James Anderson on Why Fund Management Is 'Broken' (Podcast)

Bailey Gifford since nine His track record is superlative. But what I'm really fascinated by is not just the outcomes of his investments. It's how his process is so atypical of what we see in the world of investment. Very thoughtful, very eccentric, really considers investments in in terms of decades, forget years, decades. I don't know how else to describe it other than strap yourself in. For this one, it's spectacular.

With no further ado. My conversation with the soon to be retiring manager of the Scottish Mortgage Investment Trust and partner at Bailey Gifford, James Anderson. This is Mesters in Business with very renorlts on Bluebird Radio. My extra special guests this week is James Anderson. He is a partner at Bailey Gifford, where he runs the Footsie one hundred listed Scottis Mortgage Investment trust funds. It's about twenty three and a half billion dollars last I checked. He has

generated returns over the past two decades of over. Bailey Gifford also manages about four hundred and seventy billion dollars. James Anderson, Welcome to Moomberg. Thank you. It's a pleasure to be with you. Let's talk about your career. You join Billy Gifford back. Tell us how you found your way into finance and how did your financial career begin. Barry. I think it's a combination of a fairly um normal British establishment story with a few twists. UM. I came

from a very medical family. UM I didn't much care for the idea of being a doctor, although everybody assumed that's because I wasn't remotely clever enough, which used to

annoy be a bit. I did a history degree at Oxford, which may or may not have been relevant, and I then spent a couple of years at university abroad, in particular a year at Johns Hopkins and Bologna in Italy, which was originally set up to use for the c I spent spy on the Italian communist parties involved by then, but it gave me a first for hearing different interpretations.

There were people from approximately forty different tris and really made me a great deal more curious than I was when I was being talked down straight lines at Oxford. And I think, and I think you would probably agree, fund management is great if you're really curious about the world. Journalism was the only other thing I considered um and I didn't much like London, so Edinburgh was quite interesting.

So so you're barely Gifford in eighty three, how do you eventually become the manager of the Scottish Mortgage Investment Trust, which dates back to practically the turn of the last centric. That's right, and to be honest, Barry, I think that some of the events in the early years of Scottish

bortgage quite fascinating. You might be intrigued to read, for instances, accounts of UH ninety thirty, where it was much more concerned about which member of the Scottish middle classes was going to be appointed to the board than it was

by what was happening on Wall Street. It's account of why Canada and Argentina were more interesting than America was interesting the backstory that for many years, UM, but I've always thought that investment trusts are a fantastic instrument UH and you know that's come across even more in recent years because our freedom to go where we want an investor in whichever form we want UH, and to try and offer at low costs to retail investors has been

something that I really value. And so the unpopularity of that form which existed back in UM, you know, it was just a fascinating project to try and get involved and gradually UM see the benefits of it. And I much admired my predecessor, Max Would, who had the same thirst for growth investing. Billy Gifford made a huge mistake because in the late nineties seventies Max was by far our most outstanding investor UM, and of course so many of our assets were in the UK at that time.

Max was persuaded to be in charge of the UK market when his heart was in America. And I think Scottish Borgage shouldn't really give a right had been further onwards. If we'd revert that last year you happened to say fund management was irretrievably broken. Um explained that a little bit. That's a fascinating quote. Yeah, well, and I'd be very interested to pursue this and follow up questions from you Berry, because I think it's a critically important issue. I think

fun of management has inherently become inward looking. And you know this as well as I do. People measure themselves by how they do to their comparators. If I go back to the early days of stock markets, what we were in the business of was helping to create a nurture great companies. So we're going to move society as well as investors onwards, and I think that we've lost that sense of purpose over the years. So that is

absolutely central to how I see it. I would evidence it by not just all the type of short run performance statistics and short run media coverage there is, but by the lacerating overall facts that both in Britain and America, for a very long decade now, more money has been given back by companies in the quoted markets than has been raised. Um. You know, he's become a machine for

recycling rather than a machine for creation. Now I could go on, but fundamentally, I think that is the great trouble and has led us to have have to reinvent a different way of really providing serious equity capital outside the public markets. That's really interesting. So when you say a machine for recycling rather than inventing, are you referring to share buy backs rather than R and D, research and development and investment in new ideas. Yeah, that that's

absolutely right. Share back buy backs um in many cases successive divid and insufficient investment UM, and particularly in capital intensive business, which, as you know of not on the whole being what's been on people's minds for most of the last that he is. But yeah, I think this is a real problem. And to build these companies you need a time horizon that is well longer earth than

quarters years and possibly even the decades. Huh. There's another quarte of yours related to this exact issue that I found very amusing. Fund managers are addicted to the near pornographic allure of earnings reports and macro economic headlines. Is that just a colorful way of saying they're too short term, They're not thinking long term enough. That's that's certainly part of it, but I don't think it is underneath even

in terms of the moment the critical part of it. UM. I'd cite for instance that I spend a lot of time asking companies when they've been fortunate enough to be successful, what have been the critical moments, critical decisions? And very rarely, Barry, do they say it was because we had a great quarter in or of course we beat ourn ex expectations

in two thousand and five. And indeed, I think if you if you drill down from that, very often the most significant moments of companies history have been when they've done something that is annoyed in the quarterly reports sense um. And you know, I I would cite, for instance, the extreme drawdowns we saw with Amazon around the time of developing Prime, which was plainly a fantastically good long run term value creating proposition, but yet the preoccupation was with

the short term impact on earnings. And you know, I think you can drill into that again in a different way by asking what are the questions that happen in quarterly earning schools? As you know, very rarely do you see major investors in the company. UM. The focus of those discussions. It is about the brokerage industry, the investment banks, and the next quarter, and I think that is profoundly

dangerous and does have an impact. So I think it actually goes well beyond just the time frame a justice though that's a unimportant when plainly it's deeply, deeply important. But I think you actually get the immediate discussions as well as the long term discussions bias towards whether the next quarter is going to be up or down relative to a set of analyst expectations. You were early desparked the potential for some really explosive growth stocks, and they're

all very different. I'm thinking about Tesla Ali, Barba, Amazon, What were the tells of each of these that led you to think, Hey, there's really something special here. I think fundamentally there are two important tracks in this Barry uh to discuss try and um elucidate our thought process

of now. I think really you're looking for the scale and this has become almost bernal to say, but the scale of the addressable market that is there, and very often I think it's it's it's key to stress this that scale is not necessarily all that obvious at the start of it. You know when Amazon was a bookseller, when Tester was a sporting goods company, or you read about the early days of Ali Baba when there were twenty of it, but you can't really guess to that.

