166: Reinventing Equity Investing: James Anderson's Journey, From Scottish Mortgage Investment Trust to Managing Partner & CIO of Lingotto's Innovation Strategy
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I personally don't believe that in the long run, either from the point of view of security of the world or for our economic self-interest, that we can separate us and not in China. One just needs to navigate that quietly at the moment.

Welcome to the Money Maze podcast. If this is your first time joining us, I'm the host, Simon Brewer. And in this show, we talk to proven leaders and thinkers from the worlds of business, investing and beyond. To stay up to date with every episode, please do sign up to our newsletter via moneymazepodcast.com.

Episodes are also published on our YouTube channel, and we're active on all major social media platforms. Thank you for listening. Today, we're going to talk to one of the most successful investors of his generation. Former partner at Bailey Gifford from 87 until 2022, he led their flagship fund, the Scottish Mortgage Investment Trust, whose early investments from Google to Tesla paid handsome returns to investors and has made him both highly respected and widely admired.

Now he is at Lingotta, the independent alternative investment management company wholly owned by Exxon, one of Europe's largest diversified holding companies, whose origins go back to the end of the 19th century and the Agnelli family, when Giovanni Agnelli founded Fabbrica Italiana Automobile Torino, or Fiat. James, we've been very much looking forward to this. Welcome to the Money Maze podcast. It's a pleasure to be here. Thank you.

And today, my co-pilot in this interview represents one of the few families that have survived, evolved, and prospered for generations, Rothschild & Co. And I'm delighted to welcome Mark Wallace, Managing Director and Co-Head of Portfolio Management for their Wealth Management Practice in London. Mark, welcome to you. Thank you, Simon. Pleasure to be here as well. Disclosure, I'm a Senior Advisor at Rothschilds. I've known you for a very long time and your colleagues. You've had a very successful journey as a team. And so it's good to have you here at the mic to...

help raise the level of gravitas in the conversation. James, let me start by just going back. Were you an especially curious child?

I think so. I remember annoying my parents very much on a long car journey to a holiday of constantly asking why about everything. And so if we think about your career journey, did the pieces fall into place logically or was there a certain amount of serendipity? No, I don't think they were logical at all, whatever I might like or tempted to claim at this juncture. I've

I think the curiosity was there. But after a history degree at Oxford, I went to university abroad at parts of Johns Hopkins in Italy, which I loved and which intrigued me because there were people from, I think, 45 different countries. And that was when Yugoslavia was one country. So it was even more underlyingly than that. And I felt that difference in interpretation

that almost contrasts with Oxford where I thought they taught you beautifully to think down one straight line rather than getting broader thoughts intrigued me. And I then wasn't sure what to do. I wondered about journalism actually, which I think has the same attraction for the curious, but I'll be open. The financial consequences might have been rather different for myself than others.

So we think about Lingotto, just help us understand post-Bailey Gifford, what was the attraction and how would you encapsulate the mission?

The first thing to say is that Bailey Gifford, ever since Carlisle Gifford, who was the brains behind Bailey Gifford, Bailey had the social connections, who was a formidable intellect, but his intellect was slightly less formidable at the time he got to over 90. So there was a very strict retirement age of Bailey Gifford. And I just wasn't quite sure that I really felt that I exercised all the demons in thinking about investment, if I can put it that way. So I wanted to carry on.

And I'd invested in whether it be Fiat, as you mentioned yourselves, or the inheritances of Fiat and particularly the ownership of Ferrari. I'd got to know the people there, in fact, in many ways.

First, the late, great Sergio Marchionne, whose death was a tragedy, I think, and probably being shown up even more by the conditions of the European auto industry these days. And then got to know John Elkann, who kindly came and saw me literally the week after I'd retired from Baili Gifford and raised the question of Lingotto. And that's the combined roots of it.

John telling the story very eloquently and personally, and the admiration for how the Exor had got to where it was that you alluded to. And you are the CIO of the growth sleeve. Is that a clue? It's called the innovation strategy, which again came from John's own idea.

I think it's a good description and conveys the strategy more easily than other longer sentences could do. So it nicely encapsulates the core of my interest over the years. Is that both public and private investments? It is. And we feel, and I'm fully aware, and you may ask me about this, I'm fully aware it's not currently a popular concept, but I've tended to think that we...

can only understand the next level of innovation, either for the companies directly themselves or those that they're going to disrupt by looking from a very early stage in this. And I think, you know, if anything, we feel that we need to keep tugging to be early enough in what we're thinking about and how the group thinks, as well as seeing those companies through to maturity. Yeah, yeah. And I was just thinking about

Bailey Gifford's, I don't know, 30 plus partners, a lot of analysts. Have you gone from, imagine a much larger investment organization down to, is it just you or do you have a team around you? No, we've spent the last 12 months trying to build a team, but you're right. It's smaller numbers and will remain smaller numbers.

I'm very ambivalent about the scale parts of this. I loved, as one often does, and I'm sure you all have many, many similar on these type of things, but when the equally late and great Charlie Munger was talking to one of the next generation of the Berkshire Hathaway managers or potential ones, he asked how many people he thought he would need. And he said, well, I think about five. And Charlie's reply was apparently, how about one? Yeah.

I think he's right in the sense you can get further away. And the last thing you want to do is not be an investor yourself. But I'm very conscious that I've been around for some time. This is about trying to build an institution like Exxon that can last for many, many decades. So having young and talented people is, I think, really important. So that brings us to this question.

First important point, which is sort of corporate longevity. I know when you were at Bader Gifford, you had sponsored the Bessem Binder study and we'd had Michael Maubassant who'd taken it on and done further work. And I think the data point is that just over 70 companies since 1926 have provided half of the return over bonds. I guess the question I'm struggling with is what has changed and why?

