Will Danoff: If a Stock Has Doubled, Have You Missed Your Chance?

Amy Arnott: Hi, I’m Amy Arnott, portfolio strategist with Morningstar. I’m here with another excerpt from our conversation with Will Danoff at the Morningstar Investment Conference in June. In this excerpt, he’ll talk about how to figure out if a fast-growing company has staying power or if it’s just a one-hit wonder.

How to Know If a Company Will Last

Arnott: When you’re looking for that type of best-of-breed company like an NVDA or Starbucks SBUX, how do you separate out something that looks like it’s growing quickly, it looks good on paper, but may not have an enduring advantage?

Will Danoff: Amy, it’s a very good question and it’s a good point. What is the value proposition? It’s like, do customers want what you’re making? And then the key second question is, can others do what you’re doing?

Arnott: Right.

Danoff: And that is hard. Honestly, Amy, listen, I got my notes. Jensen, I first met you in 2002. You were talking about the GeForce 256, and he was like, “Oh, that was the first GPU.” I had no clue how important GPUs could be. And a matter of fact, for the first 15 years, it was very competitive between Nvidia and then the other company, I think it was ATI or something. Originally, it was graphics accelerators, and then he had the great insight. He was talking to his customers. Often, the great entrepreneurs are close to their customers. He realized that people were buying GPUs to do things like, in hospitals, analyze X-rays. And also, then he saw the AI boom. He delivered that first GPU to Elon and the folks at OpenAI, which is remarkable.

But I would say for me, it’s what have you done in the last five years? If you’ve grown profitably and gained market share, you’re probably doing something better than everybody else. If you’re growing really fast, you’re onto something new and that can be very powerful. But often it’s better to wait, and you find out who’s really good after the competition hits you. I mean, I was an investor in Chicago-based company Groupon GRPN, and I was like, wow, this is exciting, because we did some Google search and it was like, they were the fastest company to a billion in revenue. And I was like, I have to own this thing. This is taking off. And then at least Amazon AMZN and maybe somebody else copied them, and it didn’t scale, and it ended up being a rocket ship that blew up pretty badly, unfortunately. I don’t know if there’s any secret sauce. It’s a bit of a slugging average where you have to hope that the company keeps executing.

One of the strengths of Fidelity is, despite Reg FD, is just monitoring what’s going on. I take my notes, and in the case of Terry, I was like, “Terry, I haven’t seen you since 2024. This is what you said two years ago. What’s happened? Have you executed?” And there’s always stuff that happens to management teams, and it’s fine if, “Yeah, we were wrong.” “Well, what did you learn?” “It didn’t work in India.” “Well, what did you learn?” “Didn’t work in California,” or something. “What did you learn?”

For me, it’s like, what happened in the last five years? Do I like this earnings trajectory or the sales trajectory? And then, without getting into Reg FD, what is the opportunity looking out the next five to 10 years? Hopefully you have confidence that management will be able to execute. But I’ve been shaken out of a lot of good stories, Amy.

The beauty of the business is—I tell the team and I tell all your investors and tell you guys—if a stock has doubled, you haven’t missed it. Lately I’ve been saying if a stock is quadrupled, you haven’t missed it, because a lot of stocks are up now. And it is a little hard. Munger, of course, advised Warren Buffett, better to buy a great business at a fair price than a fair business at a great price. But some of the

s get up there, and you’re like, you’ve got to believe further out, and you’ve got to believe that you really understand the business. But yeah, I would say we’re continuing to learn. Sadly, Amy, I always joke, it’s like mistakes are part of the game. Just try not to make the same mistakes. And somehow I keep making the same mistakes, but we’re trying.