#56 - Discovering James Anderson, Growth Investor at Baillie Gifford
August 3, 2020: Discovering James Anderson, Joint Manager of Scottish Mortgage Investment Trust at Baillie Gifford. Looking into the approach of growth investing, margin of potential upside, how following Buffett may have stopped a generation of investors from learning and Growth at an Unreasonable Price.
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Episode Notes:
Learning about James Anderson, Co-PM of Scottish Mortgage Investment Trust @ Baillie Gifford
$10bn AUM fund. BG is 110+ years old in a small town in Edinburgh, Scotland
Returns: AMZN = 104x, TSLA = 16x, Naspers = 17x, private investors of BABA since 2012
Optimism first approach to investments => first 20 minutes focuses on the bull-case given a bias for investors to be skeptical.
A 2020 letter that notes the opportunity of the past decade came as a result of the market and broader investors failing to learn. As Anderson puts it: "Performance chasing has its own evils but replacing it with endless rebalancing towards ‘value’ strategies backed by a blind conviction that reversion to the mean is inevitable has been an investment tragedy. It’s largely been prompted by misguided theorising. But the theory has been reinforced by the extraordinary grip that Warren Buffett has exercised over the investment world. Of course the very long term record of Berkshire Hathaway is brilliant, of course Buffett has a splendid way with words and the public, of course he doesn’t believe in the silliness of risk as divergence from the index. But Buffett’s success has sanctified a freezing of the investment narrative"
In many ways, Anderson points out the irony of many Munger followers acting like lemmings when Munger continuously touts the importance of not following the crowd (even if its a value-oriented crowd). It is also a theme Munger has warned about in his DJCO meetings as well. I believe there were a few meetings where he warned investors that the way he and Warren made money will have to be different from for future generations of investors. Apply the principles but not literally the same tactics.
A view of how loss aversion and the pain of loss may be amplified for investment managers given their dependence to the job/identity. This could further drive a bias towards excessive loss avoidance in fields where one can be measured in the short-term (i.e. Public vs. Private).
Growth investors. GAUP = “Growth at an Unreasonable Price”. Looking for explosive growth and willing to pay high multiples. A view where you will permanently impair capital but to seek the upside. The true downside of any equity investment is 100% loss after all. "The asymmetric payoff structure (you can make far more if you’re right about a stock than you can lose if you’re wrong) is the fundamental attraction of investing in equity markets."
Anderson focuses on finding the 5% of stocks that will return the majority of market returns. "Academic work on the past ninety years of US data shows that over half of the excess return from equities came from just 90 companies. Investors enjoy little (if any) reward for taking the risk of owning the median stock in the market. Instead it is the outsized impact of a small number of exceptional companies that dominate the payoff structure."
Growth that resembles Phil Fisher’s timeline: "Today eight of our top ten listed holdings have been held for more than five years and three have been held for more than ten"
Anderson calls for a consideration for the Margin of Potential Upside vs. The Margin of Safety.
List of the "The Baillie Gifford Prize for Non-Fiction Winners” - https://www.goodreads.com/award/show/29395-the-baillie-gifford-prize-for-non-fiction