But I think that means that a critical important part of this is a management that can accept that type of open endedness and that type of time horizon and

that type of business decisions that we were talking about. Now, if I look at this from an intellectual point of view, we've had a splendid relationship with a set of academics who have tried to focus on what really happened in the stock market from that that point of view, UM And you know, I think the history is going right back to the Dutch East India company that a very small number of people dominate. And this was our experience ourselves that you had to have that ability of the

management to think in those brought raw terms. But we we we we acquired ever greater conviction of this when it wasn't just our own experience but from the work of Hendrick Bessing Bhind at Arizona State University UM in just stocks out performing treasury builds and they're onwards and to put this in context. Um, you know, his data on the American market goes back to twenty four thousand companies in US common stock. Since then, um, now, over that time, half the value of the key bills has

been created by just ninety companies. Now, talking to Hendrick, he would agree that these companies don't just have huge markets, but they have a willingness to say, we don't know

there's going to take us. And you mentioned there as we we we all often do Amazon within this now, possibly of all the many brilliant things that Jeff Bezos has said and done, I think it was one of his initial comments that there was this weirdness about his business that everything he and Amazon News got better and cheaper, usually by around perannum um. And then he paused and probably gave a characteristic laugh and said, which I think

is really important. I don't know where this is going to take me, but I think it is going to be very exciting. Now we don't know, and surely we didn't know about a WS and the like. And you know, I think what you're there by looking for is both that type of management attu in general and something specifically in the vigil. We'd be lucky to have on the board of Scottish Mortgage and sadly now retired professor per

s John Kum, who is his work. You probably know m but you know a truly brilliant and thoughtful economist who really puts Tom Slater. You've talked to him myself on our biggest tests, board meetings and other discussions. But I think one of the best sentences that even John has as written um is the start of one of his books where he compares great companies with fiction, and he cites the first line of Van Karenina, which says that all unhappy marriages are different, but all happy marriages

the same. And John's take as a second line is it's the reverse in companies, that all great companies are unique and all mediocre companies that are saying. And I think if he runs through all these examples, and we may well do with some of those, they are unique and they have a different interpretation. So my challenge to myself, you know, sticking with the Amazon example, is instead of we spotted it early, what took us so long? Because we only became major owners of Amazon in approximately two

thousand and four. I think if you go back and read and try and x out you know, all the subsequent UM successes. But if you read what Jeff based Us wrote, I think you and I would agree that it is a unique document, and I think you can find that form of thought processes about the future of their companies in all the truly great companies. Yeah, I think a lot of us read that initial letter to shareholders, but we probably didn't see it for a fifteen or

twenty years. Not a lot but read it and really understood it back in that that may be. I mean, I I almost think of, you know, to come back to my comments about our ownership, we made it more more difficult for ourselves varied by waiting those intervening six or seven years, because you know, I think one skepticism had only grown over that point. And you know, I'm always amuse frustrated now when people UM talk about the late ninety nineties as some sort of just simply a bubble.

I think there was also and here for once I would find myself agreeing with Peter Deal. There was also a huge amount of clarity around that point, and I think people's ability to explore those ideas was there. But yet, if I compare what Amazon was saying what Jeff Besis was saying about that point of time, UM, compared to what the average telecoms or media company equally sucked up in the whole boom was. I think you could make

those differentiations. So you know, I know that a periods of stress, and plainly there's another one at the beginning of this year. Um, the correlations go to one and all companies are regarded as the same. But I genuinely believe that the market and the articulation given by individuals and companies of their culture and ambitions does enable you to differentiate. Really interesting, So you mentioned Jeff Bezos and Peter Till, what is the allure of the enigmatic founder?

How much of the buyers you made in companies like Amazon and Tesla are because the companies were helmed by visionaries like Jeff Bezos and Eon musk H. Of course, of what I've said about the power of truly great businesses has come from reinterpreting uh the industries in which they operate, and very often, as the examples you side show, there are people who are basically from outside the industry. I think it is very very hard, um, not to

think that that is an absolutely critical factor. Um. You know, I would be intrigued. Uh. And you know we may come onto one or two counterexamples, but I wouldn't treat as how many companies have managed to rise to Chew greatness without having had that at the start of the Uh. There that the life stories And again that's something that basically Henry Bess and Binder would agree with us. If you go back early companies, that is also true of them.

You know, I find we were talking Amazon them. But I think the test A story in that sense is even more remarkable. Um. Somebody I much admard within the industry, John L. Kind of Ferrari installantis um As has said very clearly that he didn't think it could have Tessler, could have been done by anybody from inside the industry. So I think that different vision It very rarely comes about without there being one single individual funders now to undermine my own case Bury because you know, I think

that the nuance and the discussion is important here. Funny enough, one of the companies that people don't seem to focus on a lot, and they don't seem to ask me a lot lot or about all my colleagues, But which we probably most admire in the changes that have happened in the world, would be ASML in Holland, and I consider that both the extraordinary European example of a really deep technology company that has actually succeeded. I also consider it's possibly, in terms of what it enables, the most

deeply incomportant company in the world. You're not one of the Internet helpfullys would basically exist unless, as abuts continued More's law. But although there are individuals who have done absolutely superb jobs, it's not so much associated with the philosophy of one all domineering founders. And I find that thereby an example that is even more intriguing. How do you get to this level of ambition, this level of attainment, this level of world leadership without having that sort of leader.

But I'm assuredly of the view that having one of these sort of visionary leaders at the start is hugely important. So that raises a fascinating quandary, which is, how do you separate the true disruptor, the folks like bezos and musk, from the crowded fields of those who you know, promise over promise and under deliver um. And I'm thinking of either Adam Newman of of WE Work or Travis Clentic of of Uber. Well, firstly, I I don't think I will have any difficulty persuading you of this very let

alone the audience. Um, I think one accepts that the hit rate is going to be comparatively low. You know, another one of the points that Hedrick best of mind who would make, is that he can stick up a chart of where the returns in public equity markets, whether in America or internationally, have come from, and people assume it's a return structure of the venture capital industry rather

than the public equity markets. And inevitably that means you are, just as in the venture capital We're going to have failures. But yes, of course you both try and capture the extreme and try and winnow out um where the differences, and you know, I think it genuinely has to come down to a judgment of the caliber and the persuades us of those individual ideas. You know, to be quite frank with you, we did talk to WE Work, but we didn't invest. We did talk to to run Us,

but we didn't invest. Now, to some extent, you're relying on network of people who you will have good conversations with them when we might come that. Come back to that later. But I think it is about whether when you put to these people the difficulties, the drawbacks, why do they believe in what they're saying, um, and why do they think they might have a chance? Then I think you can make a more intelligent answer to that

than you think. And you know, I think thereby and this is I think a very are the easy question for most investment managers. You are thereby coming down on it being critically about making qualitative judgments rather than quantitative ones. And when we were discussing earlier Ernie his cause and the like, I think that that rushed to what you can measure rather than what you can think about and not even analyze but creatively enquire about is hugely important UM.

And I think your biggest single objective on that is to try and understand whether there is a reason that only the one company who are investing in can do what was happening. So we we worry a lot about companies in which the clones can easily happen. On that score, one of my takeaways from the Bess and Binder studies was that a lot of fund managers and staff pickers were excellent at identifying the companies to buy, but they

weren't especially good at determining when to sell. And I bring this up in light of you essentially cutting your tes So steake in half at a time after it had really ballooned up and was very fortunate timing. Was this just a function of rebalancing or valuation or what was the thinking behind the cell in in a substantial

stake of of your Tesla Holden. I'll try and answer that directly first, but then I'd like to cover a bit of the intermediary stage, because you know, I think it is it is the holding on that is critically important in this um. You know, I was very interesting interesting you had a discussion a few months ago, I think with Bill Gurley about the importance of the holding all elements of this which you know I think is essential to it. But let let me try and run

the testa one to you. So what we're constantly trying to answer, and I will mention some less excience successful examples of this, uh than how Tesla has seemed, at least so far. What we're trying constantly to ask ourselves is has this company got the possibility to be in the top five pc of outcomes over the next five years UM and even longer if if if we can, and we do, we try to make it longer, so you're sticking out, can it still produce enough return to

make it into that sort of very high level competition. UM. We did not think last January that at the total market capitalization, total enterprise values that Tesla was getting to, that we could see that degree of upside. It was not about a worry that it would go down, which, of course, in the case of Teslary even more than the case of ny NY companies always existed. It's that

we doubted there was sufficient upside. Now to bring that up to day have to say that, if anything, we have been i'd almost say taken aback by the excellence the brilliance of Texas executions since that period of time.

