The thinking framework of the "father of contrarian investing": Dislikes the US stock market, prefers the Chinese stock market

How can investors profit from contrarian investing? Recently, Nicolai Tangen, CEO of the Norwegian Sovereign Wealth Fund, had a conversation with Anthony Bolton, former president of Fidelity International, discussing the art of thinking differently in financial markets.

Anthony Bolton joined Fidelity Investments in 1979 and retired at the end of 2007 to guide Fidelity's young fund managers and analysts. He created a 20% annual compound return through "contrarian investing" and is known as the "father of contrarian investing."

In the dialogue, Bolton shared why popularity is a risk and how the best investment opportunities often feel uncomfortable. He also shared his views on Chinese stocks, U.S. tech stocks, and future markets.

Here are the key points from the conversation:

1. Contrarian investors often need to make decisions in situations where they are misunderstood or even questioned. Investing itself is a risk, and contrarian investing requires finding value in uncomfortable opportunities. They often need to think independently in their investment decisions, sometimes going against conventional wisdom.

2. The best current contrarian investment choice is to invest in China, as almost all global markets are close to their peaks while China is near its lows. Therefore, investing in China is undoubtedly the best choice for contrarian investing, and we are in the early stages of a new bull market in China.

3. U.S. stock valuations are very high, with all the money flowing into the U.S. An important point in investing is to distinguish between the journey and the destination. The market may rise during the journey, but trends often end when reaching the destination. The U.S. market was already close to the end of this journey when Trump took office.

4. The U.S. market is nearing its peak, and cryptocurrencies are a clear sign of "excessive speculation," which may signal the end of the bull market.

5. Bolton does not like to make macro judgments about the market; he prefers to find his competitive advantages. In a bull market, he increases his number of holdings because he can find more interesting opportunities. In a bear market, he reduces his holdings, focusing on reviewing each stock, finding reasons to hold each stock, and concentrating on what he does best.

6. The key is to balance the time spent reviewing existing holdings and searching for new opportunities, dedicating at least a quarter of the time to finding new opportunities. When managing large funds, fund managers often spend too much time on defensive investments, neglecting offensive investments.

7. The effectiveness of contrarian investing lies in the fact that few people are willing to do it. The problem with the stock market is that if everyone does the same thing, it may work in the short term, but as more people follow suit, a bubble will inevitably burst. I believe that popularity itself is a risk, while unpopularity signifies opportunity.

Here is the full text of the conversation:

Nicolai Tangen: Hello everyone. Today we are fortunate to be at a very excellent company, engaging in a conversation with Mr. Anthony Bolton. In my opinion, Anthony Bolton is the "father of contrarian investing" in the investment world. He always does the opposite of what most people do and has achieved great success. Anthony, you have earned huge profits for Fidelity over the years; can you share your experiences?Anthony Bolton: Thank you, Nicolai. I'm glad to communicate with you.

Nicolai Tangen: Anthony, why does contrarian investing help you accumulate so much wealth?

Anthony Bolton: I believe contrarian investing is effective because very few people are willing to do it. By definition, the problem with the stock market is that if everyone does the same thing, it may work in the short term, but as more people follow the trend, a bubble will inevitably burst. I think popularity itself is a risk, while unpopularity signifies opportunity. Of course, I'm not saying that everything unpopular is an opportunity, but I strive to find those overlooked areas. If I hold assets that everyone else holds, I always feel uneasy.

Nicolai Tangen: Indeed, very few people can think like you do. So, what qualities should a contrarian investor possess?

Anthony Bolton: I think contrarian investors need to have a distinct personality trait. Most people like to fit in, to gain recognition and encouragement from others. But contrarian investors need to be different; they need to think independently, stick to their beliefs, and remain calm and patient. Typically, contrarian investing takes some time to see returns. I believe this personality trait is hard to cultivate and may even be innate. I'm not sure if everyone can become a contrarian investor, but it is indeed a unique quality.

