Anthony Bolton is one of Britain’s most well-known investors. He’s managed money professionally for close to 3 decades at Fidelity Investments, and during his time as head of the Special Situations Fund, he’s averaged annualised return of 20%!
Bolton shares his wealth of experience in his professional self-styled journal titled Investing Against The Tide. Forwarded by well-known investor Peter Lynch, a long-time colleague of Bolton’s, the 200+ page book reflects Bolton’s investment philosophy and practices.
While the book isn’t as light a read as Scott Fearon’s Dead Companies Walking, I found it to be more valuable from a practical perspective. Bolton not only shares his experiences, but his conceptual investment framework as well.
The book is split into 2 parts. The first is titled “principles and practices from a life running money”. The second 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 commentary on the ups-and-downs of his investment career.
The first part includes:
- What to look for in management
- Developing an investment thesis
- Gauging market sentiment
- Constructing a portfolio of shares
- Assessing the financials of a company
- Understanding valuations
- Technical analysis and the importance of price charts
- Market timing
These sub-chapters are brief (some barely 2 pages long), with Bolton offering his take on what to look for during the investment process. Given that bottom-up fundamental analysis can be quite complex, workable ‘Occam’s Razor’ parameters are needed for decision making.
The second part of the book covers:
- Memorable company meetings
- Best and worst investments
- How the industry has changed
- Thoughts on the future of investment management
This is the section where Bolton reminisces about his career, including his own mistakes and what he sees as the future of the industry.
Bolton also shares 12 attributes 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 interesting part of Bolton’s strategy is his use of technical analysis. Not many fundamental bottom-up stock pickers are known for calibrating their investments with technical analysis. Bolton explains:
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 voodoo?
Bolton’s book is great for long-term equity investors, particularly for those who are value-oriented. I’d rate it a 4 out of 5