Anthony Bolton is one of Britain’s most well-known investors. He has managed money professionally for close to 3 decades at asset management firm Fidelity Investments. And during those many years at the helm of the Fidelity Special Situations Fund, he has achieved an average annualised return of 20%!
Bolton shared his wealth of experience in a professional self-styled journal ‘Investing Against The Tide‘, published by FT Prentice Hall. Forwarded by well-known investor Peter Lynch, a long-time colleague of Bolton, the 200-over page book reflects his investment philosophy and practice over the years as a money manager.
While the book isn’t as light a read as Scott Fearon’s “Dead Companies Walking”, I found it to be more value-adding from a practical perspective as the author actually shared not just about his experience but his conceptual investment framework.
The book is thus split into 2 major portions. The first portion is titled “principles and practices from a life running money”, and the second portion is titled “experiences and reflections from a life running money.” The former covers the ‘how and what’ of Bolton’s investment framework, while the latter is more introspective, with the author sharing about some of his ups-and-downs and memorable experiences of his investment career. The book ends with some sort of a cheat sheet, a summarised point format of everything published in the first 2 portions.
The first portion consists of some of the following:
- What to look for in management
- Developing an investment thesis
- Gauging market sentiment
- Constructing a portfolio of shares
- Assessing financials of a company
- Understanding valuations
- Technical analysis and the importance of price charts
- Market timing
These various sub-chapters are brief and quick to digest (some are barely 2 pages long), with the author offering his own take on what to really look out for during the investment process, basing them on his experience and knowledge. Given that bottom-up fundamental analysis can be quite complex, some form of workable ‘Occam’s Razor’ parameters are needed for decision making.
The author then moves on to the second portion, segmenting it into the following sub-chapters:
- Some memorable company meetings
- Some of my best and worst investments
- How the industry has changed
- Some thoughts on the future of investment management
This is the section where Bolton reminisced about the ups-and-downs of his profession as a money manager, whether its mistakes about certain investments or his thoughts about the hedge fund industry and the traditional practices of the asset management industry in the UK. The author also shared what he thinks are 12 vital attributes that are needed to be successful in the markets:
- ‘The seeing eye’
- Hunger for analysis
- A detailed generalist
- Desire to win
- Flexible conviction
- Happy to go against the crowd
- Know yourself
- Common sense
One major thing that stood out to me was that the author actually use technical analysis when managing money professionally. Not many fundamental bottom-up stock pickers are known for calibrating their investments with technical analysis, more so for long term, value-orientated equity investors. Here’s what Bolton wrote:
“The way I look at technical analysis today is as a framework or overlay into which I put my fundamental bets on individual stocks. I see it as a discipline for my stock picking. What I mean by this is that, if the technical analysis confirms my fundamental views, I may take a bigger bet than I would do otherwise. However, if the technical analysis doesn’t confirm my fundamental positive view, it makes me review my investment thesis on a company, for example checking that there aren’t negative factors we have overlooked. If my conviction is very strong I will often ignore the technical view; at other times if it conflicts I will take a smaller bet or reduce my position…
… I look at the technical situation as a summation of all the fundamental views available on a stock at that particular moment and it can sometimes be a warning signal of problems ahead. In a world where every professional fund manager knows that at least two out of five share picks they make will not work out as they hoped this is very useful…
… One of the great disciplines of technical analysis is that it forces you to cut losses and run profits – something that’s always easier said than done. Although at heart I’m a fundamentalist I have definitely found that the combination of two approaches seems to work better than just one on its own. A few years ago I spoke at a technical analysis conference and said that if I was on a desert island and was only allowed one input for my investment decisions, it would be an up-to-date chart book. I think today I would still be of the same opinion. The trouble with fundamental data is that I can’t single out only one source that on its own would be sufficient. I could, if pushed, run a portfolio with just a chart book – although on a desert island, it wouldn’t be high up on my list of survival items.”
So who says technical analysis is complete voodoo?
Bolton’s book is a great book for long term investors interested in seeking success in the equity markets, particularly for those who are value-orientated. The book is littered with bits of investment wisdom from a very-seasoned equity veteran, and it also offers a glimpse into the life of the highly-competitive profession of fund management.
*images credits to The Times & Amazon.com*