Episode summary
Will Danoff: ‘Be Very Careful of Unprofitable Companies’
The Long View
· · 30 min · Hosts: Ben Johnson, Christine Benz, Amy Arnott · Guests: Will Danoff
Summary
Will Danoff argues that durable investing starts with understanding a company’s unit economics, management quality, and earnings trajectory. He traces his own path from games like poker and chess into retail analysis at Fidelity, saying that retail taught him to think about return on capital, break-even points, and why some businesses can scale profitably while others cannot. He emphasizes that the best businesses often have simple, repeatable value propositions and that the market eventually rewards real earnings power.
He says Regulation FD changed how investors gather information, but not what matters: the key is still to read the 10-K, understand the business, and use a mosaic of public sources, industry contacts, and management meetings. He warns that CEOs can tell investors what they want to hear, so investors must be careful and focus on long-term execution rather than short-term narrative.
Danoff also discusses private investing, saying Fidelity’s scale lets it look at companies before they go public, but only when the business is exceptional. He uses SpaceX, Zipline, Nvidia, Starbucks, and Tesla as examples of companies with powerful economics, while noting mistakes like Groupon and missing Tesla’s earnings inflection. His core lesson is straightforward: stocks follow earnings, and unprofitable companies deserve special caution.
Key takeaways
- Danoff says the most important question is whether customers want the product and whether others can copy it, because that determines durability.
- He argues that "stocks follow earnings" and that earnings per share and stock price are highly correlated over time.
- Danoff says Regulation FD reduced access but did not change the basics: investors still need to understand the business, management, and capital allocation.
- He believes private-company investing works when a company is truly exceptional and Fidelity can monitor it patiently, as with SpaceX and Zipline.
- His caution to individual investors is blunt: "be very careful of unprofitable companies," even if they look exciting.
Notable quotes
“the big money is really made in like year four and five”
“Any good CEO is going to tell you exactly what they think you want to hear”
“stocks follow earnings. The earnings per share and the stock price are very highly correlated”
“be very careful of unprofitable companies”
How the episode opens
Please stay tuned for important disclosure information at the conclusion of this episode. Hi and welcome to The Long View. I'm Amy Arnott, portfolio strategist for Morningstar.
We're taping this podcast live at the Morningstar Investment Conference, where we're delighted to be joined by Fidelity's Will Danoff. Will runs a number of Fidelity equity strategies, the best known of which is Fidelity Contrafund, a mutual fund he's been managing since September 1990. Morningstar named Will its domestic stock manager of the year in 2007.
Prior to becoming a portfolio manager, Will served as a retail analyst at Fidelity and assistant portfolio manager at Fidelity Magellan. He graduated from Harvard University and earned his MBA at the Wharton School of the University of Pennsylvania. Will, welcome back to The Long View.
Great to be here, Amy. Really real pleasure. — Well, thank you for joining us. We wanted to start by talking a bit about your origins and career path. So, if we kind of rewind all the way back 40 years ago, can you tell us a bit about how you first got interested in investing and who some of your early mentors and experiences were?
Yeah, I mean, I feel so lucky that I did end up at Fidelity. I mean, whatever, it's been 40 years. It's been a remarkable run.
We got a great team. You mentioned the Magellan Fund, Peter Lynch, just an exceptional individual, but I guess I was always interested in games. I like to play games, you know, I used to play poker with my friends and, you know, play chess and, you know, backgammon.
So, I don't know, the stock market, in a way, is a big game. So, I was interested and then family friend had done well, you know, and again, I didn't really my my father's a doctor, my mother's a kindergarten teacher, so I didn't really have much experience in business or in the market, but this one friend retired when I don't know, I think he was in his 40s.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- earnings drive returns
- evaluating management
- unprofitable companies
- durable competitive advantages
- private company investing
Companies and tickers mentioned
- FCNTX
- FMAGX
- Fidelity Contrafund
- Fidelity Magellan
- Fidelity Investments
- SpaceX
Watch the episode
Watch “Will Danoff: ‘Be Very Careful of Unprofitable Companies’” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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The Long View, this episode and its artwork belong to Morningstar, Christine Benz - Director of Personal Finance and Retirement Planning, Ben Johnson - Head of Client Solutions, Amy Arnott - Portfolio Strategist. Octagon is not affiliated with the show; this page is an independent summary.