Well, I'm tempted in an Italian spirit to say, you know, to quote the leopard that in order for everything to remain the same, everything has to change. And I think there are elements of this. My first reflection is as that data goes back to 1926, and it's not a bad time for him to be thinking about it and obviously came through the Great Depression on that front. I think that, you know, it makes monikers like the Mag 7 more

be ignoring of the long history of this, that stock market returns always have been about a very small number of companies. I almost think the more challenging part of the Bessem-Bein debate is

is about the fact that he varied the numbers slightly according to the updates he's done, but perpetually over 50% of stocks over their lifetime underperformed T-bills, which makes a nonsense of all the CAPM and everything that we've been taught to think about at recent times. So I almost find that more. But to go back to your question of the dominance of those companies –

It's both profound, you know, for every $1 invested in Altrio or Philip Morris, however you want to define it, and back to the start of that period, you now have $2.65 million. So it is time in the market, and it's always existed from that. But I think, and I think this is worth emphasizing,

To our interpretation, to my interpretation of it, and I hope Professor Westermeyer wouldn't object to this, if anything, it seems to be getting stronger and stronger. So the 72 number that you were citing of providing half the returns, it's come down from 90 just over the course of the last five years. And if you look at the more recent but still 20-year data, you'll find the figures are, if anything, getting even more concentrated.

And I think that's natural enough because I would probably say I combine the explanations with best minds as to the underlying causality of this. And at that point, and you mentioned Michael Mauboussin, Michael being chair of the Santa Fe Institute, where I think a lot of the in-depth thinking about why this might happen.

And there's something very peculiar here, isn't there? That this has been going on for a long period of time, yet still the way the standard interpretation of how markets work, the standard interpretation of how you invest hasn't really changed. And I would date it really differently.

to Microsoft going public in early 1986. And soon after that, Brian Arthur at the Santa Fe Institute wrote the first version of the paper saying that once you become dependent on intellectual capital, and hence you get increasing returns to scale, that this pattern was going to become ever more dominant. And I think it has become ever more dominant.

And so the puzzle to me is almost we've had near 40 years of this. Why haven't we rethought more? Because that pattern, though it was historically there, has only become more acute. And I think you can understand why it's become more acute in that world of intellectual capital. Yeah, I mean, I've spent a lot of time thinking about it. I think it's such a fascinating study. One of the challenges for me, I mean, do you think what one has to hold extreme winners to do well is,

Because what surprises me is that an equal weight index, I think the equal weight S&P has outperformed the cat weighted since it launched. Now, I know more recently, that's not been the case, which may point to the fact that markets are changing. But I find that interesting.

quite interesting given the sort of conclusions of the study. I think it is. But to me, it's the positive skew that's implied by this and the huge difference in performance between mean and median stocks within it that I take more out of. But I agree, it is intriguing what you're saying there. And I wouldn't want to deny it's true. But I think within that set of the equal weighted

you need to have some winners to really get the performance too. So I don't think it's ultimately incompatible, even if I think, Mark, it's a useful reminder. Yeah. So before we continue this conversation, we're going to take a short break to have a note from our sponsors.

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So when we think about your own approach to investing and evaluating, you have said, I quote you, the normal ways of looking at companies is no longer valid. At least I think that's what you've said, because I found it in some of the materials I was looking at. And you talked about needing different sets of information in the Nikolai Tang interview. I wonder if you could just unpack that a bit.

So I think all this comes with the proviso that you have to be thinking long term for all this to become truly apparent. And I guess we'll probably get into that later. But I can't see how if you are looking at the same sets of inputs, you can possibly hope to have differentiated outcomes. And I sometimes have put this, I think I did with Nikolai, though it may have been of Mike,

That there is perhaps a sporting analogy here in that as a Scot, I can say confidently that Scotland will never win an international football tournament when we don't possess the abilities to do so.

I think at Norwich's Bank, they replied, why not? And I thought that probably wasn't worth following up. I could, but I went on to try and say that, therefore, you play a different game, that just as so Scots can be good at snooker or darts, or in the exceptional case like Andy Varie in tennis, but you need to play a game that less people are playing.

And I think that less people, for all the reasons we've already touched on, are trying to identify those truly impressive companies, those outliers. Because if you're looking on one year viewpoint, that's not what you're trying to do. You're just trying to beat the index by a little amount and possibly risk adjust it as again, we may come into it.

And I think you can go in a couple of other directions. The first one would be, if you think about those sets of data that most investment research, and I'd be very interested in how you both handled this over the years, I'm not sure that even if you had perfect answers to them, that you would end up outperforming.

I'm not aware of any evidence that tells you there is a great relationship between economic growth and stock market returns. I'm not at all sure that there's any evidence that correctly predicting what the Fed are going to do is similarly so. And I think you can go through this and say, but would it help you to know all this? So that was one direction being skeptical of the data that most people use on it.

It's also about what can you positively gain. Now, most of the time, as I think you will agree, that in investments, your decisions are really a best 55-45 decisions.

But I think if you give yourself the long term and in particular, you try and think about the developments of exponential technologies and the academic research on what succeeds in different areas, you can get a lot closer. And I think you can very often get it up to very high levels of probability set.

Example that's always intrigued me on this score, and I hope not because of the outcomes of it, but when we were first looking at Tesla 2012, 13, whatever, by far the best input I found was talking to the people. And again, it was Santa Fe, but in particular, a lady called Jessica Transjick, who also works at MIT, said,

who had written with various colleagues papers about the development of long-run pricing of energy technologies and what you could expect in various areas and what not.

And in very short terms, it's essentially what it was saying is the record of historical improvement tends to replicate itself over the next 10 to 15 years. So we thought at that time, if you combine that with what you're already seeing from Tesla and others, that you could see where electric vehicles, battery technologies more broadly defined were going to get to. We sort of believed that there was a 75% chance that that would improve somewhere between 15 and 25%.

And of course, you know why 15% to 25% eventually meet something gaining at 2% to 3%, even the hands of Toyota over years, you're pretty confident at some point, even if you can't predict which year it's going to. I think within three or four years, it was clear that the rate of improvement in battery technologies was actually much greater than that. And you could therefore have a higher probability, probably close to 90%, that that pattern of improvement was going to happen.

Now, that strikes me as far more valuable than either, if I may say so, broker estimates or the very odd way in which we go about predicting in stock markets, which is about spot estimates. And very often to third decimal point, I still got a pretty large collection of sums on Tesla's produced for me by generous hedge funds who sent them to me saying, you know,

This is why you're wrong, etc. And it wasn't that they came to these numbers, but they had such confidence in them. It strikes me as strange. The world is inherently complex and unpredictable. And I think, therefore, part of this is about needing different scenarios because however good you might think you are or hope you are,

The world will overwhelm you at times. So you need to have different scenarios from the highest to the lowest. And the highest is actually really important because most truly great companies get way further than you can expect. In some sense, Tesla was actually quite a predictable one. But could one ever have guessed AWS? No, I don't think you could. But you shouldn't have excluded it from your imaginary version of what Amazon might become.

