Fidelity Opens Contrafund, Sign to Buy Into Stocks Now?

Fidelity Investments, the largest mutual fund company, has announced it will reopen its Contrafund and Low-Priced Stock funds, to gain new investments to pick up on buying opportunities on significantly discounted stocks available right now and to also offset redemption. Contrafund, and the Low-Priced funds were closed in 2006 and 2003, respectively. Contrafund peaked with assets of $65 billion in 2005, and now to date its fair value has declined by 42.96% as a direct result of the financial crisis, Fidelity’s Low-Priced Stock fund is also down significantly, nearly 46% to date. Both funds are diversified in international short and long term equities. The funds will re-open Dec 16, 2008.

The Contrafund is currently invested in good strong growth companies including Google, Apple, Procter and Gamble, Warren Buffet’s Berkshire Hathaway, HP, and more great companies run by great management. As of the end of November 08, the Contrafund had a beta of 0.98, just below the standard market systematic risk, and a standard deviation of 16.21. Now, this could be a great time to invest in this fund as most people don’t have enough money to go out and purchase the individual stocks. Many of these stocks such as Google, which is trading below exercise prices for employee stock options (closed at $276 today), are deeply discounted right now. The question is will these rebound to pre-credit crisis peak levels? I think they very well could substantially increase for a modest profit in about 3 years from now, but likely not to pre-credit crisis levels. 

The question now is, who is willing to take this big risk which can actually pay off handsomely? I mean, if we were comfortable with Apple trading at almost $200 per share, why wouldn’t we be comfortable with it now at only $92.5? What do you think, would you invest in the fund, would you take an even bigger risk and invest in the stocks, or is the market just too volatile right now?

Complete information relating to the Fidelity Contrafund can be found here.

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