Anthony Bolton on what I learnt as a fund manager

Thu 21 November 2024

With a knack for delivering market beating returns over many years in his Fidelity Special Situations Fund, his mantra was always to avoid the herd – others might have tried, he seemed to succeed. We are delighted that he will be interviewed by leading author, investor and finance guru Stephen Clapham, founder of Behind the Balance Sheet, the leading training and research consultancy. Stephen will be speaking to Anthony about his book, Investing against the Tide, about how he managed to outperform the market so spectacularly in his long career (the Fidelity Special Situations Fund grew at 19.5% pa for nearly 28 years, outperforming by 6% pa), about why he was termed the “Quiet Assassin”, and how he now mentors analysts and portfolio managers at Fidelity.

Lecture Transcript

*Content created by AI – therefore there maybe errors*

SPEAKERS: Anthony Bolton, Steve Clapham, Russell Napier

Steve Clapham
Anthony, what makes the difference between a good fund manager and an average fund manager?

Anthony Bolton
Well, in my view, the thing that makes the difference is avoiding the mistakes. I think all managers get successes, but if you can avoid the disasters, avoid the mistakes, I think that is the one thing that really differentiates the two? So being in the library of mistakes, I think learn, learn from your mistakes, and try, obviously to avoid making them.

Steve Clapham
You’ve seen, over a long period, a lot of really good investors. What are the characteristics of the best investors, apart from fewer mistakes?

Anthony Bolton
It’s a lot about the type of the individual, the mind, the flexibility and the being unemotional. I mean, I think it’s terribly important to be unemotional, to be flexible. I think arrogant people and people who so much believe that they’re always right will make bad investors, because things are constantly changing in this business, and I think it’s about conviction. It’s having conviction. But conviction varies over time as information comes in, as different events happen, no one can exactly predict the future, so there are always things coming left field to knock you, but I always say that investing is as much about understanding yourself as it is about understanding the outside world.

Steve Clapham
And your book, if you haven’t read Anthony’s book, you really should read it, because I reread it before doing this. It’s called Investing against the tide, and you say that you’re more comfortable swimming against the prevailing flow is that, you seem like a very nice, easy going guy, and you don’t seem to have that sort of characteristic, because that’s characteristic with something quite cynical.

Anthony Bolton
Yeah, I don’t know what it is. I mean, people have asked me, is that the same in other things you do in life. And I don’t think it necessarily is, but I’ve always been interested in the stock market, as Buffett said, you know, the voting and the weighing, and it’s the voting side that particularly interests me. And fairly early on, there was the big fund the M & G recovery fund, and it was a contrarian fund. And when I was learning the business, I read up about it, and I just identified so much with what it was doing and sort of being contrarian. And I think my talking about, you know, my personality work or my makeup was good for being a contrarian. I was happier, I think most people like fashion, and they like to be part of the fashion, and I was happy to stand aside. And popularity, to me, is risk in investment. When things become too popular, that’s when they become risky, and vice versa, when they’re not popular and when they’re unpopular, there’s opportunity. It doesn’t mean everything that’s unpopular is going to be a good investment, but I like to look in the unpopular areas, and as soon as something gets very popular, I become uncomfortable.

Steve Clapham
What happened internally at Fidelity, because when everybody else was buying the stocks that you owned and you started to sell, were they not all going, oh, hang on, Anthony said, we better get rushed out the door as well.

Anthony Bolton
No, funny, at least, I don’t think it happened like that. Because within fidelity, we had, a range of different managers. I mean, we had a great growth manager, Colin Stone. He’s retired like me, but we had a spectrum of approaches. But for all of us, it was fundamentally based and meeting the companies was terribly important. I remember a colleague, he would go through every line of the analyst model, line by line, cross examining them on every assumption behind every variable, now I’m not saying that’s wrong, that just wasn’t what I focused on. I would focus on different things from that, and I’d let my colleagues spend more time on dissecting the analysts’ models.

Steve Clapham
You spent a lot of time meeting companies, did you ever set structure for a company meeting those runs through?

Anthony Bolton
Oh yeah. I mean, the way we operated, and it wasn’t the case in my very early days. But once we had a team of analysts and sector-based analysts, the analyst would set the agenda for the meetings. And now you know, that didn’t preclude some of the portfolio managers asking their own questions. It was great because, I was doing four or five a day, and if someone had already got the question sheet, and it was always our questions, rather than letting the management say, just read off a script or a presentation. I kept copious notes, and it was all handwritten in those days. And consistency was really important to me. You know, if something three months later was different from what it was three months ago, if they said it, then I started to worry. The good thing, probably, and there’s some management here. So, the management probably were doing lots of meetings, so they probably couldn’t remember exactly what they said to Fidelity versus what they said to another investor, but I had it written down.

Steve Clapham
So then tomorrow for the management here is the same thing, even if it’s wrong?

Anthony Bolton
Yeah, say the same thing.

Steve Clapham
But were there particular signs that you looked for in a management meeting? What would make you go out and sell?

