Actual investors think in decades. Not quarters.

Transformational growth companies such as Amazon and Tencent are rare. Finding them requires patience and resolve. Yet many investors think they can find them based on short-term trading patterns and believe decisions can be made by computer algorithms.

What really matters is change in the real world. Investing can’t be reduced to neat formulas such as the Capital Asset Pricing Model, which so widely underpins the investment industry. Investing is not about confusing everyone about alpha, beta, factor exposures and high-frequency trading. It is the deliberate, imaginative act of directing your capital to new ideas and new business models that provide people with better, cheaper or completely new ways of meeting their needs and wants.

That’s what we focus on, and that’s why we build strong relationships with the companies actually doing it.

Some investors might be able to predict fleeting market fluctuations, but it’s not a skill Baillie Gifford offers.

We have no idea what stock markets will do in the next three, six or 12 months or how a company’s share price will perform day-to-day.

In a market dominated by short-term speculators, investors set prices trying to anticipate what their competitors will do next.

In the short run, a listed company’s value has only a very loose connection to its fundamental progress. In the long run, it’s all that matters.

We believe investing is more art than science. The creative part lies in anticipating change at the company, industry, society and individual level.

Actual investors know some of the companies we back will not succeed. Balance comes from the asymmetric nature of returns: gains can be manyfold, but losses are limited to what you invest.

We think in terms of decades because it’s only over longer periods that a clear picture emerges.

Opportunities emerge from technological progress or new business models. By building relationships with the management of the most forward-thinking companies, we can understand what is becoming possible.

Companies that grasp opportunities and can build their profits, particularly those with economies of scale and price-setting power, have the best chance of being excellent long-term investments. Our approach also helps us to understand which companies may be most threatened by disruption.

Actual investors should be looking for businesses capable of sustaining progress over decades.

We consider the size of the opportunity, adaptability, quality, competitive advantage and commitment of management – founder-managers often score highly.

Understanding the intrinsic qualities of a business and the world in which it competes makes it easier to make predictions over 10 years. That’s far more important than what happens over a few quarters.

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