I wonder if as investors, we tend to think a lot about the kind of downside and the, you know, the buffet, do not lose money, but perhaps we don't think enough about the upside. And I know somebody talked about a pre-parade, is it, rather than a sort of pre-mortem. Yes. What could go right? Well, absolutely. And I think that, if I may, again, the Amazon one is interesting from this point of view, because, you know, Bezos himself, as you'll probably recall, said,

right at the beginning of Amazon, that there was this weirdness about his business, that everything improved by 40% to 50% per annum or so. And he even paused and I think gave his usual laughter about it. He said, I don't know where this is going to go, but I know it's going to be exciting. And I think that does give you pause for thought. And it was the same. That's true across the globe. The same. It wasn't me who did it. I'm sure it was an excellent colleague, but with Tencent, I remember...

buying it, but on buying on the back of data that was way too conservative about where we might take us and the like. So totally, yes. And I think that outweighs it. And I would invert this as well, that all my greatest mistakes have been selling or not buying companies. Actually, more in my own personal case, selling rather than not buying truly great companies way too early on.

rather than the it's gone to naught, which is very painful, but I think does become too dominant. Yeah. And that selling, I think, it's such a difficult decision to get right. I mean, have you learned anything from selling too early? I mean, obvious answers, you shouldn't. But I mean, there are cases, presumably when you, well, definitely cases when you should.

So how does one improve that selling decision? I mean, I'm increasingly of the view that there are very, very few. And that, you know, again, to quote Munger, that unnecessarily impacting, not obeying compounding. Because some, which I thought at the time, were very good sell decisions, if you had more patience, would not have been so. You know, I've been reducing Amazon back in the early 20s from that point of view.

But yeah, I think it's absolutely the selling too early. And my single greatest self-examination on that front is Apple. Selling Apple back in 16 or 17. At the time when Buffett was buying it as well. But it's an interesting one because in process terms, I'm still not convinced I was wrong because what my attention was, and it was absolutely me in this case, was

was on, will Apple be able to generate enough in a relation to be able to grow substantially in the coming years? And the answer to that has plainly been no. There has been no innovation. You know, we've all got a slightly better camera and that kind of thing, but nothing has happened. But of course, what had been built and what, to be fair to Tim Cook, he's exploited is

is that the franchise was even greater. And that's what I was underestimating in that period. So even there, I think that for all the verdict on innovation was correct, it was underestimating the sheer power of some of these companies that's been critical.

Although that's not been translated into underlying growth, has it, with Apple right now? So in fact, what we're saying here is there's a recognition of the persistency of those other revenues, but in terms of a valuation, beyond that, if the growth doesn't come through, then your decision to sell will look very smart. Well, that's kind, Simon. But I think that I might go back to what I think all three of us have come to some agreement about, that...

These truly outlying companies are predominantly driven by their extraordinary free cash flow generations that we have.

underestimated both in scale and in longevity. And plainly, that has come through at Apple. And the sheer magic of being able to generate those cash flows and use them in the absence of innovation to buy back vast quantities of shares has been what's powered the continuation of it. And I think one needs to, you know, so in some senses, yes, there's some limitations. In other senses, it does live up to the general hypothesis.

I suppose just to add to that as well, I mean, thinking about it, if you look at a great compounding journey, it's not going to be steady. You're going to have periods where

The company is pausing, if you like, and then periods where it's enduring these big growth phases. I'm just thinking about the long term. Well, Mark, if I may perhaps take it in a slight, I don't think it's quite a tangent, but it's going back to something I was wondering whether I should have said and answered a previous question. So I don't think in a lot of these cases, it's not even this pausing. It's that it seems to the market as though it's going in reverse.

And I think that is one of the most tempting avenues at the moment. So all the companies in the at least technology portion of the best reminder data, there are some others where I don't think this is quite so true.

had huge drawdowns. And I think that is because the founders of these companies, or those with moral authority within inside the company, are prepared to be misunderstood in other business terms for long periods of time. But sometimes the market doesn't just misunderstand, it willfully goes in the wrong direction. And so to take a current example, which is plainly

as significant as the ones more commonly talk about, but NVIDIA. So in 2006, which in retrospect was a great year for the stock market misunderstanding, because it was also the year when Amazon's share price went down lots because of inventing AWS, which brokers didn't like at all. NVIDIA market cap fell, I think, 83% in 2006. And the market cap was down to something like $2 billion.

which obviously since the upside has been fairly terrific. But why was it going down? And I think this is the really interesting and perhaps exploitable part of this. It was going down because it was spending a lot of money inventing CUDA, the software on which subsequent success is profoundly based. Now, isn't that an example of the superficiality and short-termness of the stock market?

because people were responding simply to the fact that earnings were under pressure and even more that the share price would go down, therefore the share price goes down more. But when you were asking about pre-parades, shouldn't that have been something one should try and build into the system of saying, where might the market be completely wrong? And what shouldn't make you sell? Because I think even not selling at that point wasn't based to add to that date. But I think that...

What the stock market forces on you is even more extreme than we tend to think about. And this probably is a tangent, but if I may, one of the books that's interested me most in the last year has been Katalin Kariko of MRNA's fame, Autobiography, at which...

She, even by the standards of what we're talking about, is more critical than investment in academia and the pressure for annualized returns in order to get grants, in order to get attention, in order to get big publications, in order to get money, etc. And how dangerous what she calls these ceremonies actually are.

And I think that's right. I think we're in the tyranny of assuming that for some reason investment results should fit and tell you something because they fit the rhythms of the seasons rather than, you know, suddenly at the end of the 18 years, she wins a Nobel Prize for it and becomes an Eastern heroine. And I think that is quite similar to a lot of investment. So before we continue this conversation, we're going to take a short break to have a note from our sponsors.

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So if we go all the way back up to the top of idea generation with the paradigms that you've expressed, how has your sourcing of ideas changed? I think the first thing is that it's about trying to follow the logic of what we've been talking about even more firmly.