Anthony Bolton
I’m gonna start with what we made me buy. It was, amalgam of things, but you sort of knew it when you saw it, that that was the thing. And, you know, there were some meetings you came out of, and the adrenaline was buzzing, this looks amazing, and it’s unrecognized, and other people don’t understand the potential, or whatever it was, in terms of, why did I sell things? Because the thesis was broken. So nearly always was the thesis behind why we own something. And something changes. You know, could be something predictable. It could be something unpredictable, and that was what made me change. Just trying to think of specifics. But for me, it was generally incremental. So, I didn’t one day come in and buy a huge position, or the next day, sell all my holding, very occasionally I did that when something really dramatic happened. It was incremental. My conviction was building. So I’d start with a small position, and then we’d meet again, and then I’d perhaps double that position, and then as the conviction went up, or maybe the stock price came back, and I felt the valuation opportunity was even greater, and it was the same on exiting nearly always, you know, I’d say, well, actually, it now looks much more fairly valued. I still think there’s some upside, but I’m going to keep half the position that I had, or it’s got more risky, you know, that they’re doing something which could be great news, but actually, if it doesn’t work out, the downsides greater. So I want to have a smaller bet than I had.

Steve Clapham
And laterally, you had very big fund and 150 plus positions. How did you manage to okay that number?

Anthony Bolton
Yeah, I mean coping with size was obviously a big challenge, and we weren’t analytical enough in those days to think about capacity. You know, managers are much more professional these days and saying, you know, what is the capacity for this particular approach or this particular portfolio manager? And there was a sort of feeling, you know, you could go on forever with a fund that grew and grew and grew. I remember, actually it was I had a particular advantage. I went to one of my trips to Boston, and I saw Peter Lynch and Bruce Johnson, less known Fidelity manager, but he ran our income funds very successfully. And I said, how do you cope with size? And they said, well, you know, you use the team to help you monitor. But the most important thing is, you know, it’s a balance always as an investment manager, of looking after what you already own and being on top as things change but scouting for new ideas. And they said the big mistake as soon as you start to have a big portfolio, a large portfolio, a lot of holdings, is you’re spending all your time on monitoring what you already own. And you feel, if you own it, and it comes into the office, then you’ve got to go to that meeting. They said, use the analyst to help you and feedback. You can’t go to all these meetings, but make sure you’re always spending enough time scouting for new ideas. That’s interesting.

Steve Clapham
What was Peter Lynch like to work with? Did you work quite closely with him? I mean, obviously in different sides of Atlantic.

Anthony Bolton
He taught me a lot about company meetings and taking notes, etc. He was, you know, if you read his books, you can talk about how he went about investing, but he was an inspiring person demanding, I mean, very demanding with the analysts, I would say, but an inspiring person to work with, and it was interesting, completely different from myself when I stopped, you know, I stopped and left time in my life to do other things. I remember going to see Peter, this is still a while back, but he had already stopped running funds at Fidelity, and he was in an office somewhere else in Boston, but I went into his office, and it was exactly the same as when the office that I went to before, you know, surrounded by screens, reports and everything. So he was still spending most of his day doing the same job, but this time just for himself, rather than Fidelity.

Steve Clapham
It is a very all-consuming thing.

Anthony Bolton
Oh, it is all consuming. And normally, when I meet people who’ve been in the business and then say, they retire or whatever, and they’re doing it part time, they say, having done it full time, it’s very difficult to do it part time.

Steve Clapham
And what made you, as soon as you stopped, you started writing the book, what made you write the book?

Anthony Bolton
I wanted to pass on some of the things I learned. The thing is in investment, none of us do anything new. You know, most of the things we look at, etc, have been around for a long time, but it’s more the amalgam of, how we put it together, what weight we put on this factor versus that factor. And I wanted to sort of write a book from a contrarian investors point of view with the things that were important for me. And you know that there are some things there, some managers would say, looking at charts and technical analysis is complete waste of time. I actually find it useful as a way of confirming. It helped me identify changes and stuff. So, I thought, if I pass that on, hopefully it might help some other people.

Steve Clapham
I mean, it’s a very unpopular thing to say. I always think, you know, somebody gives you an idea. First thing you do is look at the chart, right?

Anthony Bolton
Yeah. Well, the first thing I always looked at, because my first question is, am I early or late? You know? And the child immediately told me, you know the answer to that.

Steve Clapham
But you didn’t spend all your time buying things that had fallen along the way, you would buy things with momentum in them.

Anthony Bolton
Actually, you know, some of the best investments, was actually doubling up on something that had already started to rise, where one’s conviction had increased, and 100% believe in the view. Just, you know, forgetting the price you pay is so important, you’ve just got to come afresh every day to it.

Steve Clapham
Well, you said in the book that you didn’t have a very good memory.

Anthony Bolton
I didn’t have a very good memory, so I had to remind myself, and actually, that’s where the notes were really useful, rereading the notes, and even today, when I have a, you know, I still do some meetings to do with our charity and stuff I like. I don’t like to read the notes too early, because I’ve probably forgotten by the time the meeting happens the detail of it.

Steve Clapham
Would you think that was an advantage not having that sort of I paid this for it approach?

