Mark Schmehl is the portfolio manager of Fidelity Special Situations Fund and Fidelity Canadian Growth Company Fund. Mark manages money differently. In simple terms, Mark focuses on change. And yet his investment approach is anything but simple.
After more than 20 years’ industry experience, ten of which were spent managing Fidelity Special Situations Fund, it all boils down to experience and identifying opportunities that traditional investors overlook. “Never buy the better mouse trap,” and other investing lessons from Mark Schmehl.
At what point did you start to develop an interest in finance? Was it early on?
Mark: I can tell you the exact day. It was in grade 11, I was 16 years old, and I was looking through the syllabus for what the heck I was going to take. And I remember seeing two electives, one of which was a business class, which I’d never even thought about taking.
And the whole semester was all about the stock market. Picking stocks – and that, for whatever reason, just made my brain light up, and that was the start. And then as soon as I started doing that, then I was off.
But it must have triggered something – like, “Wow I can do this.”
Mark: Yeah, that was the neat part; that was the interest-building stage. But honest to God, I literally was sitting on my bed in my room, and it was like a bolt of lightning from somewhere that said, “You must do this.” It was just a really spooky moment. I’ve got to tell you.
You joined Fidelity in Boston in 1999. What initially led you there, and what are some of the things that impressed you most?
Mark: I interned at Fidelity in Boston, so I worked for three months in the summer. I had two or three other options; none of them were as compelling as or as close as Fidelity.
And how was the day when you first got the news that you’d be running Fidelity Special Situations Fund?
Mark: It was the best day of my life. I was so happy, and I had been begging for a fund for years. And I was ready to go right away.
So you’ve been managing Special Situations for ten years. Canadian Growth for five. What has that journey been like?
Mark: It’s been a long, long journey. Over that tiny ten-year period, for example, Special Situations has been through the great recession, we’ve had two bull markets, two different presidents…there’s been a lot of change, a lot of change.
And if I think about what the Special Situations portfolio looks like today, relative to what it looked like when I started, you wouldn’t even recognize it. I can remember back in 2007, the portfolio was all fertilizer and Indonesian palm oil companies, and it was oil and gold. And when I look at it today, it’s semiconductors and artificial intelligence and SaaS companies.
Why has Special Situations Fund been able to generate such strong long-term performance?
Mark: It’s keeping the portfolio fresh. Not having too many weeds. A lot of portfolio managers, in my experience, tend to stick with names too long; they have all these weeds in their portfolio, and they’re wondering, why do I own this stock? I want to own stocks where something exciting is happening, something is changing for the better. And so you keep it fresh.
And then, the flexibility is key. If you don’t have a flexible mandate – let’s say I could only buy dividend stocks – you’ve limited the range of stocks that you can buy. With Special Situations Fund, I have virtually no limits. I can go pretty much all over the world, all cap sizes, and find good stuff.
What are some of the key investing lessons you’ve learned over the past decade?
Mark: There are a lot of lessons. I actually have them written on my whiteboard. Things like “Don’t be greedy.” If you’re greedy, sometimes that’ll run you over. Things like “Be brave.” Take positions that might scare you, that are out of consensus. Being brave is very, very important. “Never buy the better mouse trap.” You see a company, and they go “Oh, we have this great little thing, it's gonna revolutionize the business, and if we get 1% share we’re gonna…” – that never works.
Let’s talk a bit about positive change investing. How do you find your investment ideas and develop a conviction about them?
Mark: I’m always looking for where things are changing the most. Hopefully they’re getting better. If things are getting better, I want to be involved. I read a lot and I talk to all the analysts. At Fidelity we have this huge funnel of information that’s always coming at you. So you’re just watching the funnel all the time, trying to pick out the ideas and the parts of the market where things are getting better. I usually end up in the extremes, because that’s where things change the fastest. Take a very stable, boring business in the middle – I generally don’t own those very often, because nothing is changing. I want to be where things are changing – either really bad or really good – and that tends to be where I go.
What do you think of as your most important attribute as a PM?
Mark: I’m flexible. I’m willing to change. I change my mind all the time. If you get stubborn, you tend to get run over. You also experience a lot more pain. You have to come in every day and realize everything that you thought you knew is wrong, and then what could be right? And you have to forget about the mistakes you made and just always go forward.