Public can be a partner by a share
• 1:13:06
  Speaker 1: I know I only have you another few minutes, another
• 1:13:09
  Speaker 1: three minutes, so let me plow through my speed round
• 1:13:12
  Speaker 1: questions and let's see if we can get through these quickly.
• 1:13:15
  Speaker 1: What are you watching these days? Any favors on Netflix
• 1:13:18
  Speaker 1: or Amazon Prime? Yeah, I don't have a lot of time, Barry,
• 1:13:22
  Speaker 1: but I did really like Fata, which is uh yeah,
• 1:13:28
  Speaker 1: I like the intensity, I guess. I guess I'm a
• 1:13:32
  Speaker 1: sucker for for thrillers. And you know I liked House
• 1:13:37
  Speaker 1: the Cards, And you know, I'm a big shareholder in Netflix,
• 1:13:40
  Speaker 1: and I think what Netflix has done is truly exceptional.
• 1:13:43
  Speaker 1: And if I had to do I would I would
• 1:13:45
  Speaker 1: just google the you know, Netflix top tent. I've enjoyed
• 1:13:50
  Speaker 1: a lot of that stuff, but Father is my favorite
• 1:13:53
  Speaker 1: of all time. Let's talk about books. What are you
• 1:13:55
  Speaker 1: reading now and what are some of your favorites. Yeah,
• 1:13:58
  Speaker 1: during COVID, I really enjoyed a book called City of Thieves,
• 1:14:03
  Speaker 1: which is about Leningrad during the war. A good friend
• 1:14:09
  Speaker 1: recommended it. And now right now I'm reading this biography,
• 1:14:15
  Speaker 1: the one volume biography of Churchill. I'm forgetting the author,
• 1:14:19
  Speaker 1: but it was published and like two two or three
• 1:14:23
  Speaker 1: years ago, and I mean it's just remarkable. His parents
• 1:14:26
  Speaker 1: sort of ignored him, but he was an exceptional talent.
• 1:14:30
  Speaker 1: And again, Barry, one insight is if you find a
• 1:14:34
  Speaker 1: CEO or an entrepreneur who's exceptionally smart, like Winston Churchill
• 1:14:39
  Speaker 1: was exceptionally smart, you know they're gonna possibly do really
• 1:14:43
  Speaker 1: exceptional things. And you know he made he made a
• 1:14:47
  Speaker 1: lot of mistakes, but you know, when his time, yeah,
• 1:14:53
  Speaker 1: you know, when the time came, he was the right guy.
• 1:14:56
  Speaker 1: So you know, one thing. Over thirty years, you try
• 1:15:00
  Speaker 1: to collect executives and sometimes their sectors out of favor,
• 1:15:05
  Speaker 1: but when they come into favor, the you know, the
• 1:15:08
  Speaker 1: best of breed companies shine. What sort of advice would
• 1:15:12
  Speaker 1: you give a recent college graduate who was interested in
• 1:15:16
  Speaker 1: a career in asset management? I think you've gotta, you know,
• 1:15:20
  Speaker 1: learn to swim by jumping in the water, so you know,
• 1:15:24
  Speaker 1: start a paper portfolio and start investing. Ideally, you know,
• 1:15:29
  Speaker 1: gets your lawnmowing savings or whatever savings you've got. And
• 1:15:33
  Speaker 1: even with you know, a thousand dollars, you can buy
• 1:15:37
  Speaker 1: a couple of shares of of your favorite companies. You've
• 1:15:40
  Speaker 1: got to get in there. But the access to information
• 1:15:44
  Speaker 1: has changed so much, Barry in the last thirty years.
• 1:15:47
  Speaker 1: When I started as a retailing hosts of Fidelity, my
• 1:15:50
  Speaker 1: first job was like write letters to the companies, send
• 1:15:53
  Speaker 1: me the investment packet, send me the last two annual reports,
• 1:15:58
  Speaker 1: and you know, the last quarterly report it in the
• 1:16:00
  Speaker 1: ten queue. I mean, it took like two weeks to
• 1:16:03
  Speaker 1: get started. And now you know, it takes two seconds
• 1:16:06
  Speaker 1: to google, you know, IBM Investor Relations. You know you
• 1:16:11
  Speaker 1: can YouTube the new CEO. You can do your work
• 1:16:14
  Speaker 1: sort of instantaneously. So you know, you just gotta get
• 1:16:19
  Speaker 1: in there and do some research. You know, listen to
• 1:16:22
  Speaker 1: the webcast and you know, place your bets. So I
• 1:16:27
  Speaker 1: I think, you know, you just got to get in
• 1:16:29
  Speaker 1: there and do it. And you know, not everybody wants to,
• 1:16:32
  Speaker 1: but I was a sort of a mediocre analyst. And
• 1:16:36
  Speaker 1: you know, over time, by doing I have learned what
• 1:16:40
  Speaker 1: works for me. And the only way you're going to
• 1:16:42
  Speaker 1: learn your style and you know what works for you
• 1:16:46
  Speaker 1: is to actually do it. And you know you've got
• 1:16:48
  Speaker 1: to be accepting. You know, mistakes are a big part
• 1:16:50
  Speaker 1: of this business. Try to learn from your mistakes. You
• 1:16:53
  Speaker 1: know the great George van der Huyden who was a
• 1:16:56
  Speaker 1: great mentor of mine, and I learned a lot from George.
