Fidelity’s Winning Edge

You can see Fidelity’s winning edge is alive and well through its CEO Abigail Johnson. She runs it like a family business—for the long-term. It’s private, not publicly traded. She doesn’t have to answer to the whiny Wall Street analysts every quarter.

When I worked at Fidelity I remember how the Johnson family had their finger on the pulse of their company. Chairman Edward “Ned” Johnson III believed and lived by the philosophy of Kaizen—constant improvement. There was never a shortage of money to invest in making Fidelity’s technology platform better. It’s the best in the business.

Last year was the year of passive (index) investing. Fidelity is known for its actively managed funds. $16 billion flowed out of Fidelity while $216 billion flowed into Vanguard, a record.

I like some of Vanguard’s funds, especially their balanced funds Wellesley and Wellington. I’m guessing most of the money went to their passive index funds like the 500 Index .

Stock indices are not well-understood by investors. Ask someone how to calculate the market-cap of a company and there’s often a blank stare. The 500 Index is a market-cap weighted index, meaning the companies with the highest market-cap have the highest weighting.

If the money going to Vanguard is going into index funds (it is) then how can this be a good value? The 500 Index has turned into a growth fund. I’ll let growth stocks have their 15-minutes of fame.

I much prefer investing in out-of-favor areas or “value” stocks. Value stocks tend to pay outsized dividends—because they’re out-of-favor. Get it? Over time it’s a much better way to hold onto your money. Markets are cyclical.

Kirsten Grind writes at the Wall Street Journal:

Despite the numbers, Ms. Johnson believes investors’ push into passive funds is a temporary trend and will reverse when performance improves, according to executives who are familiar with her thinking. “She believes it’s cyclical,” said Brian Hogan, president of Fidelity’s equity division.

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E.J. Smith - Your Survival Guy

Preparing your investments and family for when disaster strikes.

E.J. Smith is the Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH, where he completed course-work in Practical and Defensive Handgun, Conceal Carry Pistol, Shotguns, Precision Scope Rifle and Kidnapping Prevention. E.J. plays a Yamaha Recording Custom drum set with Zilldjian cymbals. His first drum set was a 5-piece Slingerland with Zilldjians. He grew-up worshiping Neil Peart of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West and Paris. Please get in touch with E.J. at ejsmith@youngresearch.com. Sign up here to receive all the best content from Richardcyoung.com each week.