I think that the opportunities for this type of investment have got greater because I think that, you know, if you think about it, the last 40 years have really been about the impact of Moore's Law on continuing what we've got. I think although obviously Moore's Law is associated with a lot of this,

But at the very least, what Moore's Law is affecting, what AI is affecting, what burgeoning new industries of synthetic biology and the like are affecting is the area that this may happen in. It's a lot more that, you know, to go back to Brian Arthur's

From Microsoft, it's gotten so intellectual capital is going to be more and more dominant. And I think that a lot of this is about being absolutely prepared to be committed to that type of thought of it. And I think we're in a very haunting and important moment at the moment, which is combined with a lot of market phenomenons meant by

that in some ways the markets are paying a lot of attention to this, you know, at the level of NVIDIA, et cetera, and the platform companies. But at the other level, there were –

In the early 20s, just growing up, some technologists and some companies that are at the very beginning of this process, as Brian Arthur would say again, what you need to be willing to do is identify the moments when these companies move from being competitors in technology to being the dominant companies, to being, if you like, the Microsoft of their area.

And I think the stock market has been astonishingly impatient with those for various other reasons as well. But, you know, time horizons, to my mind, have been the lowest I've ever seen over the last few years. And the desperation for companies to turn, whether private or public, to turn cash flow positive has been greater.

And I think one needs to have a balance within your idea flow and your portfolios between those that are already generating that huge cash flow, but which are obviously much more recognized by the stock market and all those that aren't. And I think healthcare is one of the great areas of this. But healthcare investing has always seemed to be very damaging in many ways, and the focus on the next product, the only product,

rather than potentially building platforms. But I think where we are...

with the immersion of AI, genomics, etc., means that actually some of these companies might be tremendous. But you have to grit your teeth and endure in the short run because no illusions that the stock market is prepared to look through the chasm intervening between that and that generation of profits. So it's broadened out. But at the same time, I think it's trying to be ever more serious about what actually the process tells you you should be doing.

And when we think about these companies, I was feeling quite confident in saying that they have been led by charismatic individuals who have some unusual characteristics. I wanted you to maybe describe what it is that you sense. And then where I'm struggling a bit is when you start talking about genomics and AI, maybe I'm thinking that maybe the individual becomes less important and it's the collective organization behind it.

I suspect you're being modest there, Simon, because this is a complex feeling. We all need to work through it and try and unpack it. And please, I absolutely believe that the skill set has always needed to be much more broader than these individuals. And I used to get a lot of intellectual challenge from John Kay about this, etc., and how far it was personally.

I think, I hope what I'm saying is different to form them into great companies and thereby great share prices. It's very often about the small number of individuals. The skill basis, but know that is absolutely requires much, much more than the one individual.

I'm glad you didn't just say founders in what you were saying, because I think it is broader. And I think sometimes the exceptions are fascinating from this point of view. And exceptions in more than one way has been one of the factors that's made me intrigued by SML in Holland over the years. You know, how is it that a European company is doing the hardest piece of technology probably in the world?

And without whom, actually, many of the companies that we're talking about in the platform world couldn't really have progressed in a way. And at the same time, this wasn't, as you'll know, a founder company. But in Vartiman Brink, there was someone with the moral authority, and Nick Sleep's great phrase about this, who I think can lead that. But I don't think...

I do buy into the notion that beyond that beneath and doing all the hard work and the high skills, that it is going to be different in healthcare, for instance, and we can talk some other industries as well if you like. But I think instead, it's more about some leaders of healthcare companies having to

imitate and develop what we've seen in the technology industry. So I think firstly, very often you need them to have the moral and practical authorities by owning much greater amounts of the equity in these companies. One example in my mind, a company that's recently gone public, Tempus in healthcare data, broadly defined, or AI for healthcare, as they sometimes call it,

And I think it's really interesting that this is the company that's probably, probably making the most progress so far in that area. Its founder, as you may know, is a gentleman called Eric Lefkoski, who was previously known best as the founder of Groupon.

Now, he may have, for various reasons, shifted to being very motivated about healthcare. But I think the fact that he thinks in that direction, with profound influence, profound shareholdership, is important for us escaping that terrible, terrible bind that I was trying to indicate earlier about healthcare being too much about investors having the dominance of the company and being just about the next product rather than anything else. And

I think equally, there are people learning from that. So another example would be Chris Gibson of Recursion, you know, AI data company, been around for close to 10 years now, but really trying to work through all this. But I think that, you know, Chris has got used to speaking as a founder in the more classical terms. And I think that will be important in getting through these hard years.

So your approach at Lingotto, if I understand it correctly, has been to really laser in on three areas. Is that right? I think we do try and concentrate our research in that. But I'm only slightly uneasy, Simon, and I do think it's important that if we see new areas developing, that we add it. We're not trying to say it will always be these. I think one needs to acknowledge what is out there.

And how do you weigh up that? Because Mark and myself were talking about this for sort of the growth opportunities in an aggregate level. And then you could take, I think you mentioned airlines. You know, Buffett doesn't want to go to airlines. We know what an enormous marketplace it is. How do you balance the growth with the need for... The sort of profit pool, I guess. Yeah. Yeah.

So perhaps an interesting light on it because, you know, heck, what I'm trying to do mostly is to try and learn from great thinkers and people who manage to do this rather than having, imposing my own views on top of it. So I was very interested. Sam Altman came to talk at Italian Tech Week a couple of months ago, and it was predictably interesting, but...

He was asked by John Elkann, how do you identify the profit pools of this? In short, he talked about addressable size of markets. They talked about addressable size of markets, which I think we'd all acknowledge is critical. But the next question was, how do you differentiate between those who are bullshitting and those that are actually asking you genuinely? And I think it is, as Sam Alton said, unique.

You want people who've actually got detailed plans of what they're going about, rather than just a volume of noise about this. And this unites people who wouldn't necessarily think in that way. For all that we know about Elon, and we've come to know, there has always been a plan for Tesla about what was going to be done. And you work through that by stages. You worked in detail.

And there was a vast attention from working for the first principles in that onwards. So I was speaking to Peter Carlson, the sadly now departed boss of Northvolt, who'd been at Tesla, as you probably know, for many years. And he said, you know, in a meeting, Elon once asked him, how do you get from atoms to the price of a Y-series? Take me through all the different points. That's a long way from what we're talking. But I think you need distinctive cultures and very usually,

I can't really come up with many examples of either the Besson binder stocks or stocks that I'd be lucky enough to own that don't have a, the industry works this way, but what we believe is something completely different. And I think that is almost always a path.

