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Special delivery

Anthony Bolton, the long-serving superstar manager of Fidelity’s flagship special situations fund, is celebrating the silver anniversary of the fund by confirming that he will continue to run the fund until at least 2006.

Marking the 25th anniversary of the fund launch, a book has been published in which Bolton reveals the secrets of his success. A stake of 1,000 invested at the launch of the fund in 1979 would today be worth 90,928 – a return of more than 9,000 per cent.

Bolton attributes much of his success to his contrarian stance. He says: “For some reason, I have always felt happier going against the crowd and generally feel uncomfortable doing what everyone else is doing.”

The book by Jonathan Davis – Investing with Anthony Bolton – sets out 16 observations on investment practice.

1Understand the business franchise and its quality. Businesses vary greatly in quality and sustainability. It is essential to understand the business, how it makes money and its competitive position.2 Understand key variables that drive a business. Identify key variables that affect a company’s performance, in particular, those it cannot control, such as currencies, interest rates and tax changes.3 Favour simple businesses over complex businesses. If a business is complex, it will be hard to work out if it has a sustainable franchise.4 Hear directly from the management. Candidness and lack of hyperbole are the key management attributes to look for.
I like managers who do not overpromise but then consistently deliver a bit more than they indicated. Be most wary of those who promise the sky – they are unlikely to deliver.5 Avoid dodgy management at all costs. The dynamics of a strong-looking business never make up for dodgy management. Managements that are either unethical or that sail close to the wind are complete no-go areas.6 Try to think two moves ahead of the crowd. Try to identify what is being ignored today which could re-excite interest in the future. The stockmarket does not look very far ahead and, therefore, somewhat like chess, looking a bit further than others can often pay dividends.7 Understand the balance sheet risk. If the stockpicker has to learn only one lesson, this has to be near the top of the list. If investment is about limiting the downside and avoiding disaster, taking on balance sheet risk should only be done with one’s eyes open.8 Seek ideas from a wider range of sources. The more sources to pick ideas from, the more chances you have of finding a winner. The most obvious sources are not always best.9 Watch closely the dealing by company insiders. The dealings by the directors of companies are a valuable tool. Director buying is often more significant than director selling.10 Re-examine your investment thesis at regular intervals. Investment management is all about building a conviction for an investment opportunity and then re-examining this conviction over time, especially when new information arises.11 Forget the price you paid for the shares. The price you paid is totally irrelevant, it is only psychologically important. Have no hesitation in cutting losses if the situation changes.12Past performance attribution is a waste of time. If life is about making mistakes and learning from them, so too is the stockmarket. Past performance, although very fashionable, mainly involves looking in the rear view mirror and tells you nothing about the future.13Pay attention to absolute valuations. Investors need some sort of reality check to avoid being sucked into a stock at times of great exuberance. Looking at absolute valuations at times like this will help.14Use technicalanalysis as an extra indicator.
View it as a framework for help in decision-making. It is one of the factors which helps me decide the size of the bet I take and I use it as a confirming or denying factor.15 Avoid market timing and major macro bets. I have only had a strong market view perhaps five or six times over the last 25 years. Even then, I would not bet my fund on that view.16 Be a contrarian. If the investment feels comfortable, you are probably late. Try to invest against the crowd. Avoid getting more bullish as the share price rises. When nearly everyone is cautious about the outlook, they are probably wrong and things are going to get better. Equally, when very few are worried, that is the time to be most wary.


Review of 2004: Mortgages

The base rate rises this summer started the slowdown in transaction levels but the industry is almost unanimous in saying that there will be no crash.

Freedom Finance appoints operations director

FREEDOM FINANCE EXPANDS MANAGEMENT TEAMFreedom Finance has appointed Steve Kember as its operations director.Kember was most recently sales and marketing director for the IFA subsidiary of the Co-operative Bank, where he was employed for more than 16 years. In his newly created role Steve will be responsible for managing the end-to-end mortgage and loan broking […]

McFall welcomes Pru colour-coded letters

Treasury select committee chairman John McFall has praised Prudential for taking action to demystify financial services for consumers by mailing colour-coded reprojection letters.


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