Anthony Bolton
I think it was with me. On the other hand, one of the most successful Fidelity managers was someone called Joel Tillinghast, who had a contrarian style, and a photographic memory. And you know, he had, I don’t know, hundreds of stocks in his portfolio, but if you asked him about any one of them, he could reel off the detail, he knew everything. I couldn’t do that. I can’t remember, or keep in mind the detail of 300 companies.

Steve Clapham
Are you still in touch with people that used to work with the Fidelity?

Anthony Bolton
Oh, yeah, no, I mean more on this side of the Atlantic, because as Fidelity got bigger, the non-US side of Fidelity, was always separate from the US side. Or in fact, I think it was after I joined Fidelity. About six months later, we split into two. But for a long time, we had a close relationship with the managers there. We took the decision that to give us more capacity for buying bigger stakes in company, we needed to put a Chinese wall between the American side and the international side. We only saw their research with a sort of 90-day lag.

Steve Clapham
And you said earlier, you talked about arrogance, and you wrote in the book that we’re all overconfident. You mustn’t let a good run go to your head. How did you manage to keep your feet on the ground after 25 years of success? How did you not get caught by that?

Anthony Bolton
Because, you were always being reminded how fallible you were. I mean, this game, you just keep making mistakes. But you know, if you can get it right, 55% of the time, then you’re doing okay, I think it comes back to the nature of the person you know. I believe strongly, you know, to be successful investors. You shouldn’t let success get to your head. But conversely, you shouldn’t let failure get to your head. Everyone has a bad period. I’ve seen it in colleagues that when they’re going through a bad period, they lose their confidence, etc, and they go into sort of spiral, because I’m taking risk, yeah, and that’s really bad as well.

Steve Clapham
So what did you say to somebody when they were having a thing.

Anthony Bolton
You’ve got us say, look, learn from your mistakes, but remember that we all make them. And if you, if you believe in how you invest, then stick with that, and you will have bad years. And at least the way we ran money, you know, which was generally taking one to two year view type time scales so we were never really short term in, you know, looking just at the next earnings, but you had periods where you underperform.

Steve Clapham
What did your colleagues say to you?

Anthony Bolton
I think the only time I ever talked to Ned Johnson about my performance was, I think my worst period was, was the recession of the early 90s? I think it was 91, I had three poor years, which, for most people probably is the end of their career. And I think the only time Ned Johnson talked to me specifically about my performance in investments was after those three years. What did he say? He said, you know, is it going to turn around? And I said, well, I got to do my best. And it did turn around. Yeah, of course, there’s nothing you can do. It’s a strange business, you know, I think a lot of new people come into it, and they think it’s about effort, it’s like sports or, you know, even for a musician, effort comes into it. Well, there’s an element of effort. But you can’t say to yourself, try harder tomorrow Bolton and you’re going to do better. You just have to keep on re-examining what you’re doing and be honest with yourself, because, and I think that’s where this sort of insecurity conviction, having conviction, but always willing to be open to the fact that you’re wrong is important, because things change.

Steve Clapham
When you were underperforming, did you reduce the turnover in the portfolio or increase the turnover in the portfolio?

Anthony Bolton
It’s a good question. I don’t remember specifically doing either of those, what I did find, it was probably in the good times you tended to build up the number of holdings in the less good times, it was a good time for pruning, you know, going back to the things you felt the strongest about, and maybe pruning out some things that that were less keen on. I did the same in bull and bear markets. In bull markets, you tend to have more stocks and more things you were interested in a bear market. That was a time I found for weeding out the less good things.

Steve Clapham
And so you’d have a more concentrated portfolio in a bear market. And that was you were defensive or not?

Anthony Bolton
It was trying to focus on where you had the biggest conviction.

Steve Clapham
But why should that be different?

Anthony Bolton
I just found in the bull market there tended to be more good stories, you know, more interesting things, and therefore the poor, my number of holdings, tended to loss. This is normal.

Steve Clapham
This was normal fear of missing out.

Anthony Bolton
Yeah, maybe it’s the fear of missing out. No, I think the nature of bull markets is that there are more good stories around more interesting things to invest in.

Steve Clapham
You said in the book you value two attributes most highly, common sense and temperament. We’re all stuck with what their genetics? What can you do to improve those?

Anthony Bolton
Well, I think the first thing is to know yourself, know what your strengths and weaknesses are. And I think if you know that you’re emotional, you’ve got to try and control that. To be honest, I think that some people are just not made out for the job. So if your personality, if you are very emotional, you know you can only buy something after everyone else has bought it, and you’re near the top, and you’re going to be shaken out because you’re scared and you don’t have enough conviction in what you’re doing, then I don’t think it’s a job for you, at least not as a sort of bottom up stock picker.

Steve Clapham
Would you get involved in recruitment, or in deciding which of the analysts were going to be PMS and how? How did you judge that?

