Investing Against the Tide summary

Investing Against the Tide Summary and Review |  Anthony Bolton

Lessons From a Life Running Money


Life gets busy. Has Investing Against the Tide been gathering dust on your bookshelf? Instead, pick up the key ideas now.

We’re scratching the surface here. If you don’t already have the book, order the book or get the audiobook for free to learn the juicy details.


About Anthony Bolton

Anthony Bolton is one of the most well-known and successful investment fund managers in the UK. From December 1979 until December 2007, he oversaw the Fidelity Special Situations fund. A £1,000 investment became £147,000 over the course of this 28-year period thanks to the fund’s annualized return of 19.5%, which was far higher than the stock market’s overall growth of 13.5%.

Bolton graduated from Cambridge University and Stowe School with degrees in engineering and business studies. He pursued a career in the area, and at the age of 29, Fidelity hired him to be one of their first investment managers in London. He is currently Fidelity International Limited’s President of Investments and the manager of Fidelity China Special Situations PLC.

Introduction

Sometimes, it merely seems as though the stock market has gone bonkers. In such circumstances, it is crucial to keep in mind the advice of Anthony Bolton, one of the finest investors in British history. According to Bolton, bull markets hide fractures while bear markets reveal them. Keep this in mind because cracks can always be found in some form.

It resembles a smiley face. It smiles back at you when you look at it one way, but when you turn it around, it appears aged and unhappy.

In this lesson, we’ll learn how to flourish in volatile stock market environments. And here is a list of the book Investing Against the Tide by Anthony Bolton’s top five lessons.

StoryShot #1: Conviction is based on a number of distinct facts and components.

At the time, Peter Lynch and other renowned investors worked at Fidelity, where Anthony Bolton was one of the fund managers. He spent his whole 28-year career there, learning a ton about how to succeed by making investments in small and mid-sized businesses.

Bolton concluded that during his earlier years as an investment manager, the world of investing had undergone a significant transformation. Finding knowledge that others didn’t have or hadn’t noticed was the main goal. Contrarily, today, information is widely available, and the key to outperforming the rest of the investment world is to evaluate that information more adeptly than anybody else.

You will feel more confident when you invest against the grain and be less likely to make costly errors if you have a disciplined process for reviewing numerous discrete factors and elements before making your investment decisions. Anthony takes a bottom-up strategy to investing. He evaluates a company’s stock in six key areas before making a purchase, and he only does so if he is convinced after adding up all six of these aspects.

1) A strong franchise

One of the most effective inquiries to ensure a successful business franchise is this one:

How likely is it that the company will still exist in ten years and be worth more than it is now?

2) OUTSTANDING MANAGEMENT

The way in which they are compensated is more significant than what the management is doing.

Strong performance will frequently result from strong performance incentives.

Low valuation (#3)

This will be discussed in StoryShot #2.

4) POWERFUL FINANCIALS

This will be discussed in StoryShot #3.

5) TAKEOVER TARGET

Small and medium-sized businesses are more likely to be target companies for takeovers. Therefore, you’ll frequently gain a lot as a shareholder if your company is bought out by a rival.

6) APPROPRIATE TECHNIQUES

Bolt concluded that his advantage comes from combining fundamental analysis with pricing data.

He is looking for a business with an alluring narrative whose price has not yet reflected its allure. As a result, he often steers clear of stocks that have had rapid growth. Let’s say I increased 200% in three years or something

Newspapers are one source of some information. Several from yearly reports, possibly a few from other analysts, manager interviews, etc. Since the information is, by nature, unstructured, it is up to you as an investor to put it in order. So that it can be used to inform investment decisions, for instance, you could grade each of these six characteristics on a scale of zero to five, with five being the greatest possible score.

It takes time to complete this task effectively. Next, we’ll look at ways to choose businesses that are worth look at ways to choose businesses that are worth further research. 

StoryShot #2: An Affordable Price

In terms of investment, mean reversion is a really potent phenomenon.

Almost everything returns to normal. A successful company becomes a typical one.

A high valuation becomes a low valuation, and most significantly, a brilliant manager becomes a poor manager. Anthony Bolton seeks out undervalued stocks as a result. It is cheap in comparison to both past prices and peers. Price to Earnings, Price to Book, Price to Sales, and EV/EBITDA (Enterprise Value/Earnings before interest, taxes, depreciation, and amortization) are his four main metrics for this.

Bolton prefers to analyze these over intervals of 20 years, but for the purposes of this example, 10 years will have to do. We’ll examine Apple, Toyota, and GAP.

No matter the crucial ratio we examine, we can observe that Apple trades at a higher price than it has ever done, whilst Toyota and GAP are experiencing the exact opposite.


They haven’t been this affordable in ten years. Additionally, we can see that Apple is more expensive than the S&P 500 on every important ratio. While GAP and Toyota are less expensive, The best spot to look for wise investments is here. But keep in mind from StoryShot #1 that pricing is simply one of the several factors you must take into account when purchasing a stock.

Finding price anomalies is always simpler than predicting when they will self-correct. Therefore, while investing in these kinds of businesses, we want time to be on our side. This is what the following point will be about.

StoryShot #3: The Balance Sheets Contain Skeletons

According to Peter Lynch, never invest in a firm without fully comprehending its finances.

The largest stock losses occur at corporations with weak financial sheets. Let’s imagine you discovered a business that, based on the valuation parameters we discussed in StoryShot #2, is extremely undervalued.