And I don't think it's just in quarterly and it's terms again to go back that I think their ability to build out the factories, to build out their expertise in the batteries broadly defined, their ability to internationalize, their ability to in fact increase their leadership over the industry rather than Saturn is truly remarkable. So you know you're being kind enough to say it was not an ill timed reduction, which it wasn't in terms of having held

on before. But it's perfectly possible we'll be wrong. And that's much of my mind, Barry, because you know, I think, if anything, although we pride ourselves hugely on our ability to in juror and back companies for for years and years and years, um, I think our longest holding is in Atlas Copca in Sweden, which I first brought in I think, and we still own it, but sometimes we've given up and made very bad mistakes on that point of view. You know, we were large owners of Apple.

I myself did the exercise of trying to see whether I thought it could be in the top five cent of outcomes over the next ten years, and I didn't think it could do could be now that's approximately five years ago now, um, so you know there is a fallibility about this process, but it's absolutely about it. Does it have the chance from here to continue to replicate the style of performance that with successes we think is the outcome? M hm. That's quite fascinating and it leads

to another question. I'm hearing you describe yourself as less of a pure bottom up stock picker, unless of a sort of macro market cycle economic guy, than someone who is trying to visualize what the future might look like and which companies can help shape it. Is that a fair assessment. I don't want to oversimplify this, no, but I respect that. But I think it's a decent simplification.

Or if I might trump put in a slightly different terminology, what we're looking for, uh the era defining companies, and I've never really understood this attempt to define it purely as bottom up or top down. Now, I think we haven't really talked about as yet, but I wouldn't be surprised if we if we do in the coming minutes. I think that we are also doing an element of

top down envisioning of what the world looks like. But it's not from you know, to go back to the analogy with the quarterly earnings, it's not from what is the FED about to do? And you know, to be frank, even if I knew what the Fed was about to do, I'm not sure it would help me make good decisions. But it is trying to think what are going to be the main driving forces of our economy over the years to come, and where can there be those forces

of change and where can we get insight into them? So, rather than looking for what a bunch of market commentators or hedge funds are saying, we try and talk to academics and scientists who can give us some checkpoints on whether you know, those fundamental points are happening. Um, So you know, to continue with the TESTA one on that theme. You know, what was critically important to us remains quickly

important to us. Um in thinking about that scale of the market that we were addressing earlier, was do we have that confidence that the whole panoply of technologies connected with making electric vehicles better and cheaper can continue to compound at somewhere between fifteen per annum that we had back in two thousand and thirteen fourteen. And you know, to me, that's both are far more valuable background to investing. But also you know, here I would be particularly interested

in your thoughts a far higher probability of being right. Um. You know, I think that back in two thousand and fourteen, we had approximately seventy five confidence interval that that across all the different parts of the industry was the improvement rate. Now, if you have that seventy five cent and it's competing with an industry improving a three percent to bit, as long as you've got patients, it's going to work out

in your favor. So I think you've not just got um a more impactful set of findings, but I think you've also got i'm far greater probability. And you know, come if I bring that up to date a year or so ago, I think the probabilities of that we're moving up towards somewhere around in most stock market bets. You know you're lucky if you get wow that that's

really interesting. So so I want to stay with the concept of evaluating early stage, emerging growth companies and ask you how important do you find it is to listen to scientists, technologists and other people who have an expertise that might be beyond what your particular our skill set is. Absolutely, and I mentioned curiosity earlier. I think you've got to

be interested in everything that forms that. Now, I know, in a certain sense, people in recent years have paid a lot of attention to the psychology and the behavioral factors in markets. But I think you can do it with a different set of thinkers. UM. Some of them are directly scientists. There are some I would almost classify barriers being most important to us. UM. I put it as the philosophers of change UM. For instance, not just

in reading but also in extraordinary helpful direct conversations. UM. The work of Colot of Paris at Sussex University have been extremely valuable to us. You know, how do technologies,

finance and innovation work together? And you know I won't go through them are of course plainly You've had many distinguished guests in the past who talked about this a lot, and many have done them more to creative but the whole emphasis of the work around in the Santa Fe Institute about the process of change, from hard technologies like the work of Justice on batteries to the more general

conceptual work of Bran Arthur and Jeffrey West. I think, you know, thinking about how the world changes is hugely important to us. And you know I'd make two observations about Santa Fe Institute on that score. One would be a huge offer of thanks to Bill Miller for his work in establishing and financing it. UM and and Secondly, I think most of the successful investors of the last fifteen to thirty years have owed a lot to the

Santa Fe Institute. And it's very different take on economics, on chain, on increasing returns, on dis equilibrium, and you know, I think we're all in the sense as Keen said, you know, we're we're often much more in practical circles at the whim of as he said, dead economists. But hopefully most of these people are still very much living.

But they are still very much living. But you know, I think we own much more to not just economists, but philosophers, to scientists and thinking about the process of change than we care to acknowledge in markets. And I think, you know, if I go back to when you were asking me about what I see as problems in the stock market, I think a lot of it is this other element of the self referential. We believe only finance

only market developments are worthier study. And I think that is a tragedy in both for the world but also in terms of trying to do reasonable investment. You will not make the point even more forcibly, you will not find much of what I'm talking about in the requirements of new investors. So let's stay with that because a

question I have for you a little later. Uh, there was a headline not too long ago quote see if a study cast doubts on weather, passing the test is a key to a fund manager's success, which raises a broad question what makes for a good investment manager? But in doing my research about Bailey Gifford, I get the sense that c f A isn't a particularly desirable designation

for your firm. Uh, what do you do to attract and retain the best talents in Edinburgh UM, which is really more of an academic center than a financial center. And how have you been able to do this so consistently? Well, Verry, It's something that I absolutely owe a lot to our predecessors, and this sort of intrigues me as to how they managed to come to this view of themselves and instigated

across the firms in such a strong way. We we always believed that you needed this broader set of background, so always deeply skeptical of whether it be UM finance qualifications or whether it be academic training. In those scenario words, one of the investors who I most admired in, Betty Gifford, and worked with for a long time. Although Japanese specialist Sarah Whitley was a psychology graduate and you know, I think embodied many of these values, so that principle was

always absolutely there. What we've tried to work on over the last twenty or thirty years is trying to broaden that out. You know, naturally one needs to get rid of the prejudices that were thirty years ago established around employing females, employing people of a different ethnic background. But I think it has to go much more broadly that you're looking for a great cognitive diversity, that diversity of real thought and approaching where you are, and I think

that is absolutely critical. Um. Now, at one level, it's not difficult for us to do. You know, we have many thousands of people as you know, as is you probably expect applying to us, as and do many other fund managers. But it then becomes a question of having the bride bravery of the right ones and persuading them either to come to Edinburgh. Um. And on that one I will make some comments. You know, I think that

Edinburgh has got fantastic attributes and fantastic drawbacks. You know, I can wander out five or ten minutes, and I can visit the graveyards of David Hume, I mean, and Adam Smith, and that whole intellectual heritage, which you know, in a sense you were being fair enough by saying academic,

but I think it ought to be much broader. You know, there is an intellectual heritage, and we need to get back to the bravery that Scottland demonstrated then, which was actually inherent in the history of the Investment Trusts, rather than becoming an instudent inward looking um and rather parochial place. And I think that's a battle you have to fight. But there is enough of the good here, you know, for instance, what they do at the Edinburgh Fest intellects

to come here is still incredibly valuable to us. But we also have to offer the option of people working elsewhere, so we have offices in America and China as well as a probably less imposing one in London. Um. So you know, I think we need to combine the history of the firm with the evolution with the good of Edinburgh rather than the limitations. And equally we have to be prepared to follow great people around the world. HM. Fantastic descriptor and really helps to explain how Bailey Gifford

has been as successful as it has been. Uh and taking such a non traditional approach. You know, we've been talking about mostly US companies for a while. UM, let's talk a little bit about what what you see that's attractive overseas. In fact, you've you've recommended Chinese and other emerging markets markets before, other emerging stocks before. Tell us a little bit about the mindset you have to have to invest in these or is it the same process

no matter what country you're investing in? Fundamentally, Barry, it is the same processs But of course the standards of proof need absolutely to be there, and I we we we we were talking earlier about the hortons of science

and academia. Now, what I think the corollary of that is is what's critically important to us um in determining where we are searching, where we're looking for, is that we need to see evidence of, if you like, that rising educational standards, those rising academic stars in the markets that we're talking about, and we need those to be, if you like, in charge of society. So you know, I've always felt very uncomfortable, uncomfortable, I don't know about you.