I'm not sure that I would necessarily put your airline one on that because, you know, it's the establishment of competitive advantages in a more classical form that doesn't really exist there, does it? And, you know, even there, you have to think a bit differently, like Michael O'Leary. I think that's what was first principle thinking. I remember him coming to see me, you know, doing a few days of it. Plainly, there was that difference in thinking. But, you know, I think in the airline industry, you'll be much better looking at it over the years.

at those dominant manufacturers. You know, Boeing is a best-in-binder stock for all the ghastliness of the last few years. And I think we can all identify what's going on there. And Airbus has done pretty well for all the auditors, the way it's constructed. So I find that a more natural industry economics, competitive advantage ones. But I think you are looking for this profoundly different interpretation of your industry almost to get to extremes. Yeah.

I wanted to ask you about that, the information you look at. And I think it was maybe Nick Sleep, I think, talked about this long shelf life information. And where are you getting that from? I mean, is this sort of academic papers? And what sort of things are you reading to find this information? I genuinely find...

academia, the best source of this, because of course I read Kurzweil and all this type of stuff about the long run future.

But I think so much of that is about, if you like, giving you ideas and often very imaginative ideas of what has the growth opportunities. I think it very rarely tells you about the dynamics of that, the potential for leadership of it. And actually, I find in that sense, a lot of academia is very, very...

tough-minded and practical, which is not necessarily what we think about it. And maybe what drags you towards a higher probability level. You know, I had a slightly different example. I've been fortunate enough to talk a lot and sort of read to touch with Carlotta Perez, who has brilliant books about financial and technological change. And she's still writing there.

over 80. And I think some of those types of thought process give you a very different feeling from how we get to innovation and how we influence it ourself by what goes on in stock markets. I don't want in this way to say, I think there are numerous very great thinkers in the investment world. Again, they're slightly differentiated. But I think from

George Soros to Bill Miller, to Nick Sleep. There are people you ought to listen to in your own industry. But again, they mostly have very differentiated takes on how to do it. It's not what you see on CNBC. So when we think about risk, sizing and capital...

Again, Mark, I think you and your team might be the largest, have been the largest owner of Berkshire Hathaway outside of the US. And you spent a bit of time... In the UK. In the UK. You talked a little bit about how they approached risk when you met with the Berkshire Hathaway team.

Well, it was just interesting talking to one of the newer Berkshire Hathaway board members and asked them what was surprising to them on joining the board. And they said it was, you know, Warren Buffett talks a lot about risk, but actually seeing him in action and how focused on risk he is, is really surprising.

And I suppose it slightly depends what game you are playing. And I think, as Buffett has said, he's got almost 100% of his net worth invested in Berkshire. A lot of his friends are. So that's one of the reasons why he's so focused on risk. Whereas thinking about you, and I would imagine you wouldn't be advising us to put 100% of our net worth in your strategy, or perhaps you would. That's so right. Yeah.

And I think at various times colleagues of mine haven't really liked this, but I've always felt when clients and clients now as much as clients then,

Asked about risk. The only reply is, tell me what your risk profile is, because I wouldn't know. I would absolutely argue that investors of whatever ilk need to have attention on the massive markets and best binder terms. And they need to think about their own timelines involved in this.

But if you like, none of this points in the direction of risk as being volatility around an index. And I think that's terribly important. And actually, one of the elements that gets me depressed about the investment world these days is

It's a twofold. Most investing institutions aren't actually thinking about individual companies. You know, it's factors and ETFs and all that. But also the institutions who you feel should be able to be really long term and who tell you that they're being long term.

Actually, what bothers me is the outcomes over the next 12 months and their peer group comparisons. I think a lot about endowments and the like from that point. I don't think these people are acting in consistency with their own avowed risk philosophy. But have you also, would it be fair to say, had the luxury of presiding over what are at one level more permanent capital vehicles? That's absolutely right. But I think as well...

One should think about it in terms of the caliber of thought and loyalty going on behind it. You know, Scottish Mortgage was, after all, a retail vehicle and not all retail investors. I think a lot of them are, but not all retail investors long term. I would, you know, huge amount of credit there.

to the board and some individual board members for being willing to back the long. I mentioned John Kay earlier, but Sir Donald Mackay is the economist and chairman beforehand. It's fantastic about this maybe opportunity, but a less known one of the Bailey Gifford part of this. I was also the manager for close to 20 years of the Vanguard International Growth Fund, or the portion of it run by Bailey Gifford.

And the Vanguard board were fantastic from this point of view. They completely understood that.

that where they were selecting active investment managers as opposed to doing their own highly skilled index-like tasks, they were wanting those people to be different and to think differently. And they absolutely encouraged that. And the challenge was always intellectual challenge. It wasn't about what the results have been over the last six months. And they were deeply, deeply valuable at that and plainly

It's one of the parts about Lingotto that appeals to me. And, you know, it brings an extra element in it because when we are lucky enough to talk to the people at Exxon and John Elkin in particular, you know, these are people who have deep experience in trying to build industrial businesses. That's not something I've had the fortunate opportunity to be involved in the same way. So it gives an extra way of it. You know, for sure, the future of Ferrari was not constructed in 12 months.

I think it's such a fascinating point around the kind of timeframe and short versus long term and thinking about what period as an investment manager you should be judged over. And I think for most strategies, it's pretty long. And I like the question, if you didn't know anything about the manager...

what period of time would you have to look at to be pretty sure that they were a great manager? And I think it really is a long time. Yes. And it's probably 10 years rather than five. So if I'm thinking about as an investor coming to you and what period over which should I judge your performance?

Firstly, I absolutely agree with you. You're probably familiar with a piece of work that was done a few years ago, which I think was entitled God's Portfolio, which if you had perfect foreknowledge over the next five years, you'll still be underperforming at some point during that. There will always be a time when that is so. In some ways, I suspect we would agree on quite a lot of this. What might be an extra nuance or like an ad, and I felt this in investing in individual companies as well,

You should be absolutely committed to living up to the values that you espouse. And if you see people going in a different direction. So if I may, for a moment, tread back to the Vanguard experience. The first year we managed money for Vanguard, we'd done extremely badly. And classic Vanguard reform, you know, they assembled all the senior people there. And

And then Chirst sort of paused and said, I've got something very serious to you. And I looked at my colleague and he looked back at me. We all thought we knew what was coming. And he paused for even greater effect and said,

Want to tell you that we're really pleased with you because we've done a lot of work on what you've actually invested in. And we think you've been living up to exactly what you described as the process. It's just that process hasn't worked over the 12 months. And, you know, it always bothered me even after very brief times of owning a share of the company changed its philosophy, changed its culture in those ways. And I think, you know, that was more often a tell than anything else.