Anthony Bolton
Well, you could sort of see it. I mean, the recruitment, one of the things we used to do was what we call a prospectus test, and we would give someone who came in a company to look at, and we put them in a room for a couple of hours or so with a whole lot of information on that company. And then we’d come and say tell us if you think it’s a buy or a sell. It’s a very good exercise, because we weren’t looking at what’s the conclusion, right or wrong? But you really understood how they thought. Could they read stuff and summarize it? Could they find the most important things? Because investment is about finding three or four really important things and knowing what not to look at or not to be interested in is important. And then, of course, could they convey it? Because an analyst who’s brilliant but can’t convey that what they like and what they don’t like is also no good in terms of promotion to a fund manager. The thing in this business, you know someone can get back with luck for two or three years. I think beyond three years, it’s very difficult to get by purely from luck. So if you worked, as we typically had with analysts for 5, 6, 7 years or so before they normally had the prospect to become a fund manager, you got a pretty good idea, if you thought they could make it, although just being a good analyst didn’t necessarily meet you could be a good fund manager. So we then helped them. We had something we called pm Academy, where we helped them with things like portfolio construction and stuff that they didn’t need to do as an analyst.

Steve Clapham
How about the emotional side? Could you train somebody.

Anthony Bolton
I think you could. You could sort of see that along the way. And if you didn’t think they had the temperament for it, then you know, you had to be honest with them.

Steve Clapham
And if you were an analyst at Fidelity, how would you attract Anthony Bolton’s attention? What was the thing that made you jump in a stop?

Anthony Bolton
I think that the first thing is, as I was saying, you know, we had fund managers doing different things. They had to know the type of thing that I might be interested in, so they knew if they were coming to sell me, normal growth stock which had done well for several years that probably wasn’t going to be for me. I think that they had to be put across succinctly why they were keen on it. And there were probably certain things that I would latch on to, that would interest me. Before I decided to buy things, a lot of stuff that I’d look at, you know, fundamental stuff, but, one of the things I was always keen on, is looking at the shareholder list, because it told me who the other investors that I rated on the list, that was positive in some ways, but if there were lots of them, I knew I was coming to this late, and that may be not a reason for not doing it, but I always had that at the back of my mind, looking at, you know, Director dealing was something I used a lot as a conflicting but this whole amalgam of stuff was, was what I looked at.

Steve Clapham
And were there any, you might not want to say, were there any people in particular that you follow?

Anthony Bolton
I think it’s difficult for me to say, but I think that, you know, there were, perhaps the opposite, you know, in those days that certain fund managers owned by large banks, you know, who, or some of the large insurance companies. I mean, things have changed, but you know, some of them I wouldn’t rate that much if I saw them on the list.

Steve Clapham
It’s funny, because I’ve written about this, and it seems to me it’s like the only free lunch in investing, you’ve got shareholder register, and if you look and see who’s on it, it can be a huge benefit, particularly for private investors.

Anthony Bolton
I know, I totally agree, and you see how they move their holdings if they’re above a certain percentage of company. So no, I think that is really useful information, and it’s interesting. I found not many other people did look at registers. Another thing which is sort of connected that I think is important. It’s a slightly different topic, but it links. When people compare valuations on markets, I think there are two things they miss. The one thing is the mixture of sectors. So people will say, this market looks cheap against that market, but what they then don’t look at is the sector dispersion. And so often that is really important in the relevant market so I much rather looked sector by sector valuations across markets, because I think that’s more meaningful, but there was a more subtle thing. There are markets that have most companies that are controlled and markets that don’t. So most of the European markets, when I was dealing continental European markets, the companies are generally controlled. UK contrastingly, most of the companies are not controlled. To me, that’s a big plus, actually, for the UK. And I think the UK, everything else being equal, deserves a premium for these companies that can be taken over while, if you’ve got a controlling shareholder, they can’t be taken over if the shares become too cheap. So somewhere like Hong Kong, where there were some really cheap shares, some of the cheapest shares I’ve ever come across, there were property companies selling at 5% of their nav for instance, but they were controlled, and if the controlling shareholder wasn’t interested in the share price, then it didn’t really matter.

Steve Clapham
I saw Andy Brough last night. He says, he’s single handedly liquidating. The UK stock market felt that he was, he’s had a few bids, just going back to the analyst. I mean, how would you sort of quickly assess whether the idea was good, and what questions would you ask analysts?

Anthony Bolton
You know, did they have a convincing thesis? So there had to be a thesis behind it, and a logical thesis. Probably I’d been in the meeting with the company that they had. So did some of the most worthwhile discussions I had with the analysts was immediately after the company meeting. And actually, a disadvantage of doing too many meetings a day, one was rushing from one to the other, and you didn’t have the quarter of an hour after the meeting where you discussed, you know, what had changed and what was different, and was the thesis still intact? I hyperbole. I mean, there were some analysts who would come to me, and they’d put ridiculous price targets. You know, my price targets three times the current price, and they thought that that was a way of selling it to me, and it did the opposite. Actually. It just made me think, you know that they don’t have a concept of what the real upside is or not. It had to be true to me, if you see what I mean, I had to be true. And really important was they were telling me what they thought, not what they thought I wanted to hear. And that, particularly the younger, less experienced analysts, would want their idea to be bought by Bolton. They’d come along trying to pitch it along the line. They thought that was what I wanted to know, and I and if I saw through that, I’d say, look, this is to your disadvantage. I want to know what you think you know. I will add on top of that and the whole Fidelity way of doing things was to have these analysts who were the specialists, who knew that the industry knowledge, and then you got promoted and if you made it as an analyst, and the PMs thought you had it, were you to become a portfolio manager? And I think that’s a very powerful combination, if both are convinced. And, you know, there were stocks in the portfolio that the analyst had a different view from me, but most of the time we had the same views.

