Fidelity Worldwide Investment's Anthony Bolton has revealed the three pillars of a stock-picking process which helped him become one of the most successful fund managers the country has ever seen.
Bolton's career at Fidelity has spanned more than three decades, the main part of which saw him manage Fidelity Special Situations from 1979 to 2007, turning £1,000 into £147,000 for those who invested with him from the start.
His subsequent return to manage the China Special Situations trust in 2010 preceded a savage downturn for Chinese stock markets, particularly Hong Kong's H-share market where he was investing.
Despite the tough beginning, Bolton has made strides in turning the performance around, with recent numbers showing the focus on the smaller end of the market is now starting to pay off.
In NAV terms it returned 36.8% in the last year, with shares up 35%, versus a return of 12.4% for the MSCI China index. Since launch, China Special Situations has risen 13.6% in NAV terms compared with a 2% rise in the MSCI China.
So what enabled Bolton to achieve the returns - and the legacy - that he created? Speaking to Investment Week, the manager reveals there are three key strategies investors need to keep in mind when investing.
1. Know your own behavioral biases
Bolton said it is crucial those who want to invest in the stock market understand themselves emotionally, avoiding any innate biases they may have.
"Investors need to understand themselves, as they may not be emotionally cut-out to invest," he said.
"To be a good investor you need to be a bit detached, a bit unemotional, and if you are not then it is probably better to let someone else do it for you."
2. Be a specialist
Many investors try to be all things to all men, but Bolton said if you develop a greater knowledge of a certain part of the market, then focus on that when you are investing your money.
"You have to use what you know to your advantage, and if there is an area you know more about than other people then you need to use that," he said.
Fidelity's training programme for analysts and fund managers makes use of this technique, with analysts rotating across a number of sectors for the first few years of their career. This enables them to develop a detailed understanding of certain sectors which they can then exploit if given retail money to run.
3. Long term vs market timing
A well-known principle of most fund groups' investment styles is to take a long-term view and avoid 'day-trading' habits. But most data shows investors' time horizons are becoming ever-shorter.
Bolton said investors need to ensure they do not react to short-term noise and trends, focusing instead on the long-game for companies in the absence of fundamental changes.
"Market timing is very difficult, and the idea most people can sell at the right time is clearly a myth," he said.
"Instead, you need to take a long-term view because otherwise it is all too easy for an individual to get sucked-in at the top and spat out at the bottom."
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