With this label emerging markets, it's always been made up of some countries which emerged two thousand years ago and then retreated with comping countries that are genuinely moving forward. And I'd never liked at all, in particular the whole brick discussion that used to happen. You know, I think the differences between Brazil and Russia, UM, and to a quite a large extent, India and China are profound on

the level we're talking about, UM. You know, when there are some extraordinarily brains within Russia, but I do not think they are central to the economic system, based as it is on comparative exhaustion, extortion and energy production. UM. So I think, you know, you start with making that. But at the company level, and I found this intriguing,

we make exactly the same AH discussions. We may have exactly the same set of ten questions that we asked the companies in these areas, and we're looking for the similar outcomes that we have in America or to some extent in in Europe. And you know, I my my real emotion about this is that, and I'm sure we'll come back. There's despite the difficulties that this can sometimes leads in operations, and the one shouldn't be naive about that. The companies have absolutely lived up to that bargain um.

You know. For instance, we've been large investors since well before it was a public company in May Juan the service company now that the food delivery and service companies now. I remember so acutely, and it follows on nicely from our discussions about Edinburgh. When the founder of Matuan first visitors here, obviously we've seen him in China before, but when he first visitors here, he organized a room that

looks out over historic Edinburgh and the castle. But before he would speak to me about the company, he required to me to give him somewhere between half an hour and ours full disquisition on the difference between the Scottish, the Edinburgh Enlightenment and the English Enlightenment. Now, fortunately, as I was majesting, I've studied quite a lot of history, and I've had to study quite a lot of Adams with over the ages, so I could just about all

the way end up. But not the notion that this is a standardized company that batually wants lawstened to its slides about its next quarter or whatever. It's a long long way way. And you know, I think many of the individuals we've had the privilege of a meeting in China absolutely stack up with some of the remarkable people

in America that we talked about. So let me ask the question that seems to be challenging so many when we look at what took place with China last year, going after the leadership of their own tech sector, essentially raising questions as to whether or not there there is a well, at least a rule of law the way we think of it in the traditional Anglo sense. Um. You know, it led some people to wonder if China

was uninvestable. How do you respond when the leadership of a country basically puts a series of policies and programs that you know, the whole text actor there really has gotten shelat Yeah, right, um, And again, you know, I I appreciate having the chance to explore these questions rather than just simply provide one word I agree or I disagree, No two words our answers to to you. So can I go back and Barry and I perhaps should have should have said it when I was talking about the

attractions of distant countries. I would have considered myself by colleagues in Shanghai, by being diffident large to be incredibly naive if we thought about these issues beforehand. The Chinese government does not conceal that it has the leading role in society, and you know, surely we ought to have known that. Um So, you know, I think that we we we did have a mentality around this, that we

had to accept that there were risk suspective. But if I then move on, I would differentiate in three ways that I think are critically important for why we are where we are now and what we might want to

do going forward. The first one is I think there was a set of companies which both the Chinese authorities and moreover many in society, many writing in the media domestically, many authors who have listened to and I mentioned and the book festival obviously, who had made it absolutely clear that they thought the educational system and the tutoring system was a very bad thing for Chinese society, and in

retrospect it's coming now. Scottish Mortgage did not hasten to add invest in these companies, but we did have holdings in some, particularly tell of the educational companies that needs to be honest about and in some mandates for which you know I have for some responsibility as well, So I don't want to conceive that. And I think that was a very bad, very serious mistake because we were not listening to what the available information, the available flow

a government was saying about those areas. So, you know, bad mistake. Absolutely agreed, I will at that point bringing your uninvestable are it? Both amused and annoyed me that many analysts in investment banks, having recommended all the educational companies subsequent to the announcements, then said they were uninvestable. It was not a great way to handle it. You know, they have made a mistake, and I think we need to be they need to be honest, like we need

to be honest about that. The second part of it would be about regulation of the e commerce world. Now I'm wary as are come on too is saying that is all of technology. But let's deal with that at the moment. In my view, in our view, all of us in the West, whether it be Europe, whether it be the UK, or whether it be still more America, have to think through very seriously what the correct societal attitude, regulatory attitude, government policy is towards the Internet companies and

the e commerce companies. You know, I think they're untrammeled. Dominance has many both economic and societal problems within it. If I look at it in that light, I think the governance that the Chinese authorities are looking for and currently obtaining from those Internet companies is justifiable, and more than justifiable. I think in the long run, it makes for a better functioning of the whole sector. It doesn't crush new competition, it doesn't have such maligned social impacts.

And you know, I still don't think that America has faced up to those issues in broad terms, And you know, I think that would be fascinating to see what happens over the next two years. I don't if I may, and I know we're all struggling for the right words.

View the policy and the attitudes of the Chinese government as in any way either illegitimate, unfecastable, or something that one doesn't regard as perfectly intellectually and practically and humanitarianly legal from the point of view of the overall set of the society. Yes, it happened a great deal quicker than we are used to in the West and without as many abilities to control it. But you know, how far does that tell us that really the West has

a problem with over overdominant companies. So you know, I am not a wholehearted opponent either for the long term good of the technology sector or at least the internet sector and what has happened in China, and I think it may actually be good policy and not bad for economic outcomes in the long run. Lastly, I would as

probably been implying differentiate between this and hard technology. You know, I think it's a point that Dan Wang of Gavical makes of extremely artical in an extremely articulate manner, but it's one that we would share. We don't necessarily think that the Chinese government sees internet consumer consumer internet companies as the peak of attainment UM in technology, technological and

societal advants. You know, I think those who think that perhaps it's not a good thing for the rightist brains in the West to spending their time on getting us to click on more adverts possibly have a point, and

we don't really see. For instance, if we look either in a beneficial sense about what's going on batteries, electrical autonomous vehicles and the like, or in a more worrying sense in ai that you know that there is actually a tasa and the Chinese part to say that, I think there's a desire to say we don't think that the untrammeled dominance of the few um internet and e commerce dominant companies is a good thing for society at large.

Really quite interesting. Before we leave Asia, what other countries in the region do you find particularly intriguing, Vietnam, Korea, what what catches your fancy? Well, firstly, I would stay close to um to China, and I think it's consistent with what we're talking about. Perhaps it is China. Um you know, I think what TSMC has done in Taiwan

is truly remarkable. Now we don't really see that as part of an overall pattern, but I think it would probably also incline you to uh to guess that probably career has been the place that's most interested at this point of view. But could I just add one more thing, very you know, I I quipped quibbled earlier at the notion of emerging markets, and I think, you know, we're probably both create shorthand, but one of the elements that I feel incredibly strongly about in the world at large.

