In many ways, Will Danoff and Joel Tillinghast couldn’t be more different—and yet they’re part of the same rare breed. Danoff, a pediatrician’s son and onetime assistant of the superstar investor Peter Lynch, and Tillinghast, descendant of one of Rhode Island’s earliest European settlers, are two of Fidelity Investments’ best investors. Danoff looks for big companies that he thinks will double their earnings over five years, on the theory that stock prices will follow. Tillinghast will only buy stocks that are trading below $35 and appear undervalued despite growing cash flow. Both have built amazing track records: Since he took over Fidelity Contrafund in 1990, Danoff has returned 13.4% a year to investors; Tillinghast, since launching Fidelity Low-Priced Stock in 1989, has returned 14.6%.

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The firm’s most famous stockpickers weren’t immune; now $109 billion, Contrafund (ticker: FCNTX) has seen $9.2 billion in outflows in the past three years, and the $46 billion Fidelity® Low-Priced Stock (MUTF:FLPSX), $2.5 billion.

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Fidelity

Danoff is capable of beating the index: He did so last year, and again when the market pulled back in 2010. But size has definitely become an issue. “In the old days, I drove a Mack truck. Now I’m pulling a double trailer,” he says. “I’m a good driver; I’m not going to go off the road. But if it’s a short sprint, I’m going to lose.” Still, the fund’s performance issues raise the specter of Fidelity Magellan (FMAGX), once Fidelity’s greatest fund, run by Fidelity chief Ned Johnson and then by legendary investor Peter Lynch. Despite the middling performance of Lynch’s successors, Magellan soared to more than $100 billion in assets before its steady slide downward; it now has just $16 billion. Is $100 billion simply too much for a single fund manager to handle? Possibly. But Magellan has been through five managers in 24 years, speaking to the need for a sound succession plan. As for size, Fidelity maintains that Contrafund’s size has remained the same relative to total U.S. market value, and therefore isn’t too big.

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He discovered the Value Line Investment Survey at an early age and, after graduating from Wesleyan, briefly worked for Value Line. He once phoned Peter Lynch about a stock. The conversation went on for 1½ hours and ranged over a number of companies, including Chrysler, a California thrift, and a cement company in Puerto Rico. When he got off the phone, Lynch turned to his assistant and said, “We have to hire that guy.” Tillinghast’s speech is filled with a dry, surprising wit and pauses that yield “aha!” moments. Asked about the redemptions afflicting Fidelity, he facetiously exclaims, “Praise be the redeemer!” and hastens to add, referring to a 19th century hymn, “I don’t sing that song, by the way.”

 

See full Fidelity’s Bright Stars by Barron’s