The World's Greatest Investors: Tillinghast

Editor’s note: Even as stocks come crawling back from the abyss, big name money managers are still going to have a hard time regaining investors’ trust – even if they deserve it. In this special report, SmartMoney spoke with four of the world’s greatest investors to see how they managed to minimize investors’ losses during the worst of the downturn and how they’re making money now.

Portfolio Manager, Fidelity Low-Priced Stock

Joel Tillinghast owns around 800 smallish, often oddball companies in his $22 billion Fidelity Low-Priced Stock fund—more than five times the number in a typical portfolio that size. How does he get his ideas, let alone keep track of them?

To answer, Tillinghast dives into the oversize blue recycling bin next to his desk. Papers fly. He grabs a fistful of stock listings put out by his research team and adds them to the inch of reports and newspapers spread out over his desk. “I have huge support,” he says.

The plug for the analysts sounds like modesty—and might be shyness. Tillinghast, at 51, has run Low-Priced Stock since its inception in 1989. Over the past 10 years, he’s delivered an annualized 8.4 percent return, almost 11 points better than the S&P 500. That record makes him one of Fidelity’s all-time stars, but he lacks the outsize personality of, say, a Peter Lynch. If anything, Tillinghast’s sprawling fund of obscure stocks reflects his personal traits: a Pentium-chip brain that keeps track of the balance sheets of an extraordinary number of companies, with an affinity for numbers over people. “He’s like the genius professor who doesn’t quite connect to the real world,” says Jim Lowell, of research firm Adviser Investments.

Genius didn’t spare Tillinghast from last year’s meltdown. He relies less than other managers on macroeconomics, and his fund did only slightly better than the broader market during the plunge. But in 2009 he’s shot back ahead, beating the S&P 500 by 9 percent year to date. He attributes the success in part to the under-the-radar stocks in his portfolio: “Small-to-medium companies often find ways to compete” when the economy is dismal, he says. And his knowledge of those companies is truly thorough. When we quiz him about two random picks from his holdings—YuYu Pharma, a Korean drug company, and the temp firm TrueBlue—he quotes their sales and market-capitalization numbers off the top of his head.

One potential upside of the crash, for curious investors: Low-Priced Stock reopened last year after being closed since 2003. That means Tillinghast has new cash to play with, and with exceptions like Oracle and Safeway, he’s continuing to zero in on lesser-known companies. He’s also reluctant to call a rebound. In his mind, a few things have to take place first—a Chinese recovery and U.S. health care reform—but ultimately, he just shrugs about the timing. One thing he can say: “Your prospective returns are better now than two years ago.”

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