Illustrations by Mark Smith
As with any investment, your capital is at risk.
In 1921, Frank Knight, the Chicago School economist, defined the crucial difference between risk and uncertainty.
Risk – something that can be quantified and insured against – had always been the stuff of traditional economic modelling. But to Knight, it was uncertainty, meaning what no expert or analyst can ever measure, that rules the real world.
In our era, it’s manifest in pandemics, natural disasters, financial stresses, trade wars and real wars, all bouncing off each other in chaotic, unforeseeable ways.
His point was that uncertainty, “the inherent, absolute unpredictability of things”, creates opportunities for entrepreneurs. They are rewarded (along with their investors) for bearing the weight of the unknowable rather than for taking mere calculated risks.
It seems that we’re at a peak of ‘Knightian uncertainty’ right now, as geopolitical posturing heats up the global economy’s complex adaptive system. You can theorise about President Trump’s long-term objectives, but the truth is we don’t know the potential outcomes, and we certainly don’t know what probabilities to assign to them.
Getting comfortable with uncertainty
For me, having an edge as an investor comes from taking a different view from the market of a company’s potential, what the upside could be and what might happen if we’re right. We aim to see the value in an opportunity before others. That means getting comfortable with uncertainty. If a company faces predictable and quantifiable risks, the market will already agree on its value.
Our experience over the last few years has led us to think more deeply about the different characteristics of exceptional growth. The difficult period during in the rising interest rate environment of 2022 – following an unusually long expansion – hasn’t changed our process. But it’s made us look harder at whether companies are resilient enough to adapt to whatever’s thrown at them.
Our willingness to back a company’s blue-sky vision is unchanged. But we’re more aware that it’s the business you’re running today, not the one you might have tomorrow, that must deal with problems along the way.
However great the opportunity, if a company can’t overcome inevitable bumps in the road, it won’t live to fulfil its potential. It’s about maximising chances.
A case in point is Northvolt, the Swedish battery maker that filed for bankruptcy in November last year. We shared founder Peter Carlsson’s vision of a European champion in a world increasingly turning to electric vehicles.
Our mistake was not foreseeing its vulnerability to weaker-than-forecast customer demand and operational problems that delayed its ramping up of capacity.
Anatomy of a resilient company
What does resilience look like? In practical terms, specific financial characteristics count. The questions we ask of companies are:
- does it have debt or not?
- does it have big enough margins to absorb the ebb and flow of sales?
- does it generate cash?
However, there are wider cultural questions, often related to their being founder-led businesses. I’ve written before in Trust about how founders can make counterintuitive decisions and get an organisation to buy into change in a way that’s hard for professional managers. Our resilience checklist also asks of management:
- are they nimble and adaptable?
- do they rely on things continuing to be the way they’ve always been?
- do they innovate?
- are they competing in an industry or creating an industry?
Adaptability was vital in the high interest rate environment following the pandemic. Businesses needed to improve profitability to stay flexible. As it turned out, many were much more resilient than superficial financial metrics had suggested, and they’ve subsequently become much more profitable.
Shopify, the ecommerce sales platform, is a good example. Previously, it ran just below break-even and invested in many new projects. Now, it’s still investing and growing rapidly, but it’s switched to a model that manages to keep about 20 per cent of its revenue after covering operating costs. That extra cushion gives it the flexibility to adapt to new developments.
Meta, parent of Facebook and Instagram, is another. It had a ‘year of efficiency’ and addressed some of the weaker parts of its business and cost base. That puts it in a much better position to benefit from an improved operating environment.
Then there’s Cloudflare, the platform that protects and boosts online services. Previously making a small loss, its margins have climbed steadily over the past few years, helping it withstand whatever shocks are thrown at it.
Companies that make their own weather
Resilience means having options and the ability to make your own weather in challenging times. Ferrari needs to be sensitive to customer demand, but its brand power gives it many levers to pull to keep growing.
Oddity, the online makeup business, is thriving in a sector that’s been shrinking. It’s bringing something fresh to the market by enhancing ingredients with newly discovered molecules and using AI to personalise customer recommendations.
These companies show how you can still navigate a trickier environment with sufficient innovation. Because Netflix can add content that people love, it has flexibility around pricing. And it can choose the rate at which it commissions content.
Meituan, the local services and delivery business in China, exemplifies a different sort of resilience. Rivals such as ByteDance and JD.com have been attacking its core delivery markets. Because that had an impact on growth rates and margins, analysts reduced their ratings of the company.
