An excerpt from an interview by Kate Welling of WellingonWallSt., originally published on March 3, 2017
Joel Tillinghast is the portfolio manager of Fidelity Global Intrinsic Value Class. Joel strives to be relentlessly rational. Also flexible, opportunistic and value-focused.
The first thing I have to say is that you’ve written a wonderful book for investors. Columbia University Press has a hit on its hands.
JOEL TILLINGHAST: I’m hoping so. I could have used someone like the ghost writer Peter Lynch had – Peter is an amazing storyteller, but I think John Rothchild put the sparkle on his book. I think my stories are almost as good as Peter’s, though, so there we go.
Let’s start with the Joel Tillinghast back story. You took a bit of a circuitous route to Fidelity.
You bet I did. I graduated from college and started looking for a job in 1980, which was, as you might know, not a time when Wall Street jobs were hot. The Dow was hovering below 1,000; Ivy League graduates weren’t flocking into investment firms.
How did you end up at Fidelity?
I actually called Peter Lynch, and to my amazement, when Paula Sullivan, his secretary, asked, “Who’s calling?” and I explained my mission, she patched me through. I really was not ready for Peter Lynch to accept my call! A couple weeks later I was on a plane into Boston.
How did the idea for the Low-Priced Stock* fund come about?
Fidelity solicited proposals – they wanted to start new funds – and I turned in about half-a-dozen ideas. I actually liked the Low-Priced Stock Fund (FLPSX) less than some of my other ideas.
What were they?
The other ones used more of my derivatives and futures experience – they actually looked something like some of the ETFs we’ve got today.
In small caps, I take it, you’ve always found more rewarding opportunities?
Small caps – people don’t really know why small caps have outperformed intermittently. One of my business professors was one of the first to publicize the small-cap effect. It then went missing in some subsequent years. But learning about it was enough to suck me into the small-cap effect. It has been okay for my career, despite going missing for a while. But do small caps outperform because they are more dynamic? I think that’s true, but maybe the outperformance that has been observed is because small caps were off the run, were illiquid, and so they were imperfectly priced.
True, but another significant factor moving things along was the big antitrust suit filed against all of the over-the-counter market makers in 1996, alleging an industry-wide conspiracy to keep spreads wide.
Yes. As a result of that settlement, spreads are narrower and information travels much faster. It used to be that I literally would have to call companies and ask them to read their financial press releases to me, because the whole body of the release didn’t go out over the Dow wire. And calling the companies was the only way that I could hear their whole press releases, and see if inventories, for instance, had gotten high. But it was a legal information advantage, because anyone could call and ask for that information – say, “Please read me your entire press release.” There also are fewer neglected companies, ever since the late ’90s. That is part of what’s pushed me to investing in Japan. I did a screen of how many American companies there were with P/Es of less than 12 and market caps over $30 million. Then I did one showing how many companies with those same attributes there are in Japan.
What did you find?
There are almost twice as many companies with low P/Es in Japan as in the U.S. There were 428 in the U.S. that passed that screen, and 805 of them in Japan.
When is your book scheduled to be released?
It’s been delayed to August, but please tout it anyway. I’m hoping that some investors buy it.
How about giving me a two-minute pitch about what investors will learn from it?
It’s about succeeding in investing by avoiding mistakes, and I break that down into five parts. The first section is about how to make decisions rationally – how to feel the fear but let reason decide – because what you get paid for taking on is unpleasant emotions. I think this is part of the justification for money management as a profession: that we take the pain that other people aren’t willing to take, although you still have to have them take it, in a derivative fashion, as fund shareholders. The second section explores why you should stick to things that you understand – or can understand. And that applies equally to the trivial details of derivatives and to the workings of broad industries. It can also be cross cultural issues – like how Japanese business culture really is different from American business culture; it helps to understand that. Section three is essentially a warning not to think you know more than you do about how the economy works in the larger scheme of things. And it’s also an admonition to do your best to work with honest, trustworthy people.
And as the clincher, at the end of the book you get down to value…
If the final section has a message, it’s don’t pay full price. Never, ever. Always look to buy a bargain.
Your book is really going to bring legions of fans to your door. Brace yourself, Joel!
Learn more about the funds Joel manages in Canada: