The Story of Anthony Bolton

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The Story of Anthony Bolton

Insights from great global investors – Anthony Bolton (#1 of 5 short insights) Week 18 to 22 May 2020

Bolton was the fund manager of Fidelity’s Special Situations fund in London for 28 years (1979 to 2007). He gave annualized returns of 19.5% over this long period. He was much less successful when he subsequently managed Fidelity’s China Special Situations fund (2010 to 2014). Bolton:

  1. Believes perception is as important as reality and goes contrarian by focusing on sectors that are under-owned and unloved. This is one of the most important inputs into his buying and selling decisions
  2. Once the sector is selected by (1) above, he then looks at a wide range of parameters – fundamental analysis, multiples and ratios and technical analysis for selecting specific investments within the sector

Insights from great global investors – Anthony Bolton (#2 of 5 short insights) Week 11 to 15 May 2020

Bolton looks for “valuation anomalies”. He says that these are best found in recovery or turnaround stocks that are selling at attractive valuations.

He acknowledges however that:

  • It is easier to spot an anomaly than to know when it is going to correct. He therefore buys with a one to two year time frame. In the Fidelity’s Special Situations fund in London his average holding period was 18 months.
  • One must not confuse recovery situations in underperforming but otherwise satisfactory businesses with a company with a poor business franchise

(To be continued on Wednesday)

Insights from great global investors – Anthony Bolton (#3 of 5 short insights) Week 11 to 15 May 2020

Bolton’s advice on what to do when you are not doing well:

  • Don’t be stubborn on your views – listen with an open mind, especially views contrary to our own about your main holdings
  • If you don’t use it, try technical analysis

Most importantly Bolton says that in such times:

  • Make sure the existing portfolio reflects your conviction levels
  • Put down on paper your “portfolio from scratch”. By this he means that assume you have no legacy investments, but just cash. How would you invest this in a new portfolio? Do this and then make suitable adjustments to reflect this in your holdings. Bolton used to do this exercise once a month. For companies you own, ask yourself if you’d buy it again
  • Diversify with an ideal portfolio size of 50 holdings

(To be continued on Thursday)

Insights from great global investors – Anthony Bolton (#4 of 5 short insights) Week 18 to 22 May 2020

Bolton studied the history of the financial markets. Main lessons he learnt were:

Markets have repeated cycles. He quotes the ancient Roman poet Horace: “Many shall be restored that now are fallen and many shall fall that are now in honour”. However, he warns that it is very difficult to call market tops or bottoms. Bull and bear markets can go on for longer than expected. Thus he emphasizes that:

  • We must remember that mean reversion is one of the great truisms of capitalism. For most companies, growth, margins, return on capital revert to the mean over time
  • Study deeply the historical patterns for bull and bear markets (how long each has lasted and how high / low they have risen / fallen)
  • Be aware of indicators of investor sentiment (put/call ratio, volatility, fund flows from institutions)

(To be continued on Friday)

Insights from great global investors – Anthony Bolton (#5 of 5 short insights) Week 18 to 22 May 2020

Bolton had a list of 12 qualities he looked for in a good fund manager. A selection from this list are:

  • Temperament – unemotional, humble – OK to make mistakes, application and perseverance – it’s a never ending race so stamina is important
  • Organized – disciplined in activities day wise and weekly, monthly and quarterly. Must structure day to be most useful and effective
  • Hunger for analysis – always getting data, analysing and questioning. Must be a good analyst
  • Know yourself – know your strengths and weaknesses. Fund management is an individual activity and democracy does not make for good fund management

In 2010 when Bolton came back into fund management to run Fidelity’s China Special Situations fund It did not do well at all. Perhaps he forgot the last of his criteria on “know yourself”. Investing in markets and securities you know is important. A new geography or asset class means you will again take years to learn the best way to invest in them.

(This ends this week’s focus on Anthony Bolton)

– Kai Taraporevala

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