"Just buying stocks which are cheaper than their historical average is not value investing; buying value is buying on a deep discount to NAV."Value investors typically look for companies that are trading on a price to earnings [P/E] ratio that is lower than their historical average.
Other metrics of valuation might be used, and other points of comparison, but the principle is the same – to make money from stocks as they bounce around a historic range.
Bos looks for something much more radical: companies that are so unloved by investors that you can buy their shares for less than the equivalent share of the company’s assets.
"I’m looking to buy for 60p something that is worth 100p," he said.
Companies in this situation are typically those in some distress and Bos needs to discard what he calls "the dross" to find the stocks that are more interesting.
Meetings with management are key to his decision to invest. He uses these to get a clear indication of why the company has been suffering and what it is doing to recover.
"I am not very clever so I have to decide why they are underperforming – is the industry changing, have they made some strategic mistakes, is it management?"
"They have to be shareholder-friendly – if they are not willing to see me personally, they have a different agenda to me."
He looks for low levels of debt, a strong balance sheet and reasons why the company is likely to turn around.
"I need to be able to understand how the business works, so I don’t hold banks," he said.
One of his biggest successes has been property development company MJ Gleeson, the share price of which fell off a cliff in the 2007 market crash.
According to data from FE Analytics the stock lost 85.12 per cent of its value between May 2007 and December 2008, to reach a price of just 49p.
Bos bought in to the company in November for 90p and the shares are currently back at 287p, representing a 300 per cent gain for his fund.
Performance of stock over 10yrs
Source: FE Analytics
The company remains the biggest position in the fund, at 10.1 per cent, although the manager has slightly trimmed it back.
"It would not surprise me if it was taken over at some point," he said.
MJ Gleeson has benefited from the recovery in the housing market, as has Barratt Developments, the fund’s third-largest holding, at 8 per cent of AUM.
While many well-known managers have boosted the returns of their fund over the past year with the stock, Bos picked it up in 2009 for around 100p and has made more than 350 per cent on his investment – shares are now at 385p.
Performance of stock over 5yrs
Source: FE Analytics
Crystalox is an example of a stock that he holds that is yet to recover. Bos bought it when it was on the verge of liquidation, but the difference between the share price and the value on the balance sheet meant that he would have made money even if the assets were sold off at a discount.
Sometimes the strategy doesn’t pan out, however.
"I may decide that something is cheap, but cannot quite get the market to believe the same," he said.
This, along with the need to sometimes wait a long time for the companies to recover, means that the performance of the fund can be highly volatile.
The fund originated in an offshore vehicle used for Church House’s private clients with a greater appetite for risk.
It was made available to UK retail clients in February last year, meaning data is only available from that point.
The fund has made 20 per cent since then, almost identical to the 20.77 per cent made by the FTSE All Share.
Performance of fund vs index since Feb 2012
Source: FE Analytics
However, data supplied by Church House shows that the fund has outperformed that index and the FTSE Small Cap index over five years, albeit with higher volatility.
Bos says that he considers the risk on the fund to be low on a medium-term view, considering the deep discount at which he is buying assets.
This means the chance of actually losing money is quite low.
The £10m portfolio holds 16 to 30 stocks, depending on how many opportunities the manager can find.
It is available with a minimum initial investment of £5,000 and has a management fee of 1.25 per cent.