The fact that it has fought off well-funded competition shows the strength and resilience of its business model. It bounced back in its financial metrics and in how the market assesses it. It’s an example of how an investor can outperform: seeing that a business’s resilience is worth more than others think.
I realise that this new emphasis could read as more timid and risk-averse. Not so. We’re still searching great businesses whose future is uncertain but which can be wildly more successful than anybody else believes.
But the companies that hurt performance in recent years were often those whose vulnerability to changing circumstances ended their chance of fulfilling their potential. When the next crisis comes around, we want to be sure we don’t hold too many such companies. It’s about increasing the odds of success by choosing which pools you fish in.
Amid turbulence, focus on what you can predict
I should add that there’s been no shortage of tough environments since I started investing in 2000. But you don’t survive for a quarter of a century in this industry without a degree of detachment and, yes, resilience.
You can work hard and do what you think is a good job, but things come out of left field, and you can do absolutely nothing about them. It’s not a career for everyone, especially now, as increased Knightian uncertainty causes markets to move short-term in crazy ways.
The economist Adam Tooze uses the term ‘polycrisis’ to describe how the economy’s underpinnings are under attack from all angles. The traditional order, he suggests, is breaking down as problems bubble up unpredictably. That’s the reality we must accept. There’s always something to worry about.
For us, it’s about focusing more on what we can predict. If we’re backing companies doing new things, in new ways, with uncertain outcomes, we need them to align with themes we are confident about. For example: we know AI will be more capable five years from now.
We know batteries in electric vehicles will be cheaper and have a greater range. We know cloud and data management software will become more powerful.
In an uncertain world, our job is to refine our understanding of how such long-run developments might play out, aware that only the most resilient will survive to thrive.
Risk factors
The views expressed should not be considered as advice or a recommendation to buy, sell or hold a particular investment. They reflect opinion and should not be taken as statements of fact nor should any reliance be placed on them when making investment decisions.
This communication was produced and approved in September 2025 and has not been updated subsequently. It represents views held at the time of writing and may not reflect current thinking.
This communication contains information on investments which does not constitute independent research. Accordingly, it is not subject to the protections afforded to independent research, but is classified as advertising under Art 68 of the Financial Services Act (‘FinSA’) and Baillie Gifford and its staff may have dealt in the investments concerned.
All information is sourced from Baillie Gifford & Co and is current unless otherwise stated.
The images used in this communication are for illustrative purposes only.
Important information
Baillie Gifford & Co and Baillie Gifford & Co Limited are authorised and regulated by the Financial Conduct Authority (FCA). Baillie Gifford & Co Limited is an Authorised Corporate Director of OEICs.
Baillie Gifford Overseas Limited provides investment management and advisory services to non-UK Professional/Institutional clients only. Baillie Gifford Overseas Limited is wholly owned by Baillie Gifford & Co. Baillie Gifford & Co and Baillie Gifford Overseas Limited are authorised and regulated by the FCA in the UK.
Persons resident or domiciled outside the UK should consult with their professional advisers as to whether they require any governmental or other consents in order to enable them to invest, and with their tax advisers for advice relevant to their own particular circumstances.
Financial intermediaries
This communication is suitable for use of financial intermediaries. Financial intermediaries are solely responsible for any further distribution and Baillie Gifford takes no responsibility for the reliance on this document by any other person who did not receive this document directly from Baillie Gifford.
Europe
Baillie Gifford Investment Management (Europe) Ltd (BGE) is authorised by the Central Bank of Ireland as an AIFM under the AIFM Regulations and as a UCITS management company under the UCITS Regulation. BGE also has regulatory permissions to perform Individual Portfolio Management activities. BGE provides investment management and advisory services to European (excluding UK) segregated clients. BGE has been appointed as UCITS management company to the following UCITS umbrella company; Baillie Gifford Worldwide Funds plc. BGE is a wholly owned subsidiary of Baillie Gifford Overseas Limited, which is wholly owned by Baillie Gifford & Co. Baillie Gifford Overseas Limited and Baillie Gifford & Co are authorised and regulated in the UK by the Financial Conduct Authority.
China
Baillie Gifford Investment Management (Shanghai) Limited 柏基投资管理(上海)有限公司(‘BGIMS’) is wholly owned by Baillie Gifford Overseas Limited and previously provided investment research to the Baillie Gifford Group pursuant to applicable laws. BGIMS is incorporated in Shanghai in the People’s Republic of China (‘PRC’) as a wholly foreign-owned limited liability company with a unified social credit code of 91310000MA1FL6KQ30.