Nicolai Tangen: So, do contrarian investors need to have strong psychological resilience?

Anthony Bolton: Yes. Contrarian investors often need to make decisions in situations where they are misunderstood or even questioned. Investing itself is a risk, and contrarian investing requires finding value in uncomfortable opportunities. When the market generally believes that an opportunity has matured, it is often too late. Contrarian investors must be prepared to face this uncomfortable state.

Nicolai Tangen: Do you think contrarian investors need to possess a sense of "loneliness"?

Anthony Bolton: I think it relates to personality traits. Contrarian investors do not necessarily lack friends, but they often need to think independently in their investment decisions, even going against conventional wisdom. Sometimes, this sense of loneliness is unavoidable. For example, I once spoke with a scientist who made significant breakthroughs in cancer research, and at that time, he was also very unpopular because he went against traditional views. Contrarian investors sometimes need to go against conventional wisdom, though not every time, but it does require such courage.

Nicolai Tangen: So, are you an emotional person?

Anthony Bolton: I don't think I'm an emotional person. I can accept both success and failure, which is very important for an investor. The investment industry is full of ups and downs, and everyone goes through phases of success and failure. The key is to remain calm, not to be carried away by success, and not to be defeated by failureI believe that investors need to maintain a certain level of calmness and objectivity, not letting bad moments affect them, and to view the market from a higher perspective.

Nicolai Tangen: So, how do you maintain this calmness and objectivity in investing?

Anthony Bolton: I think investing requires a calm mindset and should not be overly excited. Investors need to maintain a certain distance and analyze the market from an objective perspective. Although investing itself is a captivating industry that allows access to various companies and global trends, investors cannot be overly emotional. At the same time, do not underestimate the market's discounting ability. Many people always focus on future prospects, but the key is whether the current market's discount level aligns with your expectations.

Nicolai Tangen: So, what factors do you pay attention to when analyzing the market?

Anthony Bolton: I consider multiple factors comprehensively. I usually start by observing the stock price trends to determine whether I have arrived too early or too late. If a stock has performed well over a long period, it may indicate that I have missed the opportunity; but if it has performed poorly, especially when its management, business portfolio, or external environment has changed, I pay special attention. Additionally, I look at the shareholder list, especially for medium and small companies, as this is an undervalued analytical method for me. I pay attention to whether other funds already hold these companies, which helps assess whether the market has fully explored these opportunities.

Nicolai Tangen: So, do you pay attention to the buy and sell recommendations of other investors?

Anthony Bolton: Yes, I pay attention to two important aspects of the market: weighting and voting. Most analysts spend a lot of time studying fundamentals, but I focus more on the voting part, which is market sentiment. I combine factors such as shareholder structure and insider trading to make judgments. If insider trading aligns with my views, it enhances my confidence; for example, if the company's executives are buying shares, it may be a positive signal. I also use charts to validate my views. Conversely, if insider trading contradicts my views, I will reassess my decisions.

Nicolai Tangen: So, how do you use chart analysis to assist your decision-making?

Anthony Bolton: I believe that chart analysis is an important confirmation tool. If the chart trends support my fundamental analysis, I will be more confident in increasing my position; but if the chart trends start to decline, I will consider reducing my position. I never buy a large amount of stock at once; instead, I gradually increase my position as my conviction strengthens. This investment approach is dynamic, rather than black and white.

Nicolai Tangen: So, how do you decide on the initial position size when buying a stock?

Anthony Bolton: This requires considering multiple factors comprehensively. I usually start by buying a small position, typically around 0.5% of the company's total shares. As I deepen my understanding of the company and strengthen my confidence, I gradually increase my position until it reaches around 4%. This strategy allows me to identify opportunities early and flexibly adjust based on market changesI usually have a clear investment logic, especially for stocks with asymmetric returns—those with limited downside but significant upside potential. For example, a company may have a strong balance sheet or good cash flow, or it may be developing a certain drug or conducting oil exploration. If luck is on their side, these factors can have a huge impact on the company's valuation.