Steve Clapham
You mentioned earlier you wouldn’t be interested in the growth stock that already gone up a lot and been consistent for years. Were there particular sectors of the market you favoured? I know you did a lot in the transport sector.

Anthony Bolton
I suppose I had more than capital intensive sectors, generally, I wasn’t so keen on the airlines, for instance. I missed things like Ryanair and EasyJet, etc. You made a lot of money in shipping, but that was sort of spotting the cycle. And, you know, buying tankers when they were near their breakup value. I mean, upside, downside is really important to me. And you know, balance sheet analysis, etc, which is obviously your forte. And asymmetrical return, something that didn’t have too much downside, but might have a lot of upsides. That’s what really took me on in investment terms. I was always looking for that, and therefore, you know, stocks that I could sleep well at night. So spotting the anomaly is easier than knowing when it’s going to work. I needed to have time on my side, and that’s why I like this sort of asymmetry of return. Now, you know, the upside didn’t always happen, and maybe you were hoping certain things you know, would work out and they didn’t. But if you protected the downside and come right back to my first point, avoiding the losers is so important, I still managed to have lots of losers.

Steve Clapham
Do you know what your hit rate was?

Anthony Bolton
My hit rate, I don’t actually, because we didn’t measure it in those days.

Steve Clapham
And would it, if you’d known, would it have made any difference?

Anthony Bolton
Probably not. I wasn’t somebody who found it interesting. This is probably very untypical these days. You know, I didn’t look at my weekly performance. I didn’t, I think it only sort of depresses you. I didn’t know when you’re not doing well, and so I didn’t look at a lot of the things that nowadays people do. I knew I had high tracking errors and all these things, but, it wasn’t something that was built into the way that I ran money, probably wrongly, actually, it might have helped me. You know, if I had more access to those, I need a lot of help.

Steve Clapham
Well, yeah, but you’re running a retail fund, yes? And so there must have been inflows and outflows. And you must have had the marketing department there, was there a lot of internal pressure?

Anthony Bolton
Internal pressure in respect.

Steve Clapham
If you’re doing badly and there’s outflows, I mean, yeah, your business.

Anthony Bolton
No, there’s always pressure. And I made a decision when the fund got so big that I thought it was to the detriment of the performance, I made a decision that Fidelity went along with was to split the fund. This is a Fidelity special situation fund, the one I ran for 28 years was split it into two, into a global special situation and a UK special situation. And that was very controversial. And business wise, it was a very bad decision, actually, because it immediately led to people selling who they didn’t want to have both parts of it. But I felt at the time that was the right thing to do, you know, for investors, because I felt that that was me saying, you know, capacity is a problem, and the fund is now. It was at one stage; I think it was five times bigger than the nearest fund or something.

Steve Clapham
But the problem then was that the investor didn’t know who was going to run the global part. Was that not the issue?

Anthony Bolton
Well no, I mean, I was part of the process. Who picked who was going to run it, and we announced it all. The other thing we did, we announced it quite long in advance, which I felt was the right thing to do. From a business point of thing, actually, it’s totally the wrong thing to do. And even like announcing when I was going to retire, it would have been much better for me to say one week, oh, I’m retiring next week. Because if you give six months, nine months a year, pre announcing your retirement, it gives the competition huge potential to say, oh, you know, and don’t buy Anthony’s fund. You don’t know what the new manager is going to be like, you know.

Steve Clapham
But why did you?

Anthony Bolton
I thought it was the right thing to do.

Steve Clapham
So you always put integrity before profit?

Anthony Bolton
With me, that was important. I felt to leave first was to leave people in the lurch. This just wasn’t something I felt comfortable with.

Steve Clapham
I was watching the Roger Federer documentary on the plane and just coming back last week, and he was talking about Rod Lever being a brilliant tennis player, but nothing made any money. And I was wondering if you had because, of course, he’s made a huge amount of money. I just wondered if you felt that the money being paid today had just got a bit out of hand, because, you know, the pod shops are paying ten million upfront bonuses, guarantees.

Anthony Bolton
I remember people tried to poach me. I remember Soros trying to pinch me at one stage. And, you know, promised me the earth. And I think he left the meeting, it was a lunch, and I think he left at the end, he said, you Brits, you’re not interested enough in money, something along those lines. And, yeah, obviously the money is important, but, but you’re asking me, is the money too big or too small? It was like, I can’t tell you, we were always being asked, you know, do you think this management team is being paid too much or too little? And my view of it, it may be different, actually, from some of my colleagues, was that it’s not our job to say what is too much. What I was interested in was the shape of pay, I didn’t want to pay for failure, you know, paying for success, but mandating that x is too much for a CEO. I just felt really uncomfortable.

Steve Clapham
But there is an issue here, because if the pod shops are paying up, then Fidelity has to compete with that.

Anthony Bolton
Oh yeah. I’m not saying money isn’t important, and relative, money is really important. And I think if a manager is, if money is the most important thing to them, then they’re going to be a difficult person to keep. But I think there are other things that places like Fidelity offer very well, is working with a group of people that enjoy working with you. And I’m not saying the money is bad at Fidelity.