Baillie Gifford Overseas Investment Fund Management (Shanghai) Limited
柏基海外投资基金管理(上海)有限公司(‘BGQS’) is wholly owned by Baillie Gifford Overseas Limited. BGQS is incorporated in Shanghai as a limited liability company with its unified social credit code of 91310000MA1FL7JFXQ. BGQS is a registered Private Fund Manager with AMAC with a registration code of P1071708. BGQS has been approved by Shanghai Municipal Financial Regulatory Bureau for the Qualified Domestic Limited Partners (QDLP) Pilot Program, under which it may raise funds from PRC investors for making overseas investments.
Hong Kong
Baillie Gifford Asia (Hong Kong) Limited 柏基亞洲(香港)有限公司 is wholly owned by Baillie Gifford Overseas Limited and holds a Type 1 license from the Securities & Futures Commission of Hong Kong to market and distribute Baillie Gifford’s range of collective investment schemes to professional investors in Hong Kong. Baillie Gifford Asia (Hong Kong) Limited 柏基亞洲(香港)有限公司 can be contacted at Suites 2713–2715, Two International Finance Centre, 8 Finance Street, Central, Hong Kong. Telephone +852 3756 5700.
South Korea
Baillie Gifford Overseas Limited is licensed with the Financial Services Commission in South Korea as a cross border Discretionary Investment Manager and Non-discretionary Investment Adviser.
Japan
Mitsubishi UFJ Baillie Gifford Asset Management Limited (‘MUBGAM’) is a joint venture company between Mitsubishi UFJ Trust & Banking Corporation and Baillie Gifford Overseas Limited. MUBGAM is authorised and regulated by the Financial Conduct Authority.
Australia
Baillie Gifford Overseas Limited (ARBN 118 567 178) is registered as a foreign company under the Corporations Act 2001 (Cth) and holds Foreign Australian Financial Services Licence No 528911. This material is provided to you on the basis that you are a “wholesale client” within the meaning of section 761G of the Corporations Act 2001 (Cth) (“Corporations Act”). Please advise Baillie Gifford Overseas Limited immediately if you are not a wholesale client. In no circumstances may this material be made available to a “retail client” within the meaning of section 761G of the Corporations Act.
This material contains general information only. It does not take into account any person’s objectives, financial situation or needs.
South Africa
Baillie Gifford Overseas Limited is registered as a Foreign Financial Services Provider with the Financial Sector Conduct Authority in South Africa.
North America
Baillie Gifford International LLC is wholly owned by Baillie Gifford Overseas Limited; it was formed in Delaware in 2005 and is registered with the SEC. It is the legal entity through which Baillie Gifford Overseas Limited provides client service and marketing functions in North America. Baillie Gifford Overseas Limited is registered with the SEC in the United States of America.
The Manager is not resident in Canada, its head office and principal place of business is in Edinburgh, Scotland. Baillie Gifford Overseas Limited is regulated in Canada as a portfolio manager and exempt market dealer with the Ontario Securities Commission ('OSC'). Its portfolio manager licence is currently passported into Alberta, Quebec, Saskatchewan, Manitoba and Newfoundland & Labrador whereas the exempt market dealer licence is passported across all Canadian provinces and territories.
Israel
Baillie Gifford Overseas Limited is not licensed under Israel’s Regulation of Investment Advising, Investment Marketing and Portfolio Management Law, 5755–1995 (the Advice Law) and does not carry insurance pursuant to the Advice Law. This material is only intended for those categories of Israeli residents who are qualified clients listed on the First Addendum to the Advice Law.
Singapore
Baillie Gifford Asia (Singapore) Private Limited is wholly owned by Baillie Gifford Overseas Limited and is regulated by the Monetary Authority of Singapore as a holder of a capital markets services licence to conduct fund management activities for institutional investors and accredited investors in Singapore. Baillie Gifford Overseas Limited, as a foreign related corporation of Baillie Gifford Asia(Singapore) Private Limited, has entered into a cross-border business arrangement with Baillie Gifford Asia (Singapore) Private Limited, and shall be relying upon the exemption under regulation 4 of the Securities and Futures (Exemption for Cross-Border Arrangements) (Foreign Related Corporations) Regulations 2021 which enables both Baillie Gifford Overseas Limited and Baillie Gifford Asia (Singapore) Private Limited to market the full range of segregated mandate services to institutional investors and accredited investors in Singapore.
