Lessons from a Legendary Mutual Fund Manager
Introduction
Joel Tillinghast, the renowned mutual fund manager, has achieved significant success in picking winning stocks. Since launching Fidelity Low-Priced Stock in 1989, the fund has consistently outperformed the S&P 500, delivering an annualized total return of approximately 13% compared to the index’s 10% return over the same period.
However, Tillinghast acknowledges that he has also made some losing investments along the way. He believes that these experiences have contributed to his growth as an investor, stating that learning from both successes and failures is a fundamental aspect of the investing journey.
Investment Lessons
Tillinghast shares two examples of his successful stock picks and one of his biggest regrets to highlight valuable lessons for aspiring investors:
Winner: Ansys
In early 2001, Tillinghast purchased shares of Ansys when they traded for less than $3 per share (adjusted for splits). As of the latest market close, the shares are now valued at approximately $319 each. Tillinghast considers Ansys a prime example of a tech stock that is less susceptible to obsolescence. The company specializes in software that assists in product design and testing, focusing on industries where physical testing is prohibitively expensive. Tillinghast advises investors to consider how a company can defend itself against competitors.
Winner: Monster Beverage
Tillinghast acquired shares of Monster Beverage (formerly known as Hansen’s Natural) in 2001 for $4 per share (adjusted for splits). Today, the stock is valued at around $57. Tillinghast was attracted to the company’s innovative nature and its willingness to experiment with new products. He emphasizes the importance of considering companies that provide themselves with multiple opportunities for success.
Loser: HealthSouth
In late 2002, Tillinghast made a significant investment in HealthSouth, a provider of outpatient surgery and rehab services. Unfortunately, the stock plummeted by 99% during Tillinghast’s ownership, resulting in substantial losses. Tillinghast admits that he was overly focused on adjusted earnings, which can be manipulated, rather than evaluating the company’s free cash flow. He advises investors to avoid getting swayed by hype surrounding executives and to prioritize a comprehensive analysis of a company’s fundamentals.
Conclusion
Tillinghast acknowledges that stock picking may not be suitable for everyone, suggesting that novice investors consider index mutual funds and exchange-traded funds. The examples he shared are not intended as specific stock recommendations but rather as illustrations of the lessons he learned from his own successes and failures. Learning from both wins and losses is an essential aspect of becoming a better investor.