Steve Clapham
Of course not. I just think it’s an interesting issue, because, of course, rewards get very skewed.

Anthony Bolton
I saw it in the corporate world. You know that so much of the good management was going off to private equity. And I thought that was very poor. That was not good news for us who invested in listed companies. And that’s a reason that I didn’t want to jump on the bandwagon of saying, you know this CEO’s salary is too high, because the alternative is they’d leave, they’d leave the listed sector.

Steve Clapham
You had some great stories in the book about some of the company visitors you wanted. Do you remember any of any of them? I like the one about the Spanish CEO with bodyguards.

Anthony Bolton
Torres Austin, yes, this was a Spanish conglomerate. What do you want me to tell the story? Well, it was a sort of conglomerate, and we went to visit it, I think in Barcelona, and we have this meeting with the chief executive, and it was one of those meetings. He had a phone under his desk, and you know, every five minutes it rang, and he would stop, stop the conversation, and he’d talk away, and then put it down. And someone I didn’t particularly like came to lunch, he said, Oh, you know, I’m taking you for lunch, and that was great. So we thought we’d have more time talk about the business, and it was on a big square. So a big square was actually not that big a square, but where, sort of four roads intersected each other, and outside the front, I should have said when we went into the office, the first thing we saw was a guard, an armed guard on the door, which slightly worried me. Anyway, he took us to lunch. We got into his car, and I thought, well, we’re going to drive, you know, a mile or so down the road. Well, we drove to the other side of the square and got out to the restaurant and I just thought, well, anyone who can’t walk across the square feels that he needs to be protected. And actually, it ended up as one of the big, biggest bankruptcies, you know, corporate bankruptcies in Spain at that time.

Steve Clapham
I know there’s loads of people here who’ve got loads of questions, who wants to ask the first question.

Q1. Thank you. I don’t know if you have any children, and apologies if you don’t. But I was curious as to what investment advice you gave them when they started out in adult life.

Anthony Bolton
None of my children have been interested in coming into the investment business. I’ve got a daughter and two sons. My two sons, the elder son in particular, is quite entrepreneurial, and so I’ve tried to help him with his business. And we were talking, I was talking to someone else here about sons and entrepreneurial tendencies, and it’s been mixed, to be honest. He’s had some things that have gone OK and some things that haven’t. But, you know, the general advice on life, is to give it your all, I think, and is to try, even if you fail to try. I think in life, if you don’t have a go, you’ll always regret it. People say, Why did I go and run the China Fund? And it was something when I started going to China and seeing what was happening there, I got really excited about, and you know, I don’t regret it, but I think if I hadn’t done it, I would have always been sitting there thinking, you know, why didn’t I give it a go? Sorry, that’s probably not enough specific advice.

Q2. Hello, thank you for your talk. Could you touch a bit on how you managed the overall risk of the portfolio? Did you have, a threshold of risk contribution from the single names?

Anthony Bolton
No. So this, I was sort of again a bit before the sort of risk analysis that we have today. Risk, to me, was much more particularly about balance sheets, which I mentioned because that nearly always when something went wrong, and I lost a lot of money. It had a weak balance sheet. And it’s the sort of thing you sort of shoot yourself after, you know, each time you say, why do I keep doing this? And anyway, after a bit, you try and do it as little as you can. People, you know, the other dangerous thing, and particularly when you get into the emerging markets? Well, the only one I know is China, in detail, is investing with people who you don’t trust, you know, who don’t have integrity. That is really important in terms of risk. Then there are the sort of hidden, yes, I think where, where it helps, where you take unintended risks. There is some commonality that you know, all the stocks benefit from a particular currency moving up or down, and you haven’t realized how much of that’s important. Unless you particularly wanted to take a big view on the dollar or whatever it was, not have an unintended bet. I think that that was important to me, some knowledge of the industries, and, you know, more risky industry I mentioned, capital intensity is something I didn’t like. Cash flow, free cash flow was something that really appealed to me, but it was more those sorts of things than some of the risk orientated stuff, and the knowledge that companies change, but often people don’t change. I think one of the things I say in the book, you know, with management, I remember always with Maxwell. He came back in in a different guise, and he said, I’ve learned my lesson, and I’m now going to be a good boy and do everything right. People generally don’t change. So learn that. It’s a way of avoiding risks. But another thing I say on management, I remember there was a company that we held, it was an oil exploration company, and we knew there was a bit of controversy about the management. But anyway, we believed in what we thought the story was and what there had been, and I tell you something that’s really good, always try and hear the other side of the story. I found a fund that was short of the stock, and I met with the manager to hear their side of the story. And he only got through about 10 minutes of telling me why I was wrong and he was right, and I realized that he was 100% right and I was wrong. I think it’s really important to know the kind of thesis of a stock that you own, and to be able to address why you think that is wrong.

Q3. What are common mistakes that other people make? And also, is there any kind of edges that you think certain investments had, which were more successful than others that you look back on that came up quite a lot?