Is that really? Um, It's not about countries, whether it's an inverted commas emerging markets or in inverted commas the West. It is about individual cities and regions. And I say that both in the current context, um. And you know, historically this has been the way, you know, for a long period of time. It's not quite so at the moment, but for a long period of time, we didn't have anything resembling a portfolio of American stocks. We had a

set of West Coast a conceptualized as a business. And you know, I think the difference between New York capitalism and San Francisco capitalism it may have softened somewhat now, but was so strong for some reason that I think that that's important to consider it. You know, I would say this was true about China too, you know, predominantly, okay, Beijing has become more important, but predominantly ours has been a Ran Joe and Grand Dong and shen Zen portfolio

or set of individual companies rather than anything else. And you know, I would even say that was true in Europe. You know, we were talking earlier about the odditis of America. But you know, I'm really interested in why a Eindhoven or um Amsterdam or Stockholm or Berlin can do things which doesn't seem to happen elsewhere in Europe. So, you know, I think I'm much more a believer in the culture of individual cities. And for a long time it's been

a real frustration under COVID and lockdowns. What what what? One of my practices was was to go and spend a year in a different city each year and took actually usually carry on for two or three years. And I did this in Berlin, I did this in Amsterdam. I was just starting to em Paris. I was wanting to do is in one of the cities in China

that we were talking about. Um. You know, I think trying to understand the culture of individual citizen regions is probably much more relevant than talking about countries at large. And I feel that quite strongly about about about the USA,

for for instance. I think that fits with history. UM. There was something book called, what's it called the geo Geography of Genius in the Past, and one of the points it was making is that the truly great ideas very rarely came from the major cities, they came from quite smaller places. Um. And you know, I think from from Athens to Edinburgh and onwards that that was the case in point and I think that, you know, it is the differences in these individual cities and regions that

is truly important and investing. Huh, that's quite fascinating. That's um. Eric Weiner wrote the book Lessons from the World's Most Creative Places. So let's talk a little bit about Europe, which has been lagging for what seems like forever. Uh. Is Europe ever going to reach a point where it can outperform or am am I being too optimistic to expect that any time in our lifetimes? Ah? Well, it arry it probably seems even longer to be because I spent my most of my first fifty years or so

as an investor in Europe um. And so you know, it's been something that's intrigued, frustrated and occasionally given hope to me for a very very long period of time. UM. And you know I have tended to carry on having having quite a big interest in him. Well, let's think about what we've been discussing. I think the real issue in Europe is much more about scaling. You know, I think there are plenty of decent companies, some outstanding companies.

You know. One of my worst miscalculation SINS have emissioned over the years has been that I got very annoyed by way back in time Morie Hennessey, the MH of LVMH, buying the LV part because it was the LV part that I admired, and I felt that that Monsieur Arno would managed to, how we put it, rather aggressively take over LV. And you know, plainly he's done a fantastic job and his colleagues have done a fantastically job in LVMH. And you know we've owned Caring and Ferrari from much

the same point of view. But I think the real failure has come in consumer facing technology. I expressed my admiration earlier for for for what air Smell is doing, which is truly profoundly ment out there. And I think it's about the inability scale that really matters here. And I think this has got deep cultural roots, and to be honest, and I think this is not how most people think about it. It bothers me more in Britain

than it doesn't anywhere else. And it's not that we don't have the ability in academia in science to generate companies. It is that somehow, and I think the capital markets have a lot to do with this. Britain does not possess the ability to scale companies um and you know, I think that is such a deep and serious problem that there needs to be much more willingness to address it. Give you a couple of quick examples on that's kind

of huge, very contemporary. One is ARM and you know it may or may not be me that the video giving up and taking them, but you know, when ARM was first taken over by soft Bank, you know, we tried, we were Arms speaking shohold as we tried to persuade them they shouldn't be get selling out, that it was important to have a critical mass world leading technology companies.

Now we got very little support from that at all levels, and I think that is symbolic of the problems equally, as you may know, we've been investors in Ilumina for a very long period of time. Now. One of my other directors on the board of Scottish Scottish Mortgage gentleman called Patrick Maxwell, who's professor of physics at Cambridge lives three or four doors down in Cambridge from the person who actually invented the core net technology behind a lumna.

They invented it literally in a pub in Cambridge. But you know, they couldn't commercialize that, they couldn't scale it. And you know, I think the depth of the problem in Britain is very much there. Come back to places that might do better on this this score. Um. You know, I am um and I have my biases here, but I think that Scandinavia and particularly the environs of Stockholm has more chance of doing this. You know, the record of company creation, of long term company, of creation of

companies that can globalize, it's still being maintained in Sweden. Um. You know, again a quick two countervating examples. Now, there are plenty of challenges for it, but you know, Spotify is genuinely the world leader in terms of podcasts as

well as audire um. And you know, I think that has come about through having in Danielic somebody who thinks in much the same individualistic and global terms that we've been discussing in China and America equally, and perhaps this is one looking forward, I think Europe needs to have more self confidence in its different models. And we've been backers of Norfolk, the major battery company UM in Scandinavia,

where the progress has been deeply encouraging. And I think it's by focusing on those sort of individual strengths that really matters. So I think you've got to build the exceptional countries. One last point, and it's something that I hope in the future to spend some time, some thought process about some involvement on. You know, I think you and I would say that in America and in China there are networks of people who could act at scale UM, and I don't think that really exists in Europe. Europe

is still way to atomize. There's not amos communication between the truly exceptional in different countries on the industrial level, on an entrepreneurial level, on a looking to the future level, and I think we need to do a much better job on that. And it's just impossible to have the sort of scale that really Europe needs without those connections

being built much more in the future. There's a couple of other places I want to ask you about in the world, namely India, But before I get to that country, are there any other regions, be they cities or nations that are catching your eye as Hey, there's some really interesting intellectual capital here and some fascinating things occurring. Yeah, um, well, let's let's do an American one. And I don't think I would have said this, um, three or five years ago.

I thought that three or five years ago that both innovation in biotechnology and healthcare in America was fairly limited, and that where it was happening, it was emigrating under the power of combination of genomics and machine learning to be a West Coast phenomena. I think what's happened in Boston since then is pretty awe inspiring and actually touches back on some of the questions that we're talking about.

So UM, we've been shareholders in Maderna for some period of time, UM, and both at the Maderna direct level as well as the flagship one. We've done a lot of talking with Stephan Manzell and New barth and about you know, what can be done and what are the advantages different places. And you know, one of the things that stays with me is an article that Stephan Manzell wrote for Figaro in France and the Figura about um, I could happen in Boston rather than or in America

rather than in France. And a lot of that was around the backing from a venture capital community. And I think that's what some of the healthcare venture capitals have done to add to that expertise by making it a much more scale with much bigger resources, has been something that's potentially going to enable serious development in healthcare and healthcare plus technology companies over the coming years. So you know, that's a revival that I think we ought to note. Verry,

