Running money

Published November 21, 2009, BT Weekend

Anthony Bolton's contrarian streak and eye for turnaround stocks has won him much acclaim in fund management and billions in assets for Fidelity. The retired fund manager remains very much involved in finance

http://createwealth8888.blogspot.com/2009/11/why-do-we-still-need-to-read-charts.html

CreateWealth8888: Look at what I had posted on 2 May 09 an article where Anthony Bolton despite the March rally seeming to have petered out in the past couple of weeks and the uncertainty now posed by the swine flu outbreak. He was sticking his neck out and announcing the end of the bear market

http://createwealth8888.blogspot.com/2009/05/announcing-end-of-bear-market.html

A GOOD investor gets it right 60 per cent of the time, says veteran fund manager Anthony Bolton. As for the rest of the rest of the time that he is wrong, the challenge is to 'just keep going'. 'When you make mistakes, learn but don't get too depressed. I sometimes see managers get into a declining spiral when they have bad performance, and they can't get back again. You have to be detached. You're going to have good times and bad, and you have to just keep going.'

'To spot turning points, I look at patterns of bull and bear. They're never quite the same. When the market has been rising for a long time and has risen a long way, I'm more cautious. And when the market has fallen a lot and for a long time, as it was in the first quarter, I'm more optimistic.

'Then I look at sentiment of investors. When they're very cautious I try to be optimistic. I look at long term valuations over more than 20 years. If the three line up with each other as they did in the first quarter, you may not get the exact date, but you could get the quarter right if you're lucky.

'My best guess is we're in a bull market that will be multi-year. The first phase is a very strong phase, but because I think a lot of professional investors have missed out on the rise, it probably doesn't stop until a lot of them are sucked into the market.

'I think we're getting towards the end of the first phase. It could finish now or early next year. Then we get to a slightly different marketplace. There have been certain types of companies to own in the first phase. The types to own in the next will be slightly different.'

'It's very difficult in short periods to differentiate between luck and judgement. You can do well for a couple of years purely by luck and no judgement. Our analysts rotate and cover an industry for two to three years. Most analysts go through two to three rotations, so it takes five to seven years before they get a chance to be a fund manager.

'When you work with an analyst for five to six years, you can tell if they have it or not. You see what their recommendations do, how they react when things go wrong. I think it takes that amount of time. You can really only assess potential people to be fund managers if you work closely with them for a number of years.'

He is frank about his mistakes, devoting a chapter to recounting them in his book. One of the disasters was a conglomerate called Parkfield which became one of his top 10 holdings in the early 1990s. It subsequently went into receivership and its shares were suspended and effectively worthless. He did not scrutinise gearing closely enough, he says. 'I have nearly always found you lose the most money on companies that are poorly financed when conditions change. The strength of a company's balance sheet is very important.

'I generally found the companies that I lost the most money in were those that had high gearing. It's not that I would recommend to people never to invest in companies with high gearing or weak balance sheets, but you want to do it with your eyes open. If something changes for the worse, you want to get out quickly because the downside can be a long way.'

The latest banking crisis, he says, was the sixth he has weathered. 'When our instincts tell us it's time to quit, this is nearly always the wrong course of action. The outlook for markets will look its worst at the bottom. I think to be a good investor and to avoid getting shaken out of markets when they are low or sucked into markets when they are high, you need to be somewhat detached.'

Paradoxically, he believes a backdrop of low growth and low interest rates are good for investments.

'Part of my thesis is that we're going back to a period of low growth in developed markets, and I think we'll have low rates for the next couple of years. Low growth rates are actually a good environment for stock market investing.

'Someone has asked me - but surely low growth is bad for markets. I disagree. What markets don't like is overheating and rates going up. I think if you have low but sustainable growth and low rates, and if you can find growth stocks in that, you'll do very well.'
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CreateWealth8888:

Hmm... let open our eyes to look for growth stocks in SGX. Which ones?