Anthony Bolton
Gosh, I think it’s really important to know, as I was saying about popularity being risk, when things are very popular and they’re very over owned, that is risk. I think you just need to be aware of it. And I’m not saying you shouldn’t invest in those sorts of situations, but you should be aware of the risk that you’re taking in those situations. I think one mistake people make in general, they’re always talking about the outlook, and this often with markets, they say, well, the outlook is good, or the outlook is bad. You see it at the moment. You know the outlook is good for America, the outlook is bad for China. That’s not what this industry is about. What we’re about is what view of the future is discounted in prices today. It is about the outlook in the long run, but more important is what outlook is discounted in prices and when I come to a company, the same thing, it’s about the outlook, but, but what outlook is already discounted in the valuation of that stock today. And I think that’s really important.

Q4. If you were starting your career today, would it be in UK equity listed equities?

Anthony Bolton
Yes, I mean, this is one of the great opportunities. And you know, I want to be more global than I was, because we’re in a global world. And, you know, I was lucky to extend into the rest of Europe fairly early in my career, and that was fascinating. And then I had this sort of last chapter of four years in Hong Kong, running China, which was fascinating, which was really interesting, people always want to know, they want the opportunity, and they want the catalyst, but occasionally you get that, you see a really good opportunity, and you see a very clear catalyst to make it happen. But in my experience, if there’s a clear catalyst, there isn’t the opportunity, because the stock has already moved to anticipate it. So I think always rather have a portfolio, a spread of things that I thought were really cheap and really undervalued, not even knowing what the catalyst was going to be, and that’s what I felt most comfortable owning. Maybe it comes back to my nature. Something about my nature that I was attracted to those, and my experience was that, if you were patient, that they worked, whether it was corporate activity, as we’re seeing more in the UK but I think behind you, you know the two questions, I think I would be more if I started in the business today. I think I wouldn’t want to just focus so much on one market. On the other hand, I do think there’s a specific opportunity in the UK today.

Steve Clapham
Would you want to do equities with 50% passive? Would you not want to do VC?

Anthony Bolton
No, because VC is all about V you know, VC is just the weighing machine. Equities is the weighing and the voting, and it’s the combination of the two that I think makes it such a fascinating business. There’s nothing wrong with private equity. I mean that’s interesting, but I think equities are even more interesting. And I certainly wouldn’t want to do bonds, but I think equities are just so interesting. And the other thing is, it puts you at the vanguard of all the most interesting corporate developments in the world. You see them early, and you meet some of the most interesting people in terms of people managing the companies. So I still think it’s the most extraordinary job.
Q5. I’m just very curious to hear about, I think we spoke just now about the rise of index investing. Also, then we touched on pod shops in the talk. So when the appetite for allocators is probably lower, not for equity investors who are having consistent drawdowns, how do you then adapt to contrarian approach around that, how the industry’s evolved?

Anthony Bolton
The trouble with the contrarian approach is that it seems to me, the periods, the momentum periods, are longer these days. And that is partly due to the advent of passive funds, index funds. And it means, you know, you get these, periods, as we’ve just been in, when value is down. I think the statistic was that the group, the 20% cheapest stocks in the world are cheaper today than any time relative, on a relative basis, anytime than they’ve been. I think it was the last 30 years or something like that. I think that’s really interesting, and that would be where I put my money and want to have my my money. But I also know, there’s going to be a day of reckoning, because, you know, US is 67% of the world. So people who are investing globally, they’re putting 67% of their money into the US and a big chunk of that is into technology, all the stuff about the US market. And you know, I’m not as on top of things as I used to be, but all the stuff I look at, is very near the top, and that’s going to drag down all the passive funds with it when, when that bursts, and it’s going to be a difficult time, it’s going to be very good for the active investors in my view, in that environment. But you know, to me, all the red lights are flashing on somewhere, generally, like the US within the US is such a big market, there are areas that will buck the trend. But that’s, that’s just what I think.

Russell Napier
Anthony question from me, top-down macro, I used to go into Fidelity, you would occasionally turn up for the meetings. I’ve no idea why. So did you have some view on macro conditions?

Anthony Bolton
I didn’t. I never liked to have a macro view of the world dictate the whole portfolio. And I thought that was, you know, to have one view of the world, on the other hand, not to have some views. I liked to listen to a spectrum of views out there, and it would influence things at the margin. So I wouldn’t want to put a big bet on my macro view, but it might make me if I had two things that otherwise were equally attractive and one fitted more into what I thought my macro view was, then I would probably buy that one rather than the other one, if you see what I mean. So it was in that amalgam of stuff that I was considering, but it wasn’t to me the be all and end all of it. And you know, the extrapolation of it is, and it’s certainly not what you look at, but you know the Fed watching, you know the 1000s and 1000s of investors are trying to second guess the Fed. And I said, what competitive advantage do I have in that, I have nil. I would much rather put my money on stuff where I think I have a competitive advantage against other people in working out that this company is attractive, or this one, and that’s what I wanted to invest In.

Q6. Hi. I think it was 2003 you were nicknamed the quiet assassin. I’m not sure who by, but apparently was for the way in which you maneuvered behind the scenes to ensure that Michael Green did not become chairman of the enlarged ITV. Were there other instances where you maneuvered behind the scenes to ensure that someone lost their job or else was not appointed to the job which they were supposed to be appointed to?

