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How One Fidelity Manager Tries to Buy Like Buffett

Jamie Harmon of Fidelity Advisor Small Cap discusses some of his longer-term holdings and what he’s learned from nearly 20 years of attending the Berkshire meeting.

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Andrew Daniels: Hi, there. Andrew Daniels here with Morningstar at the Berkshire Hathaway annual meeting. I'm here with Jamie Harmon, Portfolio Manager of Fidelity Advisor Small Cap. How are you doing?

Jamie Harmon: Terrific.

Daniels: So, I have a few questions for you. So, first of all, how many consecutive years have you been coming to the Berkshire Hathaway annual meeting?

Harmon: I have been coming to this meeting for 18 years.

Daniels: 18 years? Wow. So, what's the purpose of Fidelity sending people here?

Harmon: So, Fidelity sends people to the Berkshire meeting as a part of our training that's ongoing for our analysts and for the portfolio managers who are interested in learning more about Buffett, and I find I learn something new every year.

Daniels: Yeah. So, this year, can you just take me through what happened or what some of your key takeaways were?

Harmon: I think the thing that I really focused on from this year is the importance of great management and how they try to find great management in the companies that they buy, and they try to nourish and encourage great management that they already have.

Daniels: Yeah. So, what are some of the key similarities that you share in your investment philosophy with Charlie Munger and Warren Buffett?

Harmon: I would say that they try to focus on good companies and try to buy them at reasonable valuations, and I try to do those things also.

Daniels: Great. So you also share a somewhat longer-term investment horizon. What are some of the examples of your longest-term holdings, and how do you tune out those short-term fluctuations in the stock prices?

Harmon: Sure. So, a couple of stocks that I've held for a while would be Ensign Group, which is a nursing home operator, that focuses on turnaround nursing homes that most people don't want, and Primerica, which is a direct distributor of life insurance and other investment products. I think those are both great businesses with niche markets, strong management teams, and reasonable valuations.

Thinking about how I try to tune out the short-term noise, I try not to focus on the price changes day to day in the businesses. I try to focus on the businesses themselves. How much of a competitive advantage do they have? What are they doing to grow their competitive advantage, and what are they doing to grow the business?

Daniels: So, I did see looking through the portfolio that you are overweight financials and industrials. What do you think on the longer-term looking forward is going to differentiate some of the stocks that you hold to outperform?

Harmon: My sector weights are based on a bottoms-up process where I look for companies that I think are good, and the sector weights are an output of that process. So, I don't necessarily just wake up in the morning and say, "I love industrials." The individual names within those two categories, within financials I really like property and casualty insurance. I think that there are a number of companies there with strong business models, with good returns and reasonable valuations. Within industrials there are a lot of business services companies in particular that I like because I think they have less capital-intensive business models and strong growth prospects.

Andrew Daniels does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.