So we're here in Europe. You mentioned ASML, we've had ARM, we've had Spotify, but there is a sense that Europe's being left behind for all sorts of reasons. Some of those are macro reasons.

But I'd like to just get your sense of where are the gaps? Is it from the insufficient VC community? It was Xavier Role who was on the show some time ago, lamented the dominance of bank lending as opposed to equity financing. But money flows to where the ideas are. So are we mischaracterizing the European problem?

Well, the first thing I should say is I fought against this pessimism. I neither thought it was helpful on itself, nor did I ultimately believe it for long periods of time. But I am profoundly depressed at the moment about it. We can talk about some of the individual reasons. I think, Simon, I might just say one thing. I think it's for all the fact that the problems across Europe are embracing almost all geographies and almost all sectors differently.

I think the explanations may actually vary quite a lot between those different systems, which still remain quite independent. And that's not necessarily a bad thing. But if I can take it first in British context. So the single example which made me most depressed was the ARM-1.

And I mean the ARM one at the time when Mr. Son first brought ARM, rather than the more recent part of this. And BetaGif was the largest shareholder. And I felt, though, that all the evidence was it went wrong at every single level. So we talked to the company.

There was no one inside the company who was really prepared to take on the challenge and say, look, we can do this. We can invest for the next five years. And at the end of it, we will come out with an incredibly valuable company. You then look to talk to the board. And I would remain very critical of the board. I think it was constituted mainly of people who sold companies. And they saw that as one of the avenues out of it. They didn't see rebuilding it.

You then think about the shareholders, you know, having sort of raised the topic of whether one could go in a different direction and inverted commas, save arm in a British context at that point. I got very little support, legal in general, to be fair to them, were absolutely supportive of the idea, but that was about the sole example. And then, and in some ways, summing up it all, the worst part of it was the government.

I think it was Theresa May, but I'm not sure it made a huge amount of difference, who wanted us. Unfortunately, they addressed the correspondence to a very determined cloud region called Gerald Callaghan, who wasn't really the right target for them on this score. They wanted us to write a letter saying, what a triumph for Britain, because somebody wants to buy it. I think we get very few chances of building truly outstanding companies. I mean, it's in line with the logic.

There being small numbers of them in global scale. So I think that, you know, Britain, it's a problem at almost every level.

I do believe that across Europe, we need to have much bigger venture capital, probably 50-fold in terms of what we're actually doing. But I'm very interested in what you alluded to. I think one of the most thoughtful people about this in Europe is Daniel Ek at Spotify, who, as you'll know, is also trying to invest for the future. And he's young enough. He's got plenty of years about it.

And I get up to chat to him about it. And he said that he found the biggest issue when it's setting up these new companies, which he very often chairs and the like, is he quotes needs to reprogram the brain of the founders. And I think that is right, isn't it?

the level of ambition you need. It's not these people may not be capable of it, but it's not how they are thinking about what's going on. I think at the same time, they need to know it's extraordinarily hard, that it's not five or 10 years. In a sense, the whole e-commerce era was, I think, dangerous from this point of view. And it made people think they could do it suddenly, and then they could retire with lots of money where they were 40 or whatever.

No, I think the ASML example, to go back to, is a much more powerful one of it. For Martin Van Buren, it was 40 years of commitment to this and extraordinary levels of hard work.

And, you know, I think we do have a real problem at that level too. It's fascinating, all these conversations, I think, are around that challenge of really thinking longer term kind of across society, I guess. And I don't know how we change that. No, I don't because so much has cut against that over, you know, my lifetimes.

And, you know, a lot of reflections on it. And I think it's something we find hard to take. But, you know, the neoliberal turn in many ways brought many useful things in. But I think it also did have a dangerous effect on these long-term visions of what you need to do. And I think it's also, as you're probably implying by that, cultural and other than one of the ones that Sam Altman was talking about, you know, he's kind enough to be interested in what were the problems in Europe as well.

He was pointing to this terrible, terrible fear of failure. And I don't think it's America. I think it's much more just that Western fringe of America.

doesn't have that. And now I've been reflecting a lot about this as a small shareholder of Northvolt, and I know a lot of the people involved pretty well. I think that I've been frightened by the sheer ferocity of both the attacks they faced in Sweden, because they were trying to do something that was incredibly valuable importance and the lack of assistance in solving it. I mean, all these companies just about that we've talked about,

within a very small number of months or events of complete failure themselves. I mean, Tesla was within weeks of going bankrupt. There'd been a potential successor for Jeff Bezos recruited. I mean...

Everything is Apple. Yeah. Well, absolutely. As you know, from the earlier conversation, I'm probably not prone to think that out too much. Let's just take this. Sorry, one other, which I really feel it must do. I worry about this more in Germany than anywhere else.

I think that having said all that about Sweden, at least there's still great entrepreneurs. Some of the stuff that's happened in Denmark has been fantastic. Plainly, Poland and the like are doing quite well at their current juncture. But I see nothing going in the right direction in Germany from any of these points of view. Would it be fair to say, because I think you've been involved in one of the, I'm going to say nuclear fission, but maybe that's wrong around Oxford. There is a lot going on around these universities. Yeah.

So when you are clinging, I won't say to the green shoots of recovery, but to the strands of optimism, do you see it around the university communities mostly? Oh, well, I think this whole university question is absolutely fascinating. Yes, I do. And I think that's similarly so in continental Europe as well.

I think some of the Swiss universities, for instance, and German universities, maybe even German universities might be a bit better on this point of view. But I would also say...

We're doing the UK examples. But it's a very mixed picture in America, too. You know, when we talk about American universities, it's a bit like when we're talking about America as though it's just one Silicon Valley. It's not. And I think the number of universities in America that really got this right is incredibly small.