I find India very difficult, um. You know, to me, there are far too many companies that are reliant on their connections, their political health, aft their wealth and a far too short term run um from my real liking, and it's become mentally quite a problem for me. So what I've said to some of my younger colleagues is to ignore me and to go on and see whether there are companies that fit this, because you know, I

found it difficult historically. I don't think I'm necessarily wholly been wrong, but I think it needs a more open mind than I have at this juncture. So um, hopefully youthful out in this case, that's really really intriguing. So if the past decade or so, the U S stocks have been really dominant, lately we're seeing signs at the rest of the world is starting to on a relative

basis performed pretty well. What are the odds that the U S streak of out performance is coming to uh an end or at least uh cyclically this time and we're gonna start to see the rest of the world

on a relative basis outperform what's taking place in the US. So, um Berry, I could adventure some comments that may not necessarily be wholly popular with your listeners, but I think it's important to say, um, you know, absolutely America still possesses the combination of the right individuals, often coming from outside in the world. As some of the examples we've been talking about the scale of the market, the scale of the financial apparatus, that it will remain formidable. But

I have to say I've increasingly had some reservations. You know, I'm not We were talking a few minutes ago about Chinese regulation. I wonder whether the lack of regulation of the American internet world and the complications even in healthcare, which I was talking in an upbeating way, about a few minutes ago. Um, mean that the ability of new young companies to rise in America is more constrained than

it was. You know, we are effectively talking about entrenched Dolly Apolis in many cases which were not necessarily helping the up and comers, you know. To make the point, Firmer, Um, what TikTok by Dance has done is much more interesting in the social media world than what anybody in America has accomplished, it would seemed to us, seemed to me over the last few years. So I think there is some erosion the course of the excess dominance of the companies that we all grew to know in many cases

love over the past. Um the second one, which is much much more controversial, but I think one cannot exclude. I found it very difficult in the last two years or so when people ask me, as indeed you did, about are illegitimate anti democratic actions as they're perceived to

be in China. To wonder in all honesty whether America will be a democracy in five years time appeared particularly ironic session when on January the sixth, last year, I was big asked about this type of action, even if it was in early days of it in China, Um, when what was going on in America was going on. Um, you know, I I'm surprised the capital markets are not more bothered by what's happening in American politics and society

than they are. And I think it's consistent to say, given what I've been talking about, that it's rational in terms of deep underlying movements to worry about a society where life expectation is falling. And I believe him right in saying that life expectancy in China is now above that in America. You know, these are deep systemic problems that you know, I do get concerned about when do those start influencing the markets? That that's that's much more

difficult to say. But if I was sort of twenty years earlier in my career, I think I would be concerned about these issues. Well, a lot of us here in the US are are similarly concerned about those issues, especially the movement away from democracy and the movement towards politicizing parts of the election that used to be a political or nonpartisan, and that certainly is a deep concern. I've similarly wrestled with the question, why hasn't the markets

considered this a potential threat. And I keep coming back to U two alternative. THESS one is, well, it's unlikely to happen in the market is discounting it. That's the sort of sanguine approach. But the more frightening conclusion is the markets have considered it, and you know, think that people are still going to be buying iPhones and and uh tesla's and so the market doesn't care. Yeah, well I was. I was talking about John Kay earlier, and

you know, I remember one discussion we had. We're discussing potential regulation of the major um social media and into that companies in America. And instead of being said, you don't seriously mean to tell me that you don't think American companies don't already dominate American democracy, and I bust confess it may be that as well. Then that that's

sort of effectively in the quiet where we are. But you know, I still think preserving the forms of democracy and hopefully some of the substance as well, does ultimately matter an awful lot. I think you're absolutely right about that. Let's talk a little bit about private markets. You pioneered Bailey Gifford's moving towards a mix of public and private markets.

Tell us about that experience. What was that like. It's been a scintillating experience, Verry um And you know, I feel immensely privilege that we seem to have managed to make the adaption from public markets to private markets much more easily than I would expect it. You know, I thought this would be a decades long project that we were barely be getting started on at this juncture. But in many parts of the world it's moved more quickly

and more um. I think helpfully and hopefully that I would expect it, because you know, as we touched on earlier. You know, I think we now live in a world where it's very hard, and I think this was in many ways part of the issue with TEDSLA. Are all along very hard for public companies to do heavy in estament over a long period of time in contentious ideas, and I think it's much better done in private markets are in some ways I think that we've been helped that.

To be honest, the process we have, the ten questions we asked companies very much can be applied to the set of companies that we've invested in private markets. And that you know, we've got used to the style of returns in public markets which are reliant on some extreme winners, and accepting that there will be individual problems, so that that helped. But you know, I think as well, UM

the fact that we we tried very hard not to interfere. UM. Yes, we're absolutely taken interest, but I don't consider Tom and I don't consider we can possibly run companies better than their current incumbents, and we try and be supportive at different times. It may ultimately be a good thing that by and large, if and when companies do go public,

and we're not pressing them to do so. But on the whole, unlike many traditional venture capitalists, we can usually buy more stock rather than look to have an avenue to sell out, and I think that's important in conceptualizing our position. Really intriguing lately, private companies have been really attracting a lot of attention from UM, both the professional investing world and and the labors and the private sector.

At what point do private markets risk overheating? Oh? I think, but I would probably argue that they started overheating in December of what we're what we're talking about December January February of twenty one, and I think that you know the warning science once so at that point, um, you know, one can talk about anything from the SPACs onwards to individual valuations. UM. Quite serious. But I think I would

want to differentiate between the cyclical and the structural. And for sure, what you're talking about means that you're even more vulnerable to the cyclical. But I would be absolutely amazed if, after some resetting of prices and expectations, if this industry doesn't continue to grow and become more important.

And I think a lot of that is because actually it has generated the ability not just in America, but in China and to a certain expense, in other countries of the world, the ability to inculcate to help create these great companies that we're talking about at SCARE. And I don't think that's going away. I think it is a better way of doing finance. Um. You know, I always say I mentioned at the beginning that I was

semi trained as a historian. I think, um, And you know, there was a British foreign secretary in the nineteenth century who said that he had to create a new world to re establish the balance of the old. And if you know, we'll go back to our discussion about the failings of public equity markets. I think we need private equity markets to do what the nineteenth century would have

regarded as a critical element of creating companies. So yeah, absolutely that can and will be setbacks and over exuberance. But do I think it's going away. No, I don't think it's going away at all. There are some quotes of yours I want to throw your way because it's really some of these are really quite fascinating. Let's start with quote the secret to successful investing was understanding change, how it happens, how much happens, and it's implications over

the long term. Now that sounds pretty simple, but I'm going to assume it's a lot more challenging in execution than conception. Yea, yeah, I absolutely think it is. But you know, equally, I think that there are certain advantages

of doing this. Um. You know, I think the puzzle to me of so much of finance, there's so much of intellectual discourse about the economy has been that effectively everybody is trying to think about as being an equilibrium and the mild adjustments that you could have within that.

You know, whether it be in traditional value investing, whether it be in the conception that the economy effectively always mean reverted to the whole act demic professions at the last thirty or forty years, and and their formulas for doing this. I cited Santa Fe earlier. I just think I'm probably gonna misquote, but I would cite you Ran Arthur about this as saying, the most important element and the most interesting time to invest is when there are

major disill ecqui liberals. And that's what happens when you get this process of change that is so much more dramatic than than we tend to think about. So I think that you know, ones aided because we tend to be very static. It's partly a time train problem, but it's partly because that's the way we've been trained. And thereby it's a lot less competitive to think about this process of change, you know, as opposed to the hundred and fifty different people who will be telling you what

the Feds gore to be doing next week. To try and think of those ingredients in structural change and how it can scale. Um is I think a field where it's a little bit easier you know, to make a different analogy, Um, it's it's pretty impossible to think that Scotland would ever win a World championship at say soccer, because everybody competes at it. But if, on the other hand, we translates it to sort of British sports like darts or um, snooker, then it's possible for Scots to be good.