• 1:17:00
  Speaker 1: You know, he talked about keeping an investment diary on
• 1:17:05
  Speaker 1: one little you know, on one little index card or
• 1:17:08
  Speaker 1: you know whatever the the digital version of index card.
• 1:17:13
  Speaker 1: Why am I buying the stock? You know, I'm gonna
• 1:17:15
  Speaker 1: buy you know x y Z company at fifty dollars
• 1:17:19
  Speaker 1: of share because they're expanding into India. India is a
• 1:17:25
  Speaker 1: huge opportunity. I think, you know, they're earning two dollars
• 1:17:29
  Speaker 1: right now, but if they continue to grow outside of
• 1:17:33
  Speaker 1: India by ten to fift in India ads you know,
• 1:17:36
  Speaker 1: another you know million of revenue at a certain margin,
• 1:17:41
  Speaker 1: I think they can go from two dollars of earnings
• 1:17:43
  Speaker 1: to five dollars in earnings. Let me let me ask
• 1:17:45
  Speaker 1: you our final question, now, what do you know about
• 1:17:48
  Speaker 1: the world of investing today? You wish you knew when
• 1:17:51
  Speaker 1: you first joined thirty years ago, Barry. We've we've talked
• 1:17:56
  Speaker 1: a lot about sort of best of breed great entrepreneurs.
• 1:18:01
  Speaker 1: I guess I wish I had invested bigger with you know,
• 1:18:07
  Speaker 1: these superior managers when they were younger, and you know,
• 1:18:12
  Speaker 1: earlier on. You know, if I had met Sam Walton
• 1:18:15
  Speaker 1: when he went public and I had that you know,
• 1:18:19
  Speaker 1: insight to say, wow, this is an exceptional story. But
• 1:18:24
  Speaker 1: what's so hard, Barry, is when you first meet the company,
• 1:18:28
  Speaker 1: as I said earlier, with Airbnb or Uber, it's like
• 1:18:31
  Speaker 1: what are you talking about? You know? Or you know,
• 1:18:35
  Speaker 1: there's always the skeptic and you have to try to
• 1:18:40
  Speaker 1: anticipate and see around the corner. And it's not easy.
• 1:18:45
  Speaker 1: But that's what I would I would encourage people to,
• 1:18:48
  Speaker 1: you know, keep thinking about the future, keep thinking about trends,
• 1:18:54
  Speaker 1: stay within your circle of competence, and stay flexible and
• 1:18:59
  Speaker 1: continue to cast to wide net. You've really got to
• 1:19:02
  Speaker 1: look everywhere. I mean, if you think about what what's
• 1:19:05
  Speaker 1: happened in China, you know, I think China has grown
• 1:19:09
  Speaker 1: their GDP ten percent a year for the last thirty years.
• 1:19:12
  Speaker 1: You know, it's going to overtake the US, you know,
• 1:19:15
  Speaker 1: probably in the next decade. I mean, just it's remarkable
• 1:19:19
  Speaker 1: what compounding can do. And you know you've just try
• 1:19:25
  Speaker 1: to anticipate and project out into the future implications for
• 1:19:31
  Speaker 1: you know, what you're hearing right now, and you know,
• 1:19:34
  Speaker 1: just try to stay informed. But you know, there's a
• 1:19:38
  Speaker 1: lot of opportunity. Yeah, it's really great. Thanks Will for
• 1:19:42
  Speaker 1: being so generous with your time. That was Will then
• 1:19:44
  Speaker 1: off he runs Fidelities contra funds. If you enjoy this conversation,
• 1:19:49
  Speaker 1: we'll be sure and check out any of the previous
• 1:19:52
  Speaker 1: three or so we've had over the past six years.
• 1:19:55
  Speaker 1: You can find that at iTunes, Spotify, Overcast, Stitcher, wherever
• 1:19:59
  Speaker 1: you're finer podcasts are sold. We love your comments, feedback
• 1:20:03
  Speaker 1: in suggestions right to us at M I B Podcasts
• 1:20:07
  Speaker 1: at Bloomberg dot net. Be sure to check out my
• 1:20:10
  Speaker 1: weekly column on Bloomberg dot com slash Opinion, give us
• 1:20:14
  Speaker 1: a review on Apple iTunes. Sign up for our daily
• 1:20:17
  Speaker 1: reads at Ridholtz dot com. Follow me on Twitter at Ridholtz.
• 1:20:22
  Speaker 1: I would be remiss if I did not thank the
• 1:20:24
  Speaker 1: crack staff that helps us put these conversations together each week.
• 1:20:28
  Speaker 1: Reggie Basil is our audio engineer, Atico val Bron is
• 1:20:31
  Speaker 1: our project manager. Michael Batnick is my head of research.
• 1:20:35
  Speaker 1: Our producer and booker is Michael Boyle. I'm Barry Ridholts.
• 1:20:39
  Speaker 1: You've been listening to Masters in Business on Bloomberg Radio.