The Surprising Advantage of Private Investments: You Can’t Panic-Sell (The Long View Excerpt)

Hi, I'm Amy Arnott with Morningstar. I first interviewed Will Danoff about Fidelity Contrafund back in the early 1990s when I covered the fund as a mutual fund analyst. So, it was great to have the opportunity to talk to him again at the Morningstar Investment Conference in June leading up to his retirement at the end of this year. I hope you enjoy this excerpt from our conversation. He'll talk about why Fidelity invests in private companies as well as public companies and how the firm uses its industry expertise to understand innovative companies before they go public. >> You mentioned rocket ships a couple times and we noticed that SpaceX was among your top 10 holdings as of the end of April. Um, can you reflect on buying companies before they go public, buying stakes in companies before they go public? How do you decide when to do that versus waiting >> Yeah. >> until a company's public? >> I can't comment on >> No, I get that. >> specifics, but at some point my colleagues and I said, "Hey, we're pretty good at analyzing public companies. We have all this industry expertise. You know, might there be some private companies that we could help? And I'd say, uh, it's it's cyclical and as you know many of the private companies have stayed private longer partly because they have access to capital as private companies. But many of them are doing extremely innovative things and you know, Fidelity is always interested in finding new innovative companies. The entrepreneurs are remarkable. And the scale of a firm like Fidelity enables us to do that. Often the public companies are a little less mature and we have to be careful about that. Um entrepreneurs are very talented, but they can be needy. But I've been very impressed and often it's just once in a while there is someone really exceptional. I Contrafund is an investor in Zipline which is run by a a fellow named Keller Clifton who's just remarkable and uh you know, he's one of the leaders in drones. And you know, again, it's just one of these crazy stories. It's like, "What happened?" They tried to make a drone and uh they were out in Nevada, I think. And they were struggling a bit. And then I'm not sure exactly how, but he convinced the health minister of Rwanda that he could deliver blood to rural hospitals. There was a very high incidence rate of uh young mothers dying after they delivered their babies because there was no roads out in these hospital That's remarkable. And so again, they figured out the technology in Rwanda of all places and now they're working with Walmart and others in the United States, but it was just sort of like, "This is This is unbelievable." And he's a great entrepreneur and you know, so I decided to do it. I mean, sometimes it's you make a mistake and you make a judgment call and as you all know, there are people who can do a good job of convincing you. So that was just one, but there are others and you know, the key then is to monitor what's going on and you know, in the the case of SpaceX when we first got involved, I think it was in 2012, the one advantage we have Amy with the privates is you can't sell. So, you know, I I believe in long-term investing, but there's so many opportunities to panic out. >> Right. Right. >> And so with the privates, you can't really panic out because there's not that much of a market.