Anthony Bolton
Okay, let me talk about that, because this is interesting. So one of the things as my funds started to get bigger, as we’ve touched on. There are a lot of disadvantages of running very large funds. There are some advantages, and it got me more interested in becoming more active investor, because I thought if we could help make change for the better and improve, you know, the companies that we were invested in, then that was going to help us. And it was, it was something that we would have. More influence than someone running a small fund would have. We nearly always did it behind closed doors. I’m totally convinced that the most productive discussions with companies when you’re trying to influence them on what they should do. And normally it was about it was about the management, or it was about strategy. The best conversations you have are behind closed doors. Sadly, ITV got into the public domain, I think partly because it was media companies that we were in debate about, and so to answer your question, yes, there was quite a lot of that we were doing, but if you did want to do that, my observation was it’s very time consuming, and It also locks you into the company for a while, quite a period of time, which might be fine. And often with me, that’s fine because my holding period was normally in years, you know, rather than months. But I remember there was a particular company where we really thought that the CEO was not up to the job. And we thought, well, how can we change things? And what we managed to change was chair of that company. We thought, well, if we change the chair, then they can look at the board and change it. So the new chair came in and he said, well, you know, I’m not sure if I agree with you. I need some time to work out whether you’re right or wrong. We said, Oh, fine. Well, a year later, he comes back, and he says, you were right. We’ve got to change the CEO so it can be a very long process, I’m trying to say, but I think it can be productive.

Steve Clapham
I’m wondering if you could compare and contrast your role, your role as an investment advisor or fund manager, versus the CEOs and senior executives of the companies you’re investing in or not investing in. I think it was partially addressed by the previous question. But you know, there’s a difference in stock price valuation versus making money with the assets that the companies have. And I wonder if you could comment on that. I’m not sure if I understand the question, to be honest, but you’re saying there’s a difference, obviously, between running a company and, you know, producing a stream of profits to what we do as an investment manager. That’s my assertion. It might be wrong.

Anthony Bolton
100% I mean that your business is in investing for the basis of your customers, to make a profit on the stocks versus the CEOs job is to maximize the investment of their investors, slash the business. And there is a difference. In my opinion, could be wrong, but I’m just wondering what you think? I’d agree with you. There is a difference that different activities require different types of people to be successful in each.

Q7. There’s a lot of discussion about the state of the UK listed markets, and I don’t know how close you are to the policy discussions around that, but the sort of disinvestment by the corporate pension funds over the years, somewhat on your watch, sort of de risking the corporate pensions in the UK, away from equities. You know the suggestions almost mandating a certain allocation to the UK equities which were discussed, luckily not introduced. How do you think you know what is the right answer? Are you any close or any of those conversations, given your history, how do you fix a dysfunctional UK listed market today?

Anthony Bolton
So you’re not talking about the catalysts, as is well known the pension funds and insurance companies have one of the lowest allocations to the domestic market relative to anywhere else, as you’ll see. You know, the government said we’d like this to change. They haven’t mandated anything, I think if it doesn’t change, they probably will, rightly or wrongly. I mean, that’s very debatable whether it’s something they should be doing or not, I think. But I think it looks to me as that they probably will. Will this make a big difference? It will make some difference. But, you know, obviously a lot of that sort of pension fund money has moved away from equities, you know, to de risk has been de risked. I mean, whether that’s a good thing or a bad thing is, is a different conversation, but that those sorts of funds probably will never come back into the equity market. But it seems to me, you know that in many other countries, the domestic funds tend to have about 20% of their money in their domestic market. Why the UK has got down to four seems strange. Now look, if I’m right about the future, and something big is going to change in the world, with a view about America and index funds and stuff, that’s going to be a catalyst to change very much how people think about investing. So I think that’s going to be the catalyst that changes the role of the UK.

Q8. Anthony, you said that you’re contrarian and unfashionable. In order to be unfashionable, you’ve got to have a sense of fashion and to know what the way herds and people act. Do you think that you have a particularly good sense of herd mentality? And is that key to your success?

Anthony Bolton
Yes, but you’ve got to put it mentality, you’ve got to measure popularity. You’ve got to measure, over ownership, all the sort of sentiment indicators that people look at that’s what I think. I think an investor who doesn’t look at those is really missing something quite important. You know, short interest is something I look at inside a bit. I think that that’s an important indicator to me. So yeah, you definitely look at the stuff, call ratios, that all sorts of stuff, which indicates sentiment and popularity.

Steve Clapham
Okay, so listen when I announced this event, one of my clients, who’s a former Fidelity PM, wrote an email to me. He said I noticed that you had Anthony coming on to the podcast in a couple of weeks time, I was incredibly fortunate to have worked closely with Anthony when I joined Fidelity, and then to have had him as a mentor when I began managing portfolios. He has an exceptional mind, a natural, insatiable curiosity for stocks, and is quite simply the bravest fund manager that I’ve ever met, more than that, he’s a wonderfully kind, courteous and generous individual, and I can’t thank him enough for the advice and wisdom that he shared with the investment team. I’d like to thank you for sharing that wisdom with us this evening. It’s been really fun. Thank you.

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