Many investors shrink from the valuations of firms such as Amazon and Tesla – which are Scottish Mortgage’s two largest positions – because they are obsessed with value investing or with tracking the market cheaply, he tells the Financial Times. But both these approaches badly misunderstand what drives long-term returns.
“All the excess returns in world markets since 1990 have come from just 1.3% of companies,” says Anderson, citing research by Hendrik Bessembinder, professor of finance at Arizona State University. Outsize growth is concentrated among a tiny number of stocks. For these, “we need to be willing to pay high multiples of immediate earnings because the scale of future potential returns can be so dramatic”, he says. “The valuation will turn out to be [very] low on the stocks that flourish. On the others, we will lose money.”
Baillie Gifford last week sold part of its stake in Tesla, but this was purely because it had risen so much in value that it breached limits of how much of a portfolio can be in a single stock. Anderson remains optimistic about Tesla’s prospects – and about the potential for tech to transform the world. “Over the past 15 years we have made an awful lot of mistakes,” he says. “But our biggest mistake may be that we have not been optimistic enough.”
MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
-
RICS: Budget failed to boost property market and recovery unlikely until spring 2026Data from the Royal Institution of Chartered Surveyors suggests the Autumn Budget hasn't helped to improve property market sentiment
-
FCA launching targeted support to help savers with complex financial decisionsThe regulator wants to help you get to grips with investing and pension planning. Here’s how its new targeted support framework will help you
-
Leading European companies offer long-term growth prospectsOpinion Alexander Darwall, lead portfolio manager, European Opportunities Trust, picks three European companies where he'd put his money
-
How to harness the power of dividendsDividends went out of style in the pandemic. It’s great to see them back, says Rupert Hargreaves
-
Why Trustpilot is a stock to watch for exposure to the e-commerce marketTrustpilot has built a defensible position in one of the most critical areas of the internet: the infrastructure of trust, says Jamie Ward
-
Tetragon Financial: An exotic investment trust producing stellar returnsTetragon Financial has performed very well, but it won't appeal to most investors – there are clear reasons for the huge discount, says Rupert Hargreaves
-
How to capitalise on the pessimism around Britain's stock marketOpinion There was little in the Budget to prop up Britain's stock market, but opportunities are hiding in plain sight. Investors should take advantage while they can
-
London claims victory in the Brexit warsOpinion JPMorgan Chase's decision to build a new headquarters in London is a huge vote of confidence and a sign that the City will remain Europe's key financial hub
-
Reinventing the high street – how to invest in the retailers driving the changeThe high street brands that can make shopping and leisure an enjoyable experience will thrive, says Maryam Cockar
-
The consequences of the Autumn Budget – and what it means for the UK economyOpinion A directionless and floundering government has ducked the hard choices at the Autumn Budget, says Simon Wilson
