Joel Tillinghast picked a share of the winning stock.
The legendary mutual fund manager has managed Fidelity Low Equities since its inception in December 1989. Since then, the fund has posted a total return of about 13% annually, beating his 10% return for the S&P 500 over the same period.
Naturally, after 30+ years on the market, he’s picked a few losers too. For Tillinghast, it’s all part of the process that makes him a better investor.
“The funny thing about investing is that you’re always learning. Sometimes you lose money and sometimes you make money when you least expect it,” he told CNBC Make It. “Those who lose money tend to cling to you.”
When asked for examples of investments that taught him lessons, Tillinghast gave two of his best picks and one of his worst. Adjusting for the timing of the stock split (which affects the stock price), one winner is worth more than 100 times what Tillinghast paid. The loser gave up his 99% of the value before Tillinghast was sold.
Tirinhust will be the first to tell you that stock picking isn’t for everyone. Amateur investors, like many investment professionals, may be better off drawn to index and exchange-traded funds, he says.
And for those wanting to emulate Tillinghast’s stock-picking prowess, keep that in mind. These are not stock selections. These are examples of what legendary managers have learned from their successes and failures.
In early 2001, Mr. Tillinghast purchased Ansys stock, which was trading at less than $3 per share after split adjustment. At the market close on Friday, each share was worth about $319.
Tillinghast said the company, which makes software to help design and test products, is a prime example of the type of stocks he usually looks for: “tech stocks that are less disruptive.”
In other words, they want companies that can grow without being overwhelmed by rival technology. Ansys specializes in software that shows how the laws of physics work on products such as airplane wings that are too expensive to test in the real world.
“The laws of physics don’t change much,” says Tillinghast. “So this is software that will never go out of style. And there are new applications in the medical field, and he will probably have AI applications as well.”
lesson: Think about how your company can defend itself against competitors.
Tillinghast acquired Monster Beverage (then known as Hansen’s Natural) for $4 a share in 2001. Adjusted for the split, it equates to 4 cents per share. It closed Friday at around $57.
Tillinhust didn’t know investing in Monster would be a huge home run, but he liked that the company was giving him another chance to succeed.
“I bought Monster Beverages, which at the time was Hansen’s Naturals, a juice drink company, because I liked that they were experimenting with energy drinks,” he says. “I like companies that try a lot of experiments. It doesn’t always work, but they try a lot.
lesson: Consider a company that offers itself multiple ways to win.
By late 2002, Tillinghast was betting big on HealthSouth, a provider of outpatient surgery and rehabilitation services. The low-priced stock owns 36 million shares, representing 9% of the company’s stock. By early 2003, however, the company was delisted from the New York Stock Exchange. The stock has fallen 99% during Tillinghast’s tenure.
“I lost a lot of money on that because I was looking at adjusted earnings instead of free cash flow,” he says.
“Adjusted” earnings are earnings reported by a company that deviate from generally accepted accounting principles. Nearly all companies report this type of earnings, which executives argue is a better reflection of a company’s true performance. But it also leaves room for financial wobbly business.
At the time, HealthSouth’s adjusted earnings seemed worthwhile to Mr. Tillinghast, who was also impressed by the company’s charismatic chief executive, a metric that speaks to the reality of a much less profitable company. We intended to ignore free cash flow, which is .
lesson: Ignore the hype around executives and focus on the basics as a whole. Don’t randomly choose your strategy to convey what you want to hear.
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check out: This Fidelity manager has been destroying the S&P 500 since 1989.Here’s his advice to investors