The Danoff Investment Doctrine: A Study In Contrarian Philosophy

Will Danoff is a vice-president and portfolio manager at Fidelity Contrafund, the largest U.S. mutual fund run by a single manager. Danoff has managed the fund for over thirty years, during which it has averaged a return of 14.13% per year, outperforming the S&P 500 index. Danoff's investment philosophy is based on several key principles: flexibility, investing in best of breed companies, playing to one's strengths, and partnering with exceptional leaders. He advocates for a long-term perspective, focusing on companies with strong growth potential and staying power. Danoff's approach involves casting a wide net, conducting thorough research, and making data-driven decisions. He emphasizes the importance of adaptability and open-mindedness in the ever-changing economic landscape.

Be flexible

Will Danoff, vice-president and portfolio manager of Fidelity Contrafund, has successfully managed the fund for over thirty years. During this time, he has averaged a 14.13% return, outperforming the benchmark S&P 500 index. One of the keys to his success is his flexibility.

Danoff has remained flexible and open-minded during his long tenure at Fidelity. He has avoided boxing himself in with overly strict requirements when choosing investments. This lack of constraints has allowed him to invest wherever he saw an opportunity. For example, the Contrafund was able to capitalise on the growth of technology stocks when others avoided them because their models concluded they were "too expensive". Danoff himself has commented on the fund's freedom, stating:

> We're flexible, and we'll go anywhere, so I really think that helps the fund. There aren't many constraints on what we can do.

Danoff's flexibility is also reflected in his long-term view on investing. He focuses on high-quality companies with strong fundamentals and growth prospects, and he is not too concerned about missing out on a stock that has already doubled or tripled in value. Instead, he thinks about what is going to happen in the future and is willing to bet big on companies with exceptional growth potential.

In addition, Danoff is always looking for new ideas and is open to investing in companies across different industries and geographies. He also values working with management teams that are open to new ideas, willing to experiment, and explore adjacent markets. This flexibility has been a key factor in Danoff's impressive investing career and his ability to consistently outperform the market.

Play to your strengths

Will Danoff's investment philosophy is centred around the idea of "playing to your strengths". This means leveraging one's unique characteristics, skills, and knowledge to maximise investment returns. Here are some key insights from Danoff's approach:

Leverage Your Unique Strengths

Danoff emphasises the importance of recognising and utilising one's strengths when investing. This could include expertise in a specific industry, analytical skills, or an ability to read between the lines when meeting with executives. By playing to your strengths, you can gain an edge in the market and make more informed investment decisions.

Embrace Flexibility

Danoff advocates for flexibility in investment strategies. He believes that investors should avoid boxing themselves in with strict requirements and instead remain open-minded to seize opportunities wherever they arise. This flexibility allowed him to invest in technology stocks when others avoided them due to concerns about valuation.

Focus on Earnings-Per-Share Growth

Danoff uses earnings-per-share (EPS) growth as his primary metric for analysis. He believes that companies with strong EPS growth potential, such as those expanding into new markets or introducing new products, are more likely to deliver strong investment returns.

Invest in "Best of Breed" Companies

Danoff is a proponent of investing in "best of breed" companies, which are industry leaders with strong brands, innovative products, and excellent management teams. He acknowledges that these companies may be more expensive but believes they are worth the premium due to their potential for sustained growth and outperformance.

Take a Long-Term View

Danoff encourages investors to take a long-term view and focus on high-quality companies with strong fundamentals and growth prospects. By lowering portfolio turnover and raising the bar for the companies he invests in, he aims to maximise returns over the long term.

Stay Informed and Adaptable

Danoff stresses the importance of staying informed about different industries and geographies, as investment opportunities can arise unexpectedly. He also emphasises the need to be adaptable, constantly tasting and adjusting your investment strategy, much like a chef making a stew, to achieve the desired outcome.

Partner with the best

Will Danoff's investment philosophy includes the idea of partnering with the best leaders and brightest minds in the world. He believes that investing in public markets provides the opportunity to partner with exceptional individuals such as Elon Musk, Jeff Bezos, Mark Zuckerberg, and Marc Benioff.

