'It is a good time to invest'

Some 16 months ago, Anthony Bolton, the 55-year-old MD (Investments) of Fidelity International, passed on the baton to a younger breed of fund managers at Fidelity Special Situations Fund, a value-focussed, often contrarian equity portfolio, in the UK. In the 28 years during which he managed this fund, Bolton’s contrarian style of investing helped investors earn an annualised return of 19.5 per cent (the larger stock indices returned 13.5 per cent over that period), making him one of the most successful investors in the UK. Bolton has written several books, the latest one being Investing Against the Tide, a guide for novices and young fund managers.

His first visit to India was four years ago when one of his portfolio companies, the Edinburgh-based Cairn Energy, discovered oil in Rajasthan. Last fortnight, Bolton, who has been regularly visiting China for the past six years, was in India for the second time. BT’s Rachna M. Koppikar caught up with him for his views on global equities and to learn more about his style of investing. Excerpts:

You have stuck your neck out to say that the current spurt in stock prices isn’t a bear market rally...
One of the factors I look at is how far a bull market has risen or how low the markets have fallen during the bear phase and the duration of the rise and the fall. US markets have fallen 57 per cent till March, which makes it the second worst fall in the history of that market. The worst fall was in early-1930. Some people say we are in a depression, which will be worst than that of the 1930s, but I will be surprised if that happens. The fact that it’s been a worst ever 10-year period (till March) for US stocks makes me feel that it’s a good time to invest.

Do you think markets have provided enough contrarian opportunities?
If I look back, one of the indicators I use to decide whether it’s the bottom or the top is to see if I could find a lot of interesting value investments. If I don’t, it makes me more cautious. Over the last 3-4 months, there have been a lot of opportunities across sectors, particularly the ones that have been beaten down. The defensive sectors have held up well, but I don’t think it’s the best place to be in.

Do you think contrarian strategies play out best in certain kind of markets?
It’s difficult to say. Contrarian is the opposite of momentum investing where you jump off the trend. Contrarians tend to do worse in a momentum market or in the last phase of the bull market.

You have said that the emergence of hedge funds and quant funds (which select stocks based on quantitative analysis) has led to a lot of mis-pricing.Will this continue?
Once a hedge fund manager told me that his average holding period is five. Five months, I asked. Five days, he replied. My main argument is there are so many investors with a short investment horizon, it gives an opportunity to those with a long-term horizon.

How do you differentiate between a good and bad company when even the third parties dealing with the company are given to believe that they are working with a good management?
Satyam Computer Services has been one such recent example in India. It’s not possible to spot every bad firm. In most firms I have come across, there are people who know what’s wrong, but they don’t have any incentive to tell other people.

How has Warren Buffett influenced your investing style?

He is on the top of my list of the investors who have influenced me the most. He writes brilliantly and is a great investor at the same time. Secondly, he has observations on so many subjects, which are all valid. Also, he very much believes in the company franchise. It’s a combination of management and company franchise, but if you put the best management into a poor franchise, it’s still a poor franchise.

How has Peter Lynch influenced your style?

He is a great believer in going out and meeting company managements and his belief is that company contact is the most important part of fund management. Also, he wouldn’t be pigeon-holed into just growth or value ideas. He liked an approach where you could buy any of those. Initially, when I was running funds, size wasn’t an issue but when the funds became successful, the challenge was to run large-sized funds. We used to seek Peter Lynch’s advice on the issue. One thing he told us was that the investment manager always splits his time—one part of it is for looking at the existing portfolio and the other part for finding new ideas. As the fund size grows, the tendency is to spend more time on the existing portfolio. After a suggestion from Peter, I started using internal analysts to look at the existing portfolio and spent more time on finding new ideas.

How does an investment manager keep himself grounded when the markets turn volatile?
It’s one of the biggest challenges. If you lose confidence, it becomes difficult. I believe temperament is an important characteristic of a fund manager. You can’t let successful stock-picking go to your head, and you can’t believe that everything you touch will become gold. Conversely when you are having a bad patch, you shouldn’t lose confidence.