Anthony Bolton’s 3 Secrets of Successful Investing

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Anthony Bolton, Asset Management, Fidelity Investments, Fidelity Special Situations fund, fund managers, Investing, Investing Against the Tide, investment management, Stocks, The Telegraph, UK

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.

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Investing like a Fund Manager

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Aberdeen, Asset Management, Channel NewsAsia, Financial Markets, Fund Manager, institutional portfolios, Investing, investment management, Investment Process, Money Mind, Peter Elston, Sir John Templeton

Peter Elston, Head of Asia Pacific Strategy and Asset Allocation at Aberdeen Asset Management, was recently interviewed by Channel NewsAsia and featured on their program ‘Money Mind.’ The program gave viewers a glimpse of the asset management industry’s work process and the inner workings and thoughts of a fund manager.

Many retail investors and non-investment professionals often wonder how the professional investors and financial experts manage assets and capital. This interview with Elston offered certain insights at the thought processes of a professional fund manager and as well simple fundamental knowledge into how large institutional portfolios are managed.

Below are major points and takeaways of Money Mind’s interview with Peter Elston:

Quantify the Investment Process:

Like the legendary investor Sir John Templeton, Elston stresses that quantifying the investment process is extremely vital for investment management. Objectifying and quantifying decision parameters and gauges helps the investor to remain calm and disciplined to carry out important decision making. 18th Century philosopher David Hume once famously proclaimed that reason is the slave of human emotion, and modern day neuroscience studies seem to confirm this phenomena. When huge unexpected movements happen in financial markets, emotions tend to get the better of many investors – only the disciplined ones who have quantified their investment parameters will know how to respond and make decisions based on those parameters.

Elston has repeatedly mentioned throughout the interview that its all about “numbers, numbers, numbers” when being asked on how he responds to world events. The idea that he stresses is “to be as rational as possible in all possible circumstances.” This doesn’t necessarily mean that investors should automate and formulate algorithms, but it does mean that investors should have a cool and disciplined system that uses quantitative reasoning in light of irrational markets situations.

Be Sure to Profit from Fear or Greed: 

The shrewd investor must be positioned to profit from bouts of human emotions being manifested in the financial markets. Quantifying the investment process, as mentioned earlier, will help the investor execute this classic golden mantra and be well positioned to profit from fear or greed. Throughout history, humans have been known to overreact, and sometimes panic can manifest into huge amounts of selling pressure in the markets – further depressing asset prices. The intelligent investor will use these emotional floods repeatedly to his advantage.

Stress Test Your Portfolio and Perform Scenario Analysis:

It is extremely important to have an opinion on the overall situation of the portfolio’s position in light of major near future major events. Institutional investors and professional money managers often perform scenario analyses and stress-test their portfolios repeatedly based on those research and analyses. From there, they could come up with hedging strategies or rebalancing adjustments to optimize their portfolios and the positions of their assets.

Basic decision trees and path dependency frameworks can serve as aid tools to many investors. It is near impossible to predict the future, or the direction of interest rates, or the exact value of a currency pair within a certain time frame. However, what is extremely crucial is how one responds and reacts to what is transpiring! As what legendary investor George Soros proclaims: “It doesn’t matter if you don’t know what is going to happen, what is more important is how you respond to it.” Mapping out decision trees and setting down various probable courses of actions from there will give investors some form of idea (as well as the costs and benefits of those actions) into optimally positioning themselves against future events – whether positive or adverse.

If anyone wants to improve his or her investment performance, he or she ought to formalize their investment systems and perhaps adopt a similar framework and practices of the asset management industry as explained and shared above.