Investing Against the Tide – Anthony Bolton

This authoritative and accessible investment classic promises rare insight into what it really takes to run money in a top-performing investment fund.

“Cracks are always there, but bear markets expose them”

Conviction from Many Discrete Elements and Facts

  • In the beginning of investing, focus was on digging up information that others didn’t have access to or they have missed
  • Today, information exists in abundance
  • Secret to beating the rest of the market now is to analyze that information better than everyone else
  • By having a structured way of analyzing many discrete elements and facts, you will have more conviction when you invest against the tide and less susceptible to making large mistakes
  • 6 criteria’s for selecting a stock:
    • Strong business franchise
    • Excellent management
    • Low valuation
    • Strong financials
    • Takeover target
    • Favourable technical
  • Information comes from newspaper, annual reports, analyst reports, interview with managers
  • Can rate each criterion to a 1-5 scale

Relatively Low Price

  • Mean revision is strong (most things go back to normal)
  • Strong business turns into normal business
  • Low valuation turns into medium valuation
  • Look for companies that have low valuation, both historically and relative to peers
  • Look for PE, Price to Book, Price to Sales and EV/EBITDA
  • Evaluate these metrics over 20 years

Skeletons in the Balance Sheet

  • “Never invest in a company without understanding its finances. The biggest losses in stocks come from companies with poor balance sheets”
  • Make sure that there’s enough time for mean reversion to kick in
  • Avoid companies that have huge debts, short-term repayable debt, high yielding debt

A To-do list When You Are Not Doing That Well

  • Maintain conviction
  • Don’t box yourself into a corner
  • Don’t try something completely new because of a few bad years
  • Go through your worst investments and check for patterns
  • Make sure your portfolio matches your conviction (largest confidence = largest holdings)

Look for Asymmetric Payoffs

  • Big upside, low downside
  • “Look for tenbaggers” which are stocks that can increase 10x in value
  • 1 tenbagger = 9 bankruptcy
  • Small companies are more likely to have asymmetric payoffs than large ones