Fidelity manager rips up Warren Buffett playbook
Top portfolio manager ignores valuation
Mark Schmehl flouts Warren Buffett, thinks valuation is overrated and says most other rules of investing are “total baloney.”
The portfolio manager, who just completed Fidelity Investments’ most successful Canadian fund launch ever, eschews investing obsessions such as earnings, cash flow and price-earnings ratios and invests at the extremes of the market instead, including Canadian cryptocurrency stocks.
“I focus on the stuff in the tails: really cheap, broken, horrible stories that nobody wants to buy again, and stocks that everybody is excited about but their valuation is so high they can’t bring themselves to buy them,” Schmehl, 46, said in an interview at Fidelity’s Toronto offices.
His approach seems to be working. Fidelity’s $1.86-billion Special Situations Fund returned 21 per cent in the first 11 months of the year and its $ 3.73- billion Canadian Growth Company Fund returned 17 per cent. That compares with a total return of 7.8 per cent for the benchmark S& P/ TSX Composite Index over the same time frame. His new Global Innovators Class, launched on Nov. 1, raised $ 400 million in four weeks in Fidelity’s fastest launch north of the border.
It’s all about finding industries where rapid change is occurring. This can include beaten-down sectors that are suddenly showing glimmers of hope — Schmehl owns The New York Times Co. — or stocks that are permanently disrupting their industries, like PayPal Holdings Inc. and video- game company Take-Two Interactive Software Inc.
“I don’t believe in Warren Buffett,” he said.
“I care about new things, things that are innovative, that are growing, that are changing the world.”
He’s unfazed if t hose stocks look expensive.
“Valuation is an immaterial part of the process for me,” he said. “It’s the least useful piece of information you will ever get because everybody knows what the valuation is.”
In the current long-in-thetooth bull market, Schmehl is finding fewer of the horrible stocks and more of the expensive change-makers. He’s been adding to positions in copper and energy stocks, but otherwise is mostly focused on disrupters.
Among Canadian stocks, he’s the largest investor in t oymaker Spin Master Corp., and he also owns Shopify Inc., Canada Goose Holdings Inc., and “everything” in the emerging cryptocurrency space. Stocks that have sprung up in the Canadian sector include Hive Blockchain Technologies Ltd. and NetCents Technology Inc.
Schmehl also invest s more than three per cent of his Canadian Growth and Special Situation funds’ holdings into private Canadian companies, including DeepLearni. ng, a Torontobased artificial intelligence company, and Thalmic Labs, a maker of wearable technology based in Waterloo, Ont.
He plans to hang onto those companies right to the end of the bull-market cycle, and maybe even beyond. “I always tell people I will ride this thing right over the top. I will own the best stocks right to the end.”
This may mean losing 20 per cent when the market turns, but that kind of double-digit loss doesn’t frighten Schmehl. He’ll be ready to pounce on the next wave. “That’s when I get all the money back,” he said.
THE STUFF IN THE TAILS: REALLY CHEAP, BROKEN, HORRIBLE.