Nicolai Tangen: What do you think is the most contrarian investment in the market right now?

Anthony Bolton: Investing in China. Currently, almost all global markets are near their highs, while China is near its lows. Therefore, investing in China is undoubtedly the best choice for contrarian investing.

Nicolai Tangen: How would you raise funds to invest in China? What would you sell?

Anthony Bolton: I might sell U.S. stocks. In the U.S., everyone is enthusiastic about the market, valuations are high, and all the money is flowing into the U.S. I think an important point in investing is to distinguish between the journey and the destination. The market may rise during the journey, but trends often end when reaching the destination. I believe the U.S. market was nearing the end of this journey when Trump took office. As for China, the market has been worried about tariff issues for months. I think the official implementation date of the tariffs could be the turning point for the market.

Nicolai Tangen: The tariffs have already been implemented today.

Anthony Bolton: Another thing is that the influence of artificial intelligence is overly concentrated on a few U.S. stocks, which makes no sense to me. AI has driven the seven tech giants up, and the stock market likes this; it is very similar to the internet bubble. In the past few weeks, this trend seems to be spreading to China. I am not bearish on U.S. tech stocks, but I believe the potential of the Chinese market is underestimated. Although geopolitical risks cannot be ignored, domestic investors actually have very limited choices.

Will investors return to the real estate market? I don't think so anytime soon. Gold has performed well, but besides gold, they have another place to go—the stock market. So, my point is that we are in the early stages of a new bull market in China.

Nicolai Tangen: Back to the U.S. market, what role does cryptocurrency play in it?

Anthony Bolton: For someone like me, cryptocurrency is nothing. I can't analyze it at all. But for me, it is a sign of "excess." If you are looking for an overvalued and overly speculative market, cryptocurrency is a clear indication. So, it could be a signal that the bull market is about to end, but I don't know how it will unfold.

Current bear markets tend to be more severe, happen faster, and end quicker. I don't think I can predict it, but from the perspective of market cycles, the U.S. market is nearing its peak. In this industry, nothing rises straight up. Moreover, the U.S. market has achieved a 20% return for two consecutive years, and when valuations are high, the opportunities for investors to make money decreaseNicolai Tangen: So, a very stupid question, why not sell when the market starts to decline?

Anthony Bolton: You never know when it will start to decline, and that's the trouble. If everything were that clear, it would be much simpler. But I spend most of my time investing, and I don't like to make macro judgments about the market; I prefer to find my competitive advantage. For example, there are thousands of investors trying to guess the Federal Reserve's moves, but I prefer to focus on researching companies. Even if I have some views on the market, I wouldn't bet my entire portfolio on it.

Nicolai Tangen: So you don't spend too much time on macro analysis. What are the differences between being a contrarian investor in a bull market and a bear market? What are their characteristics?

Anthony Bolton: That's an interesting question. In a bull market, the number of stocks I hold increases because I can find more interesting opportunities. In a bear market, I reduce the number of holdings and focus on reviewing each stock, finding reasons to hold each one, and concentrating on what I do best.

Moreover, I think it's very important in investing to listen to other viewpoints. Most people like to hear voices that align with their own opinions. For example, if I hold shares of Google, I would spend more time listening to bearish views on Google to see what their reasons are. I believe it's crucial to listen to opposing opinions. If you hold a stock and there are many people shorting it in the market, you need to find out why they are shorting it.

Nicolai Tangen: What do you think about short sellers?

Anthony Bolton: I don't have a particular view. But I remember investing in a company once, and one day I had a meeting with a hedge fund that was shorting it. Ten minutes into the meeting, I suddenly realized that they were right, and we were wrong. That's why in investing, gray areas are always more common than black and white. I think it's very important to listen to different viewpoints.

Nicolai Tangen: Do you think the biggest difficulty facing contrarian investors is the possibility of losing their jobs?