So, MIT, Stanford, Caltech, but can we get to 10? I'm not sure that we can get to 10 for all the fact there are many, many great universities in America. I am by a trustee of Johns Hopkins, but plainly there is this astonishing amount of both healthcare knowledge and

but also the advanced physics labs, which are not nearly so well known, but profoundly important in space exploration, for instance. Until comparatively recently, they hadn't really embraced this idea of moving it from academic knowledge to companies. And in many ways, they thought it ran against the principles of academia. Where are we in that, and particularly in Britain?

I think a lot, if we're logical about it, has come out of Cambridge. But it seems to me the problem, and this perhaps fits with the ARM example, is about scaling. And I would absolutely use your reference to Fusion. Yeah, talk about this as great basis of knowledge.

But I think they are trying finally to scale and industrialize this. And the abilities they've got in the magnets world is a specific way of getting involved in the global supply chain for this and having something that's not just dependent on making that ultimate aim, which would be great for us all, of fusion. And I think the reason I initially got involved was actually because

You could call for Warren East, who's the director, who we will know from Rolls-Royce, etc. So I think there is more evidence that they're thinking about these scaling problems, particularly under the new leader, Warren Matthews. I think there is progress on that, but that's where we need it. I mean, go back to the Cambridge example, how many healthcare companies haven't really developed on that.

And, you know, a couple of anecdotes. One can either talk about, you know, being taken to see the exact pub in Cambridge where parody of parodies, you know, the technology behind Illumina sequencing was invented, but we couldn't exploit it. Or another time I was down there talking to a healthcare company and they said, it's so much difference compared with America, our competitor in trying to help in the coronary world.

just got written a check without parent pause for $100 million. We couldn't possibly do that. And I looked at them because it was us who had written the check. So, you know, it's sometimes the other way around that people don't have the ambition or don't think they can do it.

Which, of course, leads us into this public-private debate. Now, I know you load longer with Kinovic, but one of your former colleagues said we sometimes can actually save companies from going public. And I thought about that, and I suppose I was uncomfortable at one level. But just what's your reflection on the implications of staying private for longer? It's a trend we all know. Should we care?

I think we should care. And, you know, just to be clear, I'm with Sinevik for another few months, but I've said that I'm stepping down come the spring. Can I put it as an abstract question? Who do any of the three of us think is

are likely to be the best owners of our equity. I say you're one of the founders we're talking about. Do we think it'd be private partners or public partners? Now, I personally think on the whole, and certainly historically, in most cases, the answer to that has been your private backers.

I think I would argue that Sequoia have been a better owner of companies than anything else. And I think many of them have even stayed with these companies long after they're public. And I think, you know, I'm not going to take a profit any of the individual public owners of equity.

But I think we have generally turned it into something to not do what we originally thought was the point of capital markets of investing in companies to help them grow, but to take money out rather than anything else. And that's what the math tells you, after all, that there is more money taken out than reinvested in that way. I do have some worries as to whether that will remain true of the private markets.

Because, you know, I think it's become very obvious over the last few years, and particularly given the linkage into some of the institutions that we were talking about and not being long term enough. You know, are the time pressures on venture capital getting greater? You know, the need to, or the perceived need to raise new funds and get the money back. You know, I think that may be deteriorating.

But I think in all these cases, it comes down to that identity of interest and identity of support from individual owners. And the answer very often comes down to who's going to help you best on that score. I think there are some advantages of public markets. I think it was Bill Gurley at Benchmark who said that they provide a certain discipline to some of these companies. I don't know whether you would agree with that.

I find that incredibly difficult. And I actually happened to be sitting next to him at a Santa Fe conference recently. I didn't quite pluck up my courage to ask him about this. But, you know, would I come down to that? I think absolutely, yes. But I think probably on balance, more has gone wrong in public markets recently.

than has gone right. That doesn't mean there aren't some owners, there aren't some problems that are helped by that. But, you know, I do find myself, you know, I always wanted, both at Pelley Gifford and certainly at Lingotto,

to say, "Look, if you go public, we will try to own more stock rather than want to see it as an exit," which I think is great to be able to have that long-term capital to get to go back on that behind you. But I do find myself very much reiterating, do you understand quite how much the challenges are there? I cited Chris Gibson earlier, and I remember when Airt Recursion went public, they did

They did a genuine job, not just saying this, of trying to just have owners who were going to be long-term in their backing. The next time I saw Chris after my appearance out of the markets, I said to him, and what happened to all those people? Of course, you know, the share price is down hugely, et cetera. Didn't they stick with you? And he said, no. And I think it was out of 20 of them. It may have been out of 25, but only one had been a seller.

But what you get is this intensity of the shorts, the people trading the stock every day, forcing your share price down. So, you know, very often it can escape even good guidance from that point of view. So, yeah, don't get me wrong. I'd be far better for me to quibble with Mr. Gurley. But, you know, I think the number of times when it's good for companies is probably less than the number of times when it's acutely bad. Yeah.

And I know a model we quite like as public equity market investors, when you have some sort of dynastic, sensible shareholder who really can drive that longer term agenda.

Yes. I think that's, in my view, works best. Absolutely. I think you need, you know, perhaps this again reflects slightly on what we were mulling of the particular versions of Britain as a subset of, because I think for this case, it is Europe. You know, I think that you do need families or founders. And I think it's very hard to get the right ownership without those.

So before we move to some closing general questions, the lens through which this conversation has happened seems to be a largely Western one. I wonder if on your travels, because we grew up seeing these extraordinary technologies come out of Japan, for example, where there's no shortage of great technical skills and growth in universities, how much of your work either allows you or does end up focusing on those other geographies that are so important?

It's a very good reminder, Simon. I personally always found Japan quite hard because it was that absence of willingness to discuss or argue in public that was difficult. My erstwhile colleague, Bailey Gifford, Sarah Whitley, was fantastic at it and, you know, huge admiration for what she was doing, but I found it difficult myself. I have always myself

been intrigued by China and believe these technologies, believed the founders were deeply supportive and loyal in actually some ways beyond even what they were doing in America. And I've been very troubled by what's happened both in domestic politics and in the international one. I still absolutely believe that

that one should remain interested and to a certain extent committed in China. I think I have to accept that from either domestic or Western, particularly American reasons, that you have to factor in that you may lose basically 95% of your money, but if the upsize it, I think what the Chinese have done, particularly in the clean technologies, makes it very hard to see how we solve climate change without them. But I'd also generalize.

