1) Anthony Bolton’s “Investing Against the Tide” is the best book I have ever read on running a fund as opposed to being an analyst. Obviously one needs to be a securities analyst first and foremost, but good analysts aren’t always good PMs and vice versa.
2) Being an analyst fundamentally involves making binary recommendations (buy or sell) while running a fund is about position sizing and managing risk – complementary, but different skill sets. So many books have been written about analyzing stocks and so few about running funds
3) The main topics of interest that the book doesn’t cover are quantitative risk management, which is important in today’s factor driven world, and alternative data. Quantitative risk management was just coming into vogue as he retired and alternative data didn’t really exist.
4) I think of quantitative risk management as making me aware of all (or at least most of) the risks I am taking and a way to ensure that I am primarily betting on idiosyncratic, single stock risk as opposed to factor/macro risks.
5) Alternative data has been interesting – the industry is much more mature than even two years ago and every provider offers compelling, scale based pricing for new funds.
6) In my prior life, I was very involved in the alternative data effort at a large long only and my conclusion at the time was that the only funds that have a sustainable advantage here are Renaissance and maybe Bridgewater/Two Sigma/D.E. Shaw etc.
7) Renaissance/Bridgewater/Two Sigma have super proprietary datasets that they purchased for their own exclusive use under long term contracts years ago. And they will pay data scientists $30 to $50m per year.
8) So my priors were that much of the alpha from alternative data is arbed away long before it gets to traditional fundamental funds that don’t have proprietary datasets and aren’t paying data scientists $30 to $50m per year.
9) But I think this has changed as the industry has matured – i.e. the alternative data providers have more customers/revenue, so more resources to acquire data sets which is creating a virtuous cycle and helping them slowly close the still massive gap with Renaissance, etc.
10) So there is some alpha from alt data these days these days and and alternative data is increasingly driving the market as it is the main source of information intra quarter along with mgmt commentary. Interested to see if it reduces volatility around earnings over time.
11) But would also say that having a reasonable amount of alternative data is table stakes and most funds now have the same(ish) information given that pricing is generally either explicitly or implicitly related to AUM. Alpha mostly comes from interpretation/context.
12) And calibrating its importance is critical as it is often wrong given small and ever changing samples. i.e. Many of the big moves this past earnings season were because the alternative data was predicting the opposite of what actually occurred.
13) Fundamental analysts can use it in different ways that increase conviction in long term theses – i.e. doing the type of cohort analysis that is core to venture capital but difficult to do in public equities given less information from the companies.
14) Alternative data is also quite helpful in venture for monitoring portfolio companies, their competitors and/or analyzing potential investments. i.e. Can compare cohorts across companies.
15) And if you have a fundamental thesis, the alternative data can be helpful in directionally confirming or disproving it and is another tool akin to technical analysis, insider buying/selling, etc. They are all additive to core fundamental analysis from my perspective.
16) Anyways – book was fantastic and highly recommend to anyone with a solid grounding in securities analysis (i.e. must be steeped in Buffett, which is also table stakes for anyone investing) who is interested in running a fund.
17) Regret that I never met Anthony during the time that we overlapped. Learned an immense amount from Peter Lynch and after reading this I am sure that I would’ve learned quite a bit from Anthony.
