“Don’t water the weeds and cut the flowers in your portfolio”
By Will Danoff, portfolio manager of Fidelity Contrafund

Growth stocks have performed very well in the past 18 months. Since the end of 2016 through June 30, the Russell 1000® Growth Index has appreciated 39.66% while the Russell 1000® Value Index has risen 11.74%. This divergence has prompted many market observers to predict a decline in growth stocks. I would reply that ‘stocks follow earnings,’ and most of the appreciation in growth stocks has been tied to earnings growth in the past 18 months.
I believe that the outlook for continued earnings growth for most U.S. companies is favorable, and is especially encouraging for leading internet-based technology firms. We are in a pro-growth regime, with taxes falling and interest rates low, so growth companies should continue to perform well.
Several of my closest colleagues and I recently met with legendary Fidelity investor Peter Lynch. Peter retired as a Fidelity portfolio manager 28 years ago, but he still ably mentors the new analysts and coaches young and old fund managers here. The sage shared some of his wonderful investment wisdom when he told us, ‘Don’t water the weeds and cut the flowers in your portfolio.’ In other words, too many investors sell their winners and double down on their losers. This advice is particularly apt now, with the market near an all-time high and armchair market strategists attacking growth stocks.
As I have said many times, ‘If a stock has doubled, you haven’t missed it.’ Investors must look forward and try to anticipate the future earnings opportunity for their holdings, and not worry about where a stock has traded in the past.
Articles and posts are as of the date indicated, are for informational purposes only and are not intended to be investment advice or a recommendation of any particular security or investment strategy. The views expressed are subject to change and unless noted otherwise are those of the author and not necessarily those of Fidelity Investments.
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