Danoff highlights the ease of investing in today's world, where buying shares in great companies can be done with just a few clicks on our cell phones. However, he notes that many investors overcomplicate things and invest in companies they don't fully understand, or those with sub-par leadership.

Danoff's approach is to focus on "best-of-breed" companies, even if it means paying a premium. He defines "best of breed" as companies that have a knack for anticipating problems and making smart moves ahead of the competition. He believes that paying a little more for these stocks is worth it, as the quality will remain while the price may be forgotten over time.

This philosophy is evident in his investment choices, which include leading growth stocks like Facebook, Amazon, Apple, Netflix, and Google-parent Alphabet. By investing in companies with strong leadership and innovative ideas, Danoff has been able to achieve impressive returns for his fund.

Danoff's strategy also involves casting a wide net and being flexible. He emphasizes the importance of staying open-minded and looking for new ideas in every sector, as well as upgrading on weakness and being patient in the long term. This approach has allowed him to identify and invest in companies with exceptional management teams that are driving change and growth in their respective industries.

In conclusion, Will Danoff's "Partner with the best" philosophy underscores the importance of investing in companies with strong leadership and innovative ideas. By partnering with exceptional individuals and focusing on "best-of-breed" companies, investors can achieve impressive returns and create long-term value.

Invest in best of breed companies

Will Danoff, vice-president and portfolio manager of Fidelity Contrafund, has honed a distinctive investment philosophy over his 30-year career. A key tenet of this philosophy is to "invest in 'best of breed' companies". This strategy involves seeking out the very best companies and investing in them, even if their stocks appear expensive.

Danoff defines "best of breed" companies as those with a "knack for anticipating problems and making smart moves ahead of the pack". He acknowledges that these stocks may come at a premium but believes that the potential for long-term gains outweighs the initial cost, echoing his mother's saying: "the price is forgotten, the quality remains".

Danoff's approach to investing in "best of breed" companies involves casting a wide net to find companies with strong growth prospects. He looks for businesses that are expanding into new markets, improving margins, and increasing revenues. He also considers the quality of a company's management team, favouring those with passion, honesty, and humility.

Danoff's strategy also involves being flexible and open-minded. He avoids boxing himself in with strict requirements and is willing to invest in any sector where he sees potential. This flexibility allowed him to capitalise on the growth of technology stocks, even when other funds avoided them due to their high expense.

By investing in "best of breed" companies, Danoff has been able to consistently outperform the market and deliver impressive returns for his investors. His success underscores the value of identifying and investing in high-quality companies, even if it means paying a premium.

You haven't missed it

Will Danoff is a master at recognising when a stock's appreciation is just beginning. He often compares this to athletic competitions, saying:

> "Just because a stock is up doesn't mean you missed it. It's like sports matches. Who cares what happened on the last point scored? You're playing this point now. Do the work; continue to turn over rocks."

Danoff has been running Fidelity's Contrafund for over 30 years, and in that time, the fund has returned 13.7% a year on average, beating the S&P 500 index 's 10.4%. He has navigated his fund through vastly different economic and news cycles, from the end of the Cold War to the global financial crisis and the coronavirus pandemic.

Danoff's philosophy is that stocks follow earnings per share. He is interested in companies that are growing their earnings per share and are reasonably priced. He works with Fidelity's research department to cast a wide net and find "best-of-breed" companies that are accelerating their earnings per share over the next five years.

Danoff's approach is incremental and based on facts and preparation. He believes in the importance of analysing companies, keeping an open mind, working hard, staying flexible, and having a great team. He also emphasises the importance of empathy when dealing with management and trying to understand their goals and insights.

Danoff's advice to investors is to stay within their circle of competence, do their research, and make commitments. He also suggests lowering turnover and thinking longer-term, which can help raise the bar for the companies an investor buys into. Additionally, he recommends checking the fundamentals, listening to the latest quarterly webcast, and looking at the latest presentation to investors when in doubt.

In conclusion, Danoff's success as a stock investor can be attributed to his dedication to research, flexibility, and empathy. By constantly learning and adapting, he has been able to navigate different economic cycles and make successful investments.

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