For this episode of The Long View, Amy Arnott and I were live at the Morningstar Investment Conference chatting with veteran Fidelity Contrafund stock-picker Will Danoff. He talked about his investing origins, identifying durable competitive advantages, and even his investing mistakes.Here are a few excerpts from our conversation with Danoff, who’s retiring at the end of the year after an amazing career.‘Everything’s in the Ks and the Qs’Christine Benz: I wanted to ask about meeting with management. I know it’s always been a big part of your process. You’re just doing it today. We talked to Charley Ellis [founder of investment consultant Greenwich Associates] within the past year, and he referenced Regulation FD [Fair Disclosure] as a game changer for active management, just saying that everything changed when fund managers didn’t have that access that they once did. Can you reflect on that? Was that a pivotal event for you and your process?Will Danoff: That’s a very good question. And Reg FD has changed the communications for companies. I feel, Christine, that the information we want is just to understand the business. We’re not interested in anything that’s certainly material nonpublic, but even we just want to know what the company is sharing and how they view their own business. So, it’s changed a little bit. It’s probably changed some of these short-term investors, but Fidelity, we’re interested in long-term investing. Peter [Lynch, Fidelity’s Magellan Fund] used to always say the big money is really made in years four and five. So, get to know management, understand the ROI of their business and why they are so profitable, why they’re generating a lot of shareholder love, and what the value proposition really is. Most stories come down to three or four bullet points. It’s not anything that management can’t talk about because of Reg FD. I mean, when I first met Warren Buffett, he said, “If I were you, I wouldn’t talk to any CEOs.” I was like, “That’s what I do.” And he had a good point. He said, “Everything’s in the Ks and the Qs.” And it is funny when, after I go to a meeting, I’m saying, “I got to dig in a little bit here.” And I look at the last presentation or the 10-K, and it is all there.Have a question about investing? Ask Amy Arnott.But he also made the good point, which is, and this is probably a pre-Reg FD, but it’s still applicable to all investors: Any good CEO is going to tell you exactly what they think you want to hear. And so, you have to be very careful. Management’s coming around. Are they trying to goose their stocks so that they can do an acquisition? Are they goosing their stocks so they can sell some stocks? And so, what you want to do is take what the market gives you, and Reg FD probably has given us less information, but it’s still out there. And in many ways, it arguably could play to Fidelity’s strength and the other big firms’ strengths because we do have industry expertise, and we can hopefully use our mosaic of going to industry conferences, going and talking to customers, talking to distributors, talking to other industry players, and government officials, and this sort of thing, and piece it together.To get all of Christine’s insights in one place, sign up for her weekly newsletter.But I’d say to Charley, I don’t know Charley, but I’d tell him he should work harder. Hard work can solve a lot of problems, but I don’t want to have any information I shouldn’t have. That can restrict us. But management, you’ve got to, as I said earlier, I mean, it’s remarkable what they do. And so, I think one of my value-adds is to look back, like Terry Duffy’s been running CME for 20 years. I mean, it’s just remarkable what he’s done, and he actually has been an outstanding capital allocator. He bought Nymex, and he bought in, I think, the CBOT. Anyway, and you can just—Jensen Huang. I mean, when Jensen reached a trillion market cap, we happened to be doing a tech trip, and we were out there, and I had the insight, we can’t just show up and say, “Thanks, Jensen, you built a trillion-dollar company.” So, I had one of the junior analysts use the early AI applications to make some AI art for him, and it was like Jensen is like an astronaut, and Colette [Kress], who’s the CFO, was the copilot, and it was the Rocket Ship Nvidia, but 24% compounded growth for 25 years, you just don’t see that.That’s the upper echelon. I mean, it’s remarkable.Valentina Djeljosevic contributed to this article. More on Will Danoff
