Does anyone read Baillie Gifford’s Trust magazine? I only just came across it this week
Exert from it from James Anderson one of the SMT managers
There’s a law in markets that the more uncertain the situation the more fund managers feel the need to pontificate. This is especially the case when a crisis is extreme in nature and far beyond the expertise of financial analysts. Why? It’s partly because clients, savers and the media want answers, but that desire is minor compared with that of investors to prove that they are in control by taking some, perhaps any, action. This isn’t a good idea. As a trustee of Johns Hopkins University, I feel in privileged touch with public health issues. But even Hopkins does not know what will ensue in medical terms – let alone in stock market consequences. We must respect uncertainty, not preach. Stress and short time frames are not auspicious omens of intelligent action.
So our default position was inaction. Did that work? It’s easy to twist events with hindsight, but what follows is an attempt to convey what was on our minds in recent months.
Each March I make a trek across America from east to west. I’ve found this an excellent process to observe the profoundly different mentalities at work, to mix companies and academia and to end up thousands of mental miles from the grime, greed and arrogance of Wall Street and Washington.
On my way I did a Scottish Mortgage presentation in London. Panic was already in the air. Stocks were falling indiscriminately. The audience also assured me that Scottish Mortgage was bound to be severely affected because it had been for several months in 2008–09. All I could really respond was that panics happen but that parallels are often misguided – and that subsequent returns after the Great Financial Crisis meant that we were justified in enduring the dark days. But although we certainly accepted that there might be months of pain, there was already a parallel with 2008–09 that we thought similar or even more central. The central banks of the world would flood markets with liquidity and commit to low interest rates for as far out as they could see. The discount rate for stocks would be falling and the competition from bonds would be minimal. That matters.
By the time I reached California, the previously insouciant American attitude to the pandemic had changed. I cut short my trip but not before a last meeting at Tesla. That was fortunate as it had a deep influence on my perspective. Although it was clear that the short term would be an unanticipated struggle, it was equally evident that Tesla was far better placed to first survive and then flourish than its traditional competitors. The parallel was with Amazon in 2008–09: it mattered far less that sales temporarily slowed than that the business models of others would never recover. The electric revolution would outlast the pandemic.