You should compete in games where you know that there isn't that much of a of an enduring competitive disadvantage at any rate, and possibly where you know you're doing something that not many other people are doing. So in other words, UM, look for areas where there's less competition and you have the ability to compete where others aren't.

Is that the thinking less competition? And also you know, which I think comes back to something we touched on before, where your probability of being right, um, and the impact of being right has has had a greater both chance and a greater degree of importance. Um. You know, I think that's too much. The information we're dealing with in markets, or what purports to the information is fundamentally unimportant. Um. And you know I can imagine we might come back

to that too. Huh. Well, let's stay right there. What do you think is fundamentally unimportant that others have a great reliance upon. Oh, I genuinely do not believe that it makes a great deal of difference to the long run value of company as to whether earnings beaten or missed. I genuinely don't believe it creates a lot of change to your long run turns of investment that you could predict, um, what what's going on in the minds of the Federal Reserve,

in the minds of what GDP growth will be. You know, there is very little evidence to my mind that these are either significant in the long run, UM, or that they you you have a great margin of success, you know in in in all of these, I think that you are fighting a battle over it. It's the Catholic Church's pre pre Reformation feeling of you know, counting the angels on a pinhead. And I'm just not sure it's

either doable or worthwhile. UM, you know, to turn it round, Barry, I I tend to think that, um and I had a conversation with somebody. I think it's been a guest of yours in the past, with Dennis Lynds much at bar on this score about this sort of saying, if I had just known in when I started in nineteen eighty three that Moore's law was going to continue for the rest of my career a ready effort, did I

need to know anything else? You know, I needed to be able to translate that into the individual companies, And you know, I might not have known that it was the antebell rather than the Japanese, or that it was

Amazon rather than some of the others. But fundamentally, I think if I had taken that seriously at that juncture, I'm not, I'm you know, how much else would one have needed to have known that computer is going to we're going to be big one day, and and semiconductors were going to continue to become increasingly powerful at at

a decreasing cost. I think even when people understood then intellectually, they had a hard time first believing it that it would last for as many decades as it has at second, even with that knowledge, you know, are you are you investing first level in the PC companies or even the semiconductor companies, in the PC companies or the companies like Google and others that figure out how best to use

it it really raises some fascinating questions. Oh totally. Um, well, I would add in Barry, which I suspect you would agree with that. I don't think the human mind is very good at exponential change, for sure. You know I talked about some different aspects. But you know this is this, This is Jeffrey west in scale talking about the exponential chessboard, isn't it? And way you get to us as you add what are the group grades of rice or multiply

out at More's law? So you know, I think it's partly that I think you could have got some degree of confidence over the longevity of it. Again, to cite a smol you know what they will tell you that in fact More's law existed in it is just a Gordon Molready wrote about in the nine. And you know

this doubling has continued. And also you know, to quote something they said to my absolute amazement, I guessing three or four years ago now, but it was when they were finally thought the next generation of technologists was was there? They said, neither you or nor I would claim that it would have been so for us, But the next ten or fifteen years would therefore be easy in inverted commerce.

Uh that's a direct quote. So you know, I could you have come to a view I totally agree with you about it then becomes but this is what I could to spend all my time on thinking about the second third round effects and how you get to the companies that created Yeah, I I absolutely agree with that.

But you know, I think if you're arm with that confidence that the process is going to again, whether you're happy that all that stuff we talked about about Jeff Bezos saying in the late nineties was was there, you know, kept your mind open to all the exciting opportunities that would happen and can still happen. Huh. Really interesting. One of the quotes of yours that I found fascinating was someone compared you to Warren Buffett and your response was

you think of yourself as more Monger than Buffett. Explain that if you would, um hm, I to me, um, jolly Boger benefits that extreme curiosity about everything, and it's been very much and you know, I about to you defer to your experience of this an essential part of pushing Larren Buffett and Berkshire Hathaway into areas where they might not have ventured otherwise. UM. And you know, I think he has an astonishing ability to be honest about

some of the feelings. You know. For instance, his words about how Google has this, I think he said the greatest competitive of vartage out there, UM, and that I therefore they ought to have understood it is I think quite revealing of the whole process. I probably also slightly empathize with. UM. I think Buffett is more, to my mind, a creature who is comfortable with broad scale, popular and media exposure. UM. I think Charlie Banger is rather less so,

and I probably feel more similar that that dec as well. Well. Well, I could tell you from my personal experience researching and prepping for this conversation. It's not like there was a broad pool of public statements I had to work with. You've been pretty behind the scenes for a long time. I don't know if you're a co manager. Tom Slayer, who's scheduled to take over after you retire, is going to continue in that vein. Although I have to ask, I love your comments. It's the fun manager's job to

remain accentric. How is Tom slaterter going to remain a centric Yeah? Well, I think you know it's been. Firstly, it's been a great joy to work with Tom. Um. We often are You probably know or recall that Tom has a more mathematical background than I do, but very often we leave each other the chance to come to a view, and it's quite interesting how often we agree, but for different reasons. And you know, I found that

particularly delightful over the years. Um, I think Tommy is a hundred percent committed to the idea that we need to keep evolving. He might not have used the word eccentric, but I think the desire to keep pushing on Tom and indeed Uh the next next um Uh as next

likely assistant, Lawrence Burns, share that view. I think, you know, if there is a word of caution here, I think that it's very important that Baby Gifford as an organization allows Tom to have this freedom of course, you know, and perhaps this is back to among the things I think you need the ability to stand out from the ordinary, to occasionally annoy your colleagues quite a lot in doing all this, and I think it's quite important that Tom

has given supporting patients to to do that really quite interesting. Before we get to our favorite questions that we ask all of our guests. I have to throw a curveball question at you. You're a well known fan and contributor to Edinburgh's Heart of mid Lothian football club. What are your thoughts on private equity and sporting clubs? This seems to have become quite a hobby horse for a lot of people in Pe. What what do you think of

what's going on in football these days? Uh? To be honest, Berry, I'm perfectly happy to talk about it, but mentally and practically I separate the two fields a lot. I feel very uncomfortable with not just the private equity, but still more the greenwashing of various unpleasant states that it's done through sport, and particularly through soccer in Europe. Explain what

do you mean by when I hear greenwashing? I usually think of companies pretending to do e s g. Environmental social government investing when it's really just a press release and no follow through. What what's the greenwashing in British peoples?

I am I am spending it, but more broadly, but um the most prominent and most successful for clubs, and this is much more England than Scotland m are effectively owned either by Russians or by Middle Eastern states with questionable human rights records UM, and I think that they are effectively doing the functional equivalent of what you're talking about there with the s g U in trying to make themselves cuddly and approachable by spending hundreds of millions

on football clubs rather than anything else. But you know my take on football and I would not the same level. But I worry about the financial imperatives of many of the American sort of private equity drived owners as well. My belief is that soccer football is an intensely important part of local communities and of the increasingly rare ability of an activity to go through all the different um groups, classes, income levels of society and to attract everything from recent

immigrants to people very badly down on their luck. I have no interest in trying to make money out of it, and indeed I've structured, as regards hearts, my activities as donations rather than any way wanting to have ownership. And you know, it's something that I believe should be done more broadly. You know, I've done this with to no particular but all particular clubs in Scotland by making donations of that level at the lower level. Um, my wife and daughter are both on the boards or the board

of Scotland's most successful female football clubs. So it's it's much more about the societal centrality of it than it is about the financial parts, which I feel uneasy about, to be frank, really intriguing answer, and I was not expecting to go in that direction. All right, I know I only have the studio for another ten minutes or so, so let me jump. Let me jump to my favorite question that we ask all of our guests, starting with what was keeping you entertained during the lockdown? Any any

