Ken Korngiebel manages the best small-cap fund of the last 20 years, making his living in the riskiest part of the market. Here's how he does it - and the 3 stocks he'll never sell.

Wasatch Global Investors

Ken Korngiebel manages the Wasatch Micro Cap fund, the number-one small-cap mutual fund of the past 20 years.

• Ken Korngiebel heads the Wasatch Micro Cap fund, which has consistently crushed its peers for years and is the top-rated small-cap stock fund of the past 20 years, according to Kiplinger.
• Korngiebel told Business Insider he has a "Do Not Touch" list of winning stocks he has no plans to sell even though they've enjoyed huge runups.
• Because of the rules of his fund and the nature of small-cap investing, Korngiebel generally invests with a five-year time horizon. But there are a few companies he says he could hold "forever."
• Visit Business Insider's homepage for more stories.

Successful investors might have strict rules, but they also know it's worth making an exception if it's great enough.

At the Wasatch Micro Cap fund, Ken Korngiebel has to invest at least 80% of his money in small companies - generally ones valued at $1.5 billion or less. For the most part that means he's buying stocks based on what he expects over the next five years.

But a few are going to stick around long after they outgrew that designation. He says they've earned a spot on his "Do Not Touch" list because their growth means that if he sells the shares, he can't buy them back later. While he often sells winners when the time is right, he has no plans to part with them.

Korngiebel, who has run the fund since 2017, is taking over from a long line of winners himself: Kiplinger ranks Wasatch Micro as the best small-cap fund of the past 20 years. He's maintained that level, with a five-star rating from Morningstar over the past few years. The fund beat 98% of its peers last year with a 42.2% return.

"I would hold indefinitely if it's a company I love and think is a future dominator," he told Business Insider in an exclusive interview. "If we can hold forever that would be awesome, and so long as that investment thesis is intact, then we're going to hold the stock."

Here are three of those stocks, and the reasons he is still enthusiastic about each. In addition to being optimistic about their growth and future profits, Korngiebel highlights their management teams as a key reason for these investments.

(1) Five9

Five9 provides cloud software for call centers, and its stock is up 1,676% in the last five years to bring its valuation to more than $4 billion, well out of small-cap range.

Korngiebel says it's doing a very good job managing the complex transition of becoming a larger company, praising Chairman Mike Burkland, who was CEO for almost a decade, and recent replacement Rowan Trollope. And he thinks Five9 has room for a lot of dramatic growth.

"It's a market that has been slow to adopt the cloud. It's probably 10% to 15% penetrated, so there is a large installed base that still needs to migrate from on-premise to the cloud," he said. "It's got fantastic economics to the business model. It's got a great management team. And it's got less competitive intensity now than it was, say, four or five years ago. That's an example of characteristics that I would die to invest in all day long."

(2) Medallia

Medallia makes software that helps companies track the satisfaction of their customers and their employees, and Korngiebel says companies are only beginning to realize how vital that data is.

"This is, I think, a really exciting, huge market that has burst onto the scene in the last four or five years," he said. "They're seen as mission critical because this directly influences the revenue growth and the customer retention metrics that are so important to maintaining a healthy business."

Within that growing industry, he says the company has built up a big advantage by winning numerous big banks and airlines as customers, making it "the leader by far" in its industry.

Korngiebel says he first invested in the company before it went public at about $6 per share, far below its IPO price of $21 and its current level of $30. One reason for that is his belief in the track record of CEO Leslie Stretch.

"The best predictor of future success is past success," he said. "Looking at somebody's track record of accomplishment, I think, is important to understand what the likelihood of future success would be."

(3) FreshPet

Shares of pet food retailer FreshPet have rocketed about 700% in four years. Korngiebel says it helps that pets love the product, but another reason is the "phenomenal" management team including CEO Billy Cyr and president Scott Morris, who have successfully increased awareness of their brand and gotten customers to spend more - with a lot of room for improvement remaining.

"This is an example of a management team that is more skilled than the market cap of the company at the time we invested in it," he said. "When we bought it, the debate was can they get to $300 million [in revenue], and the market had its doubts. Then it was $500 million. And now the debate is, is this a $1 billion-plus annual revenue opportunity?"

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