Investment: Stock-picking

Remember the wisdom of Keynes and Mark Twain

Wednesday, 6th June 2007

On 11 September 2001, I had lunch with a contact who runs a specialist broking firm and is an expert in general insurance. We talked about the insurance industry and by coffee we had convinced each other that the outlook was pretty good. As we reached this conclusion, the biggest insurance event in history was taking place on the other side of the Atlantic. Following this horrific incident, the worst-hit shares in global markets were insurance, hotel and travel companies. I later increased my fund’s holdings in these industries and made good returns as the shares recovered. Being in the investment business sometimes involves being hard-nosed — especially as a contrarian, which means investing against the crowd. If an investment feels ‘comfortable’, then you’re probably too late. The stock market is an excellent discounting mechanism: by the time everyone is either excited or worried about something, it is normally already in the price. When there is great optimism or great pessimism, there is the most opportunity.

Many things have changed dramatically in 30 years of stock market investment, but some haven’t. Fundamental, research-led contrarian stock-picking works as well today as ever. Doing what everyone else is doing might work in the short term, but is nearly always costly in the long term.

Anthony Bolton has managed Fidelity’s Special Situations Fund since 1979; he steps down from the fund at the end of this year to take on a new role at Fidelity .