RSS

Contact us

Tuesday 2 December 2008

Investment: Stock-picking

Remember the wisdom of Keynes and Mark Twain

Because of investor redemptions, I had to sell some of the stock in my fund. At times of panic like this I have found it helpful to focus the portfolio: I force myself to reassess the investment thesis and keep only the stocks about which I have most conviction. Market downturns are a good opportunity to weed out weaker or smaller holdings — though reassessing the investment thesis should not be limited to moments when the market turns down; it should be done on a regular basis.

The technology bubble of 1999-2000 is an illustration of the value of stock-picking. This period presented some of the biggest opportunities in the shares of ‘old economy’ companies that I have experienced. It also demonstrated the herd-like nature of most investment institutions and the cult of momentum investing. I remember a great debate about which was the more attractive IT stock, Logica or Sage. The answer, at the time, was that both were wildly overvalued.

Several events in that era really drove home to me that we were in cloud-cuckoo land, but one in particular sticks in my mind. A long-standing corporate finance contact telephoned to offer shares in a new internet-related company placing. I think he had been allowed to approach eight institutions. The conversation went something like this: ‘Hello Anthony, I want to tell you about a very interesting new company I’m listing.’ ‘Great,’ I replied, ‘when can we meet the management?’ ‘I’m afraid we’re doing this on an accelerated basis and that won’t be possible. In fact, I need to know your interest by this evening. Anthony, you should know that every other institution that I’ve contacted so far not only wants shares but would be happy to take many more than we’re offering.’

We went through the figures. My opinion was that it was a very high valuation. ‘Thanks,’ I said, ‘not for us.’ ‘But Anthony, you’ll be the only institution to have turned this down.’ This was a few weeks before the technology bubble burst in March 2000. I didn’t follow what happened to this company, but I very much doubt it survived. That year, I outperformed the benchmark by the greatest margin I have ever achieved in a calendar year.

More articles from: Anthony Bolton | this section

Print this article  |  Email to a friend  |  Permalink  |   Comment

Post this entry to:   del.icio.us | Digg | Newsvine | NowPublic | Reddit

Advertisement

Spectator Business | Apollo Magazine

Corporate | Advertising | Privacy | Terms

Spectator, 22 Old Queen Street, London, SW1H 9HP

All Articles and Content Copyright ©2008 by The Spectator | All Rights Reserved