Famous fund manager from well-known asset management firm Fidelity Investments, Anthony Bolton, has recently stepped down from active investment management after many decades of managing money.
Bolton is recognised for managing the Fidelity Special Situations fund for 28 years which ended in 2007, where he achieved an annualised returns of nearly 19.5% per annum, turning a £1,000 investment into around £147,000. He is also an accomplished writer and is a columnist in the Financial Times’ money section. Recently, he shared with The Telegraph 3 key principles of his investment philosophy.
They are as follows:
(I) It’s Easier to Spot Opportunities in Smaller Companies
The key to buying shares for less than their true value is spotting something that the rest of the market has missed. But large companies are scrutinised in great detail by a large number of people – analysts who work for stockbrokers or fund managers, the media and other private investors. It’s a different story for smaller firms.
While BP, for example, has 30 or so stockbrokers’ analysts looking at it all the time, some small quoted companies are covered by just a handful, or even none at all. It’s therefore much more likely that a significant fact – perhaps one that gives a company the edge – goes overlooked.
“With a small company I could go to a meeting with the management and come out knowing more about that firm than anyone else,” Mr Bolton said. “That’s not possible with a larger business.”
(II) Look for New Opportunities – But Don’t Forget About the Shares You Already Own
Mr Bolton said running a fund successfully was a team effort involving plenty of backup from his analysts.
Many fund managers say the same and it’s tempting to put it down to modesty or toeing the corporate line, perhaps with an eye to reassuring investors that the fund can maintain its performance if the top man leaves.
But the reason Mr Bolton gave for needing a team was deeper than that – and carries a lesson for private investors.
“I use my analysts to watch the fund’s existing holdings while I look for new opportunities,” he said. “It’s important to do both when you’re running a fund.”
Individual shareholders can’t employ a team of analysts, of course. But they can make sure that they keep monitoring their existing holdings at the same time as looking out for new bargains.
(III) Fundamentals and Market Sentiment Are Both Important
Mr Bolton said two things were important when choosing which shares to buy: the fundamentals of the company and stock market sentiment. “Ideally you get both right,” he said. “I would avoid buying even a good company when sentiment is poor.”
But he added that timing the market was difficult, as his Fidelity China Special Situations fund showed. It lost about 30% of its value in its first 18 months, before recovering all its losses and more recently. “Markets always overreact,” Mr Bolton added.
“It has taken three years for the fund to come right.”
For anyone who is interested, the full article from The Telegraph can be found here.
Additionally, the veteran fund manager has also authored a book about his years of investing and money management. His book, Investing Against the Tide: Lessons from a Life Running Money, was published back in 2009.
More information about asset manager Fidelity can be found here.