favorite Netflix or Amazon streams or any podcast? What what kept you entertained when we were all stuck at home? Yes? Yes, well it's continuing to be a battle, isn't it? Ok? Really, oh gosh. The two most recent Netflix productions we've been we've watched actually both films. Um, we were watching the The Abandoned Daughter, the film of the Elena for Anti book,

which deeply annoyed me. Fantastic acting, but why did it need to be made into the story of an American academic or off the middle class um individual from Naples to Bude? Everything? From my point of view, and I think just just how far you know, there are still for all the thoughts that Netflix and Amazon could provide international insights, there are biased of that. And the other film we watched this score, oddly enough, was The Hand of God, the Sorrantino version, which is about Naples, and

thereby we much much much improved it. UM, if I may risk a local one, UM the documentary, the documentary on Amazon about Andy Murray is a tennis player. UM, Resurfacing is I think a fantastic description of just how hard, how competitive that sport, at individual sport could be. And you know, I think it is, you know, gives me pause for thought when we think we're struggling markets any one day or anything like that. What what these people

put themselves through is truly remarkable. As a podcast. Last one, I suspect it's been cited to you before, but I haven't come across it. UM. I'm a great fan of what the Long Now Foundation do, and I think they're seminars on long term thinking and the podcast is on that are just absolutely top class and have been for years, both before the pandemic and during it. You know, you know, it's funny you mentioned the Netflix film that they decided to move locations from Middle Plus UK to the US.

There was actually a hilariously filthy series some years ago called Episodes about two British comedy writers who had this you know, very thoughtful, um sort of merchant ivory like series in the UK. Within this series and the show is about them relocating to Hollywood and trying to retain some shred of their original um work and dignity in face of all of the just you know, aggressively horrific Hollywood e chase. And it's surprisingly funny and just absolutely filthy.

I don't know if you're familiar with it, but if your tastes run in that direction, it's really entertaining. Um, thank you, because I actually the lack of a long tail as a board. Sorry to let you get on. Well, no, it's a perfect example of one of those things that just about any plot concept or idea there's going to be a variation of it somewhere that either does or doesn't work, or does or doesn't appeal to it to a specific set of tastes. Um, And the challenge is

always in identifying what what works for you. Let me go onto my next question, which is who are some of your early mentors who helped to shape your career. Well. I I mentioned Barry max Ward earlier internally, who's been fantastic.

Um there was a chairman of the board of Scottishavortgage called Donald Mackay, who was a Scottishcolomys who correct day to be saying it he absolutely tried, in the spirit of what he quoted frequently Robert Burns the like, in the way I couldn't as to try and raise our horizons from the local and the index plus to the world.

And incredibly grateful that the last one I would mention, because you know we've been focusing on Scottish mortgage etcetera, that it's not not not not a problem, but another part of my career that's been you know, really really beneficial to me which I've enjoyed immensely is we run money for Vanguard in the International Growth Fund as one

of the managers. And the first year we went to see Vantangard close to twenty years ago after having been appointed, we're done really badly in the performance terms, and the then boss of that Guard set us down in a big formal room with all his colleagues and said, I've got something to say seriously to you. And I looked at my colleague and colleague look to me, and we both thought we were about to be reprimanded or even sat and he paused and said, we're really pleased with you.

Of course you did exactly what you said you would do. It just wasn't working at the market so over that period of die and you know, as a piece of help from a client, that was an enormously important moment to me that you know, you could go back and say, look, they believe in what we're doing. They're going to have confidence in the long term. They know that ups and down happened, and I am so grateful for for that.

You've mentioned a few books along our conversation. Tell us some of your favorites, and what are you reading right now. Some of the favorites are I think consistent with what we've been talking about. So you know, I mentioned Scale by Jeffrey West. I think it's a fantastic book. Um. I I do think though that one uh that his underestimate he's hugely in this score is the late great Hans Rosling, who was another person we talked to a

lot um. He's factfulness as opposed to you know what we all perceived to be going onto the world, which he wrote as he was dying, is a book which I think is incredibly valuable and important in investing in thinking about the world. Um. You know what he says phrase it stays with me. The secret, silent miracle of human progress and how we've actually been advancing on this

score is I think very very important. There's an as the last one, a category of people, whether in books or podcasts or blogs or whatever, who we found really interesting in recent times, which is, if you like left wing commentators on what's going on in the world and going on in China and Russia, are people like Adam two Sa Branko Milanovich. I think they bring the depth of commentary, a debt of understanding to some of the issues that you know, I think we could all do

with more of and a deeply interesting people. But if you ask me what I've been reading, um, you know, in a way it's connected with all this. Um. I was mentioning that we've been trying to go to various citiespend time, and we were we were about to spend time in Paris and I've become rather addicted to the works of nineteenth century French novelists, particularly a Zola, And you know, I think they make our only seem so pathetic. Um. You know, the dramas, the tragedies, the triumphs were so

much more ethical than our own. Um. And I think that, you know, I find it fascinated a contrast with the UK novelists of the same era, who you know, everything always ends up happily, or they joined the middle classes, or you know, it's just minor social inconveniences. Um. And you know, I'd love to see something, you know, the novel of America or Britain today being written. I don't see much of that. You know, we could do with the tom Wolf for gour Vidal. These days there are

going back to the nineteenth century versions of it. So when you you're referring to Amila Emily Zola, things like The Masterpiece or The Ladies Paradise or A Belly of Paradise, A Belly of Paris. Yeah, the Ladies Paradise is I

think a fantastic example of that. You know, it is about creating the Amazon of its day, and I think it's ability to tell the story is wondrous on this, but then at the other end you have something like, uh, the kill or which is you know about the deep tragedies involved in this and germaniw which you know how terrible the existency was? And you know, I think this telling of a story of the whole society is something that are novels today lack, and I'm not quite sure

that they need to lack. Huh really quite quite quite fascinating. Uh, we're down to our last two questions. What sort of advice would you give to a recent college grad who was interested in a career in fund management? Uh, it's precisely that I think is absolutely essential that they're interested in the task, the curiosity, and it's not about the financial rewards. I've seen far too many people are doing it and get stuck at it because it's a good job.

In inverted comments that it provides rewards and status of the like, you have to be obsessed about the fund management path of it. So I'd asked them to examine their conscience about where they were, not give them five years to decide. That really interesting and our final question, what do you know about the world of investing today that you wish you knew forty or so years ago when you first got started in the field. It's about extremes, um. And you know the a conventional will not work over

the course of time. UM. And you know, I think, as we've discussed very in depth, you sometimes don't know what the extreme will be. You've got to have that consciousness that it is about the extreme, either about information or about companies or about individual teams. And I think it's it's embracing those extremes that it's central. And I really didn't realize that at all when I started. Huh,

really quite fascinating. We have been speaking with James Anderson, partner at Bailey Gifford soon to be departing co manager of the Scottage Mortgage Investment Trust. If you enjoy this conversation, well be sure and look at any of our previous nearly four hundred prior discussions. You can find those at iTunes, Spotify, wherever you find your favorite podcasts. We love your comments, feedback in suggestions right to us at m IB podcast at Bloomberg dot net. Sign up for my daily reading

list at Ritoltz dot com. Follow me on Twitter at Ridolts. I would be remiss if I did not thank the crack team that helps you put these conversations together each week. Jared James is my audio engineer. Atika Valbrund is our project manager. Michael Batnick is my head of research. Harris Woald is my producer. I'm Barry Ridolts. You've been listening to Masters in Business on Bloomberg Radio