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 KIPLINGER'S PERSONAL FINANCE | |||
This article was published in the December 2005 issue of Kiplinger's Personal Finance. |
With little fanfare, Fidelity Contrafund overtook its sister fund, Magellan, sometime this past September to become the largest stock fund in Fidelity's vast stable. It should have come as no surprise. In contrast to Magellan, Contra has prospered, despite assets that now exceed $56 billion. The record is compelling: Contra easily topped Standard & Poor's 500-stock index over the past 15 years. What's more, it outpaced the index in nine of the past 15 calendar years, including 2005 to October 1. An investment of $10,000 in Contra 15 years ago would be worth $97,400 today, versus $54,000 for Vanguard 500 Index.
We dwell on the 15-year benchmark because the man behind the sterling record, Will Danoff, celebrated his 15th anniversary at the fund's helm in September. A salty product of Harvard and the Wharton School, Danoff claims he's no contrarian -- that Contrafund is just a name. So what accounts for his stock-picking success? And how will he keep Contra moving forward under the weight of all those billions of dollars? For the answers, listen in on our conversation, conducted one fine autumn afternoon above the streets of Boston's financial district.
KIPLINGER'S: What's the secret to your success?
DANOFF: My strategy is to own the very best companies. And I love to call companies and talk with executives and managers and ask what they do, how they generate revenue and where they see opportunities. On average, I probably see five companies a day. And I probably work a lot harder than the average fund manager.
What's so important about these company contacts? If, in the course of a day, I can see a health-care company, an energy company, a technology company, a financial company and something consumer-related, I am covering big parts of the market. And if I ask relatively shrewd questions -- such as "Who's the leader in your industry?" "What are the new trends?" "What do you think of China?" "What do you think of oil and gas prices?" -- I start to piece together an understanding of what's happening in the world economy and in the market.
So your stock picks are based more on the people than on the company itself? Usually, a company's culture emanates from the chief executive officer, the owner or the founder. I like dynamic executives with vision. Take Herb Sandler, who runs Golden West Financial. He's extremely smart, he has a very simple business model, and he has stayed the course. The advantage I have as a large investor is that, over time, we can develop a good relationship. When there's a controversy or a significant shift in the industry, I can pick up the phone and say, "Herb, I'd like to talk to you about certain changes in the industry" or "What do you think of what's happening at Fannie Mae?" or "What do you think about the changing shape of the yield curve?" He can then present his analysis, and that can help me understand an entire industry.
Look at Urban Outfitters. They've hit the ball hard with Urban stores, they've hit the ball hard with Anthropologie stores, and now they've got Free People stores. Kids love their stores, and sales are strong. They've got innovative merchandise and differentiated concepts. So I call the chairman [Richard Hayne] and I say, "Dick, what do you do differently? What's the secret sauce?" And he says, "We've stayed decentralized. We're a chain, but as far as the customer is concerned, each store looks like a boutique."
The name of your fund suggests that you take a contrarian approach -- that you buy what others hate and sell what others love. I wanted to change the name of the fund, but Fidelity feels that there's a lot of brand equity in it. But we changed some of the language in the prospectus some years back. We don't define contrarian as meaning that the public is overly pessimistic about a security, but that the public has misanalyzed a security. At any rate, I'm not a contrarian. I invest in companies of all sizes, with a bias toward growth.
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