Anthony Bolton: Yes, that's one of the reasons why contrarian investors are scarce. I experienced the internet bubble, during which some investors were fired for sticking to contrarian views. Within two months after the bubble burst, the market changed dramatically. Many investors chase short-term performance too much, and no investment method works every year. So, you need to find a method that suits you and stick with it. I am skeptical of those who claim they can switch investment styles at will in different market environments. I think it's very difficult for individuals.

Nicolai Tangen: How long would you stick to your views before changing your mind? How stubborn are you?

Anthony Bolton: That's an interesting question. I think that stubbornness and conviction are necessary, but you shouldn't cling to them blindly. My colleagues have said that when people feel uneasy about a stock, it may be due to a lack of conviction. However, while conviction is important, you must be willing to changeThis is very important. Investing is a challenging industry; you might get by on luck for three years, but performance beyond three years is the true skill. A record of less than three years may just be luck, or even a lack of luck.

Nicolai Tangen: So, how do you know when you are wrong?

Anthony Bolton: I think it's crucial to keep an open mind. The investment industry is inherently accompanied by frequent mistakes, and a 55% success rate is already quite good, which means you might be wrong 45% of the time. The important thing is to learn from it and move on. I often say that what distinguishes excellent fund managers from average ones is not success, but the ability to eliminate losers. If you can avoid failures, your performance can rise from average to the top quartile.

Nicolai Tangen: How do you handle pressure?

Anthony Bolton: Perhaps this is one of the reasons I excel at contrarian investing. Pressure doesn't affect me much, although I can be impacted at times, such as after a market crash or events like in 1987, when you feel anxious and even doubt whether everything has changed. But the key is that I can handle pressure and even temporarily "switch off" that pressure.

Nicolai Tangen: Is that when you compose music?

Anthony Bolton: Yes, when I'm making money every day, I don't have much time to compose music. But composing music is a way for me to relax and is part of my life.

Nicolai Tangen: You compose church music, right?

Anthony Bolton: Yes, I have composed a series of musical works, including two operas. This is my main achievement in the field of music and the work I am most proud of.

Nicolai Tangen: That's impressive. How do you avoid overconfidence now? How do you stay humble after long-term success?

Anthony Bolton: I think self-analysis is very important in the investment industry. A proper attitude of humility is very helpful for investment decisions. If a person is too arrogant, they are often unwilling to analyze their shortcomings. I believe that maintaining humility helps avoid overconfidence.

Nicolai Tangen: Is this part of your company's culture?

Anthony Bolton: We welcome all types of talent and believe that a homogeneous talent structure is very dangerous. The investment industry needs people with different skills and backgrounds. If a person is too emotional, it often hinders investment decisions.

Nicolai Tangen: What changes have occurred in the market today with the rise of passive funds and trend following?

Anthony Bolton: I believe these factors will cause market trends to last longer. Twenty or thirty years ago, the ability to obtain and process information was limited, making investing relatively easy. Today, although market efficiency has improved, anomalies still exist. Passive funds can sometimes exacerbate these anomalies, prolonging trends. This means investors need to wait longer, and market corrections may come later, but once they do, their impact may be greaterNicolai Tangen: How do you build an organization that accommodates different viewpoints?

Anthony Bolton: The approach we take at Fidelity is to have a team of analysts and a team of portfolio managers. Most employees start as analysts and have the opportunity to be promoted to portfolio managers after undergoing rotation training in different industries. We do not have a unified investment style; instead, we encourage diverse investment approaches, including growth, value, and income strategies. I believe that different funds and methods can respond to the cyclical changes in the market.

Nicolai Tangen: If the entire team agrees on a viewpoint, does that mean the viewpoint is correct?

Anthony Bolton: Committee-style investment decisions often do not work well because when everyone reaches a consensus, the best opportunity may have already been missed. The best investment opportunities often feel uncomfortable.

Nicolai Tangen: If I were your analyst pitching a stock to you, and you made the opposite decision, is that common?

