publication

People
The best-performing investments are ones
where you catch a potentially big re-rating story
at the right time, just as it starts its big move.
constructing financial models and trying to get a read on
whether or not it’s a good investment. In general, I find
that the best-performing investments are ones where
you catch a potentially big re-rating story at the right
time, just as it starts its big move. There are three criteria:
1) An attractive fundamental story with improvement in
the underlying business, 2) A decent or better valuation,
compared to peers and versus the Discounted Cashflow
valuation, 3) A catalyst which cause the position to
perform. I then follow the investment thesis and the
performance; if I’m wrong about the thesis or if I hit a preset
stop-loss, I get out.
I do pay attention to charts when I am getting in and
out of positions, as sometimes key levels can signal a
good entry or exit point. If I’m bullish on a stock and long,
if it breaks out of a six-month base, then I would use that
chance to add to the position.
My style is inspired by William J O’Neill’s work
which has documented the ingredients that lead to big
winners. However, I have had to adapt it heavily to the
particular conditions of emerging markets. For instance,
you have to do a lot of intense research to make financial
projections for most companies. O’Neill would reject
turnaround and deep value stories, but those can be
incredibly profitable in emerging markets. Nonetheless,
he was right on the money about the most important
thing: Focus on winning stocks if you want to generate
outsized performance.
Richard Chignell: How do you feel when
a trade goes against you
Bower: Usually, I’m pretty calm about positions going
against me. I will review my work as to why I got it and
see if I did anything wrong or stupid; if so, I will get upset
with myself. If not, then I am pretty dispassionate about
following my plan.
Richard Chignell: How do you feel when
a trade goes for you
Bower: I might feel a bit of validation and like patting
myself on the back if I had a very strong view and it
played out correctly. Overall, I don’t really feel much.
If anything, I expect my trades to go my way so it’s my
“default setting”.
Richard Chignell: How have these feelings changed
over your trading career
Bower: When I first started trading, I was super excitable.
I used to get all wrapped up in every tick and take loses
personally, to the point of depression. As I developed as a
trader through practice, reading a lot of books and talking
with experienced traders, I realised several things. The
first was that you had to be detached at some level from
your trades. The second was that the best way to get to
that point was to have a methodology that you followed
rigorously and that you trusted fully. That way, you could
think of trading more as a decision-making exercise,
which allowed you to reframe the whole process away
from “making money”, which is emotionally charged,
towards “making good decisions”, which is much more
detached. The third was that by adding in some additional
tools, like visualisation, you could learn to really manage
your emotional state and to put yourself into what “Flow”,
as Mihaly Csikszentmihaly labelledit.
Richard Chignell: Do you have any practices that you do
away from the trading screen to help you mentally and
emotionally handle trading
Bower: I have a few. I am quite religious and go to church
every day, in addition to doing mental prayer for up to an
hour. While it’s a spiritual exercise, it does have a very
Bruce Bower
Bruce Bower manages a portfolio of emerging market
equities at a hedge fund. He has a keen interest in markets,
psychology and self-development.
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