A different academic was saying to me recently at Santa Fe that if you look at it and people's mental model is comparing it with shutting ourselves off from the Soviet Union, that's not right because America doesn't much trade with China in a week.

as it did with Russia in a year back then in relative terms. And I personally don't believe that in the long run, either from the point of view of security of the world or for our economic self-interest, that we can separate us and not in China. One just needs to navigate that quietly at the moment. So some closing questions. I mean, which investment over the years has given you the greatest pleasure or gives you the greatest pleasure?

If I may, I mean, in a sense, actually the greatest satisfaction was being able to work through this with the help of others as a philosophy.

and say, you know, betting if it liked to think of itself as long-term, but I hope none of my colleagues will really dispute or dislike me saying it wasn't really because we used to have meetings about quarterly performance and all that type of stuff. But I think being able to turn this into a genuine long-term philosophy with, I think, some differentiated, or I hope some differentiated points matters a lot to me as a philosophy. I think I would say, though, that

For me, it would be Amazon because I think both the interpretation was broadly speaking correctly, but it was a very pleasurable experience because I think either in getting the opportunity to listen to him or just simply reading, which is obviously open to everybody, what the Amazon shareholder letters said every year.

was truly to be aware of someone who thought deeply differently. And I don't think, in a sense, we've taken those as writings about investment as much as we should. They were seen as writings about Amazon. They weren't a philosophy of investment. I think they were actually underlyingly a really impressive set of documents about how to think about investment.

I might just ask you a personal one, if I may. Edinburgh is close to my heart, and my family are from there. You know, the birthplace of the Scottish Enlightenment. Just your views on Edinburgh as a financial centre. And maybe...

Nowadays, geography matters less. Maybe no longer you have to be in Silicon Valley or London or Edinburgh, I don't know, because of the internet and the kind of passage of information. But do you think Edinburgh has a future as a financial center? Yeah. Well, I genuinely love to discuss this more with you at some other time. But just some quick thoughts.

On the whole, I think investment is actually being better for being out of these men's centers. The cheap, easy example is Buffett. Absolutely. And I think you can build these relationships without being in the same place. But yeah, I'm very...

ambivalent about it in lots of ways, both good and bad. One of the things I've only just given up doing, I was chairman of something called the Panmure Prize, named after Panmure House, Adam Smith's last home, as you'll know. And there's something quite awe-inspiring about sitting in there in the same room where Smith...

Benjamin Franklin, who got reprimanded by Jefferson for spending too many times drinking wine and that kind of thing. And probably, you know, the timing's obviously not quite right, sitting there drinking gallons of wines and putting the world to right. And, you know, we don't live up with that. But I think there is some of that intellectual heritage there. And I think that, if you like, that seriousness starts. There was a very

odd but rather good book called, I think, The Geography of Genius, written a few years ago, which was really saying it's about small places. And after all, Silicon Valley is pretty small, isn't it? From that point of view, rather than the giant places that produce ideas. I worry a lot about

about whether either finance or more generally, Edinburgh, Scotland is bold enough. I would include Glasgow as well because the industrial heritage, etc. I don't think we've much idea or much thought

around what the future of the Scottish economy looks like. And you get all these things like Saudi Arabia of wind, but yet it's not Scottish companies making the equipment and the like. You've got to build the companies. And in finance, from what so sadly, but so drastically happened with the banks to...

what's happened to standard life and the like, you know, I think people haven't found their own identity. They've been sort of sucked into doing what's expected of them rather than trying to forge an identity of their own. I think that's a terrible biddy.

And although I've understood, I think I've understood that the macro considerations play less of a role in your thinking because you're so focused on the company and its journey, do you, or should I say at least under what circumstances does the macro feature in either your policy or in your worries? Well, I wonder whether it's feasible to turn this around to some extent.

If we think back over our careers, haven't the type of companies that we've been talking about actually defined the macroeconomics of our own era much more than the ups and downs? And perhaps that's just something one hopes at the moment, given the politics of the world.

I think it comes back to the question I was asking earlier. I mean, what do I see my role as being and where I might have any ability to help investors? I'm not sure it's about coming to judgments about macroeconomics or Donald Trump or Xi Jinping or Putin or any of that.

Certainly, one should stick in one's own lane from that point of view. And it's simply saying, I'm not sure that I can add much, much about, apart from saying that it is these deep exponential changes as embodied by these companies that perhaps change our mind and perhaps lead to the politics that we all have.

And finally, lots of young listeners who are thinking about careers and you've pivoted within finance while staying in finance. What's the advice that you would offer up to people thinking about careers? Oh, for all that I'm sure machines will also be competitors of us in active investment in the future. I think if you are curious...

If you get enjoyment out of it, and if you can try and sort of think whether there is some way that you can have a differentiated process of investment, it's a great career. The thing that made me saddest was too many people go into investment management because it's an eye for eyes with good rewards and good social acceptance. Those are the wrong people to be investment. You should do it because you think you might have a real commitment to it.

So we always sum up. I've written down lots of things, James, because I've been really looking forward to listening to you today. I've written down here in parenthesis that European entrepreneurs almost need to reprogram their

their brains because of timelines, opportunity set, scale of potential. And because the world is so inherently complex, one almost needs to think about different scenarios when you're going through the investment process. So those are two particularly interesting points.

Did you take anything that you would share? You know, I think the importance of that first principles thinking, I think is so, so vital, particularly when there's so much information around us just to really, really think. And I've got lots of reading to take away with me. Thank you. Perhaps I could add one more on that. Funnily enough, I got onto this last week at Lingoto. One of the best bits of writing about first principles, which you may have come across recently,

But Charlie Munger gave a lecturer one of the universities, and I think it was Harvard, but I won't swear by it, about how could you have told that Coca-Cola was going to be a great company in 1874? And of course, none of it's about detail, third decimal point, thinking about it is just the principles underlying it. It's one of the best pieces I've ever read.

James, it's been a great pleasure. Thank you so much for coming today. Wish you the best of luck with Lingotto and your other ventures. And I think just really thrilled to have had you here today. Thank you very much. Thank you, Simon and Mark. I mean, I enjoyed it immensely. And you've asked some very thought-provoking questions, which I too will go and think about. Thank you.

Thank you.

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