As the Fidelity star prepares to retire, he lists the three essential skills of a successful fund manager — lessons that private investors can learn from
It’s easier to spot opportunities in smaller companies
The key to buying shares for less than their true value is spotting something that the rest of the market has missed. But large companies are scrutinised in great detail by a large number of people — analysts who work for stockbrokers or fund managers, the media and other private investors. It’s a different story for smaller firms.
While BP, for example, has 30 or so stockbrokers’ analysts looking at it all the time, some small quoted companies are covered by just a handful, or even none at all. It’s therefore much more likely that a significant fact — perhaps one that gives a company the edge — goes overlooked.
“With a small company I could go to a meeting with the management and come out knowing more about that firm than anyone else,” Mr Bolton said. “That’s not possible with a larger business.”
Look for new opportunities — but don’t forget about the shares you already own
Mr Bolton said running a fund successfully was a team effort involving plenty of backup from his analysts.
Many fund managers say the same and it’s tempting to put it down to modesty or toeing the corporate line, perhaps with an eye to reassuring investors that the fund can maintain its performance if the top man leaves.
But the reason Mr Bolton gave for needing a team was deeper than that — and carries a lesson for private investors.
“I use my analysts to watch the fund’s existing holdings while I look for new opportunities,” he said. “It’s important to do both when you’re running a fund.”
Individual shareholders can’t employ a team of analysts, of course. But they can make sure that they keep monitoring their existing holdings at the same time as looking out for new bargains.
Fundamentals and market sentiment are both important
Mr Bolton said two things were important when choosing which shares to buy: the fundamentals of the company and stock market sentiment. “Ideally you get both right,” he said. “I would avoid buying even a good company when sentiment is poor.”
But he added that timing the market was difficult, as his Fidelity China Special Situations fund showed. It lost about 30pc of its value in its first 18 months, before recovering all its losses and more recently. “Markets always overreact,” Mr Bolton added.
“It has taken three years for the fund to come right.”
• More fund news and ideas: bookmark telegraph.co.uk/investing
• See Telegraph investing stories on your Facebook page — like us at facebook.com/telegraphinvesting