Consequently, there’s a good probability that business isn’t doing so well right now. It may even be in the red. Because we would desire mean reversion to begin before the company goes out of business, we must ensure that its financials are sound. Look at the balance sheet, and avoid organizations that have significant debts. Compare the debt to the company’s equity or, if appropriate, to the profits.

Include factors like a future payment requirement, liabilities for pension funds, and redeemable preferred shares.

IMMEDIATE REPAYABLE CREDIT

Recognize the debt profile and determine whether the business has the short-term cash it needs to survive.

Low Yield Debt

Look at where the company’s outstanding bonds are traded, if there are any.

If the yield on them is exceptionally high, it indicates that bondholders are pessimistic about the company’s prospects or financial health, and you ought to be concerned as well.

While avoiding companies with weak balance sheets will result in your missing out on some winners, it will also result in you avoiding a lot more losers.

StoryShot #4: When You’re Not Doing That Well, Make A To-Do List

Even the most successful investors go through slumps occasionally. If your portfolio has the flu, take a look at this quick checklist.

A conviction level of about 50% is considered ideal. You must remain steadfast, but you also need to remain adaptable.

2) Never put yourself in a bind.Shorting the stock of a business called Herbalife cost the famed activist investor Bill Ackman a lot of money. He put himself in a difficult position by saying on live television that he believed the company was a hoax, which was likely his biggest error. His ego was on the line as a result, and he conceded defeat far too late.

3. Avoid making a radical change just because you’ve had a few terrible years.

I won’t change my prior strategy, whose logic I understand, even if it means forgoing significant earnings that seem to come easily in favor of one that I don’t completely understand, haven’t tried, and that might result in a big permanent loss of cash.

BUFFET WARREN 
4) Examine your historically poor investments for common factors.Are you repeating a mistake from the past?

5) Make sure your portfolio matches your level of conviction.In other words, is the stock in which you still have the most confidence your largest holding overall? If not, it’s time to reorganize by buying and selling certain things.

StoryShot #5: Keep an eye out for Asymmetric Payoffs 

A situation where there is a significant reward but a minor downside is known as an asymmetric payoff. The phrase “tenbaggers,” which refers to stocks that increase in value 10 times, was notably coined by Peter Lynch. Consider the possibility that, with just one such stock, you could entirely fail and choose nine profitable companies that fail.

Because of how strong this asymmetry is, I think it’s interesting to think about when choosing a stock: “In 10 years, would it be conceivable for this firm to be worth 10 times as much?”

The likelihood of this occurring for the majority of businesses that are already extremely large today is, in my opinion, pretty low.

I can’t imagine how Apple, for example, might increase in value from $1.13 trillion to $11.3 trillion. Although not implausible, we should take into account that in 2000, Microsoft had a market cap of $560 billion and ExxonMobil had a market cap of $316 billion ten years prior.

My argument is that a small company is more likely than a large one to have asymmetric payoffs. A smaller oil business with a favorable valuation and excellent cashflow that aggressively spent capital on new exploratory efforts would be an example of a stock with an asymmetric reward.

In such a corporation, the risk is very minimal, and the potential rewards are great, particularly at the moment when oil prices are at their lowest level since 2004. a mix of oil price stability. Such a company might easily become a tenbagger if a sizable oil well were discovered, which would lead to an increase in the PE multiple.

Another example might be a smaller pharmaceutical company with comparable traits. It should be fairly valued and generate substantial cash flow, much of which is invested in new research to discover the next big thing. Additionally, such R&D should take place in a decentralized organization with a focus on a wide range of potential outcomes.

Such a business can, likewise, easily become a tenbagger if a medicine with a sizable market is discovered.

Investing in the least glamorous stocks you can find is another way to go against the grain when making investments. In his book, One Up on Wall Street, Peter Lynch popularized this tactic.

Quotes

“Another type of situation I like are companies with asymmetric pay-offs – stocks where you might make a lot of money but you can be confident you won’t lose a lot.”

― Anthony Bolton, Investing Against the Tide: Lessons From a Life Running Money0 likesLike

“Jeremy Grantham, chairman of GMO, makes some very interesting observations about growth and value investing in the US: ‘Growth companies seem impressive as well as exciting. They seem so reasonable to own that they carry little career risk. Accordingly, they have underperformed for the last fifty years by about 1½ per cent a year. Value stocks, in contrast, belong to boring, struggling, or sub-average firms. Their continued poor performance seems, with hindsight, to have been predictable, and, therefore, when it happens, it carries serious career risk. To compensate for this career risk and lower fundamental quality, value stocks have outperformed by 1½ per cent a year.”

― Anthony Bolton, Investing Against the Tide: Lessons From a Life Running Money0 likesLike

“When management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact’ Warren Buffett”

― Anthony Bolton, Investing Against the Tide: Lessons From a Life Running Money0 likesLike

Get the full book for the details

Comment below or tweet to us @storyshots if you have any feedback.


Related Book Summaries

Rich Dad Poor Dad

Think and Grow Rich

I Will Teach You To Be Rich

MONEY Master the Game

A History of The United States in Five Crashes

Rich Dad’s Cashflow Quadrant

Midas Touch

The Intelligent Investor by Benjamin Graham (Open in the app)

How to Get Rich by Naval Ravikant

Angel

Total Money Makeover

The Millionaire Fastlane

Similar Posts

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.