Anthony Bolton: Fund managers do not act solely on analysts' recommendations, but we do pay attention to the alignment between the fund and the analysts' views. This is important. For fund managers, timing is crucial, especially since contrarian investors often spot opportunities earlier than the market. When the fund size is large, I cannot wait until the stock improves before buying in. I need to build a position while the stock price is still low; liquidity is important.

Another issue is that when managing a large fund, I tend to hold more stocks. The key is to balance the time spent reviewing existing holdings and looking for new opportunities. This is often referred to as defensive versus offensive investing. The trend is that when managing large funds, fund managers often spend too much time on defensive investing and neglect offensive investing.

I believe at least a quarter of the time should be spent looking for new opportunities. I will leverage Fidelity's team of analysts and portfolio managers to focus on the stocks they recommend. I cannot attend all the meetings for the stocks I already hold, but I will ensure I attend enough meetings to look for potential new opportunities. Balancing defensive and offensive investing is crucial, especially when managing large funds; one cannot focus solely on defense while neglecting offense.

Nicolai Tangen: This is a philosophical question. You cannot always stay in familiar territory; you also need to try new things. For example, do you always go to your favorite restaurant, or do you occasionally try new places? Do you always order chicken and chips, or do you occasionally try baked lasagna?

Anthony Bolton: You cannot forget, nor can you ignore what you already have because of changes in the world. They will never remain the same. Similarly, you cannot focus only on new things while neglecting existing holdings; you need to find a balance between the two.

Nicolai Tangen: In today's market environment, with the prevalence of social media and "information silos," is it harder to find young contrarian investors?Anthony Bolton: This is an interesting question. I believe every era has its characteristics. If an investor only focuses on short-term gross profit growth without a long-term perspective, it is difficult to become a contrarian investor. The investment industry needs to go through different cycles to cultivate true contrarian investors.

Nicolai Tangen: What role does Europe play in this now?

Anthony Bolton: I don't think the market is black and white. The U.S. market also has many attractive value stocks, and it cannot be generalized. The European market has its opportunities, but the problem with Europe is that it carries too much historical baggage. In the next ten or twenty years, the East may dominate the global market, rather than the West.

Nicolai Tangen: When you take a contrarian investment strategy as a PM (Portfolio Manager), you may underperform for a long time. How does this affect how you motivate your employees?

Anthony Bolton: Our compensation system is primarily based on one, three, and five-year performance, with three-year performance being the most important. This is indeed a challenge. Our compensation system is mainly based on three and five-year performance, but more importantly, long-term performance. In the investment field, it is difficult to guarantee excellent results every year. In my career, I have also experienced periods of underperformance for three consecutive years. But Fidelity has always supported me; although I did not receive bonuses like in good years, they believed in my long-term capabilities. I think it is essential to focus on the long-term success of fund managers. In contrarian investing, fund managers may experience prolonged downturns because passive funds can prolong trends. Management needs to give them enough time and support.

Nicolai Tangen: So, what happens if the management or board of an institution does not accept contrarian investment strategies?

Anthony Bolton: Yes, that is key. If the management committee or board does not support contrarian investing, then this strategy is difficult to survive within that institution. Investment history shows that strategies that performed well in the past few years may not be effective in the coming years. Investors need to be aware of the cyclical nature of the market, rather than being blindly optimistic.

Nicolai Tangen: Can you apply the concept of contrarian investing to other aspects of life? For example, writing operas is not a mainstream activity.

Anthony Bolton: Yes, I think contrarian thinking does not mean that every aspect of life has to be different. I have things I like and things I don't like, but they are not necessarily contrarian. Writing operas is indeed a rare hobby, but that does not mean it is contrarian. I simply do things according to my interests, rather than deliberately seeking to be different.

Nicolai Tangen: Thank you very much for your sharing today; it has been a very pleasant conversation.

Anthony Bolton: I am also glad to talk with you, thank you