US perspectives: comfortable in discomfort

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David Goggins, a former Navy SEAL and extreme endurance athlete, lives by a simple yet powerful mantra: “Get comfortable being uncomfortable.” For Goggins, growth only happens when you embrace the discomfort most people instinctively avoid.

This mindset is also critical for long-term growth investors. 

Uncertainty is the only certainty

The first 100 days of Trump’s second presidency have been painful for US growth stocks. His trade policies challenge the economic and political order of the last 80 years, while his chaotic and unpredictable approach makes analysis almost impossible.

We are monitoring this emerging situation closely and remain deliberately measured in our response to this change.

In a search for clarity, some in the market are making comparisons to 1971, when President Nixon imposed global trade tariffs and removed the dollar from the gold standard, and the Smoot-Hawley Act of 1930, enacted to protect American industries and jobs during the Great Depression.

While similar, they fall short. The 1930s were defined by a narrower focus on tariffs and trade that deepened economic isolation, while the Nixon Shock was a concentrated monetary disruption that reshaped the global financial system. Today’s uncertainty is far broader, encompassing technological, geopolitical and environmental concerns in a more complex world.

But history still helps

The last 100 years of market data show that great companies emerge amid uncertainty, delivering exceptional returns. For example, Honeywell and Zenith Radio (now part of LG Electronics) each delivered more than 20,000 per cent returns in the 20 years after the Great Depression. Similarly, Boeing delivered a 10x return from the start of the Nixon shock to the end of the decade.

This is some comfort, given our raison d’être is to capture the long-run returns from great companies for clients.

A century of investing through uncertainty

Imagine what it must have felt like to be stock picking in the 1930s and 1970s. It would have felt uncomfortable. Ergo, while today is uncertain for us as humans, as long-term growth investors, it is an opportunity. 

Fortunately, we don’t have to imagine. Since our founding in 1908, we have written about what we did during such times. This treasure trove of insight provides further lessons and comfort.

Here are some highlights from the last 100+ years of investing through uncertainty:

1. Calm reflection and patience: the investor’s superpower  

During crises, patient and rational investors consistently outperform those who panic or make knee-jerk decisions. Periods of market drama almost always fade over time on long-term charts.

Short-term headlines are distractions that rarely help build wealth. Long-term success comes from focusing on business fundamentals, including resilience to structural changes and the first- and second-order consequences, rather than just the immediate narrative. Our partnership structure and company culture enable this patience.

2. Discomfort and contrarianism: signals of opportunity

Market turbulence can be unsettling, but moments of greatest uncertainty often provide the best opportunities. Beyond the examples from the 1930s and 1970s, more recent examples are Amazon following the dot.com crash (Baillie Gifford first invested in 2004) and Meta, which several strategies re-bought in 2023 following the inflation and interest rate sell-off in 2022. Uncomfortable times can be fertile ground for exceptional entry points.

Linked to this, remember the market is a discounting mechanism. New bull markets often start when headlines are still bleak, and much of the good or bad news is priced in before it becomes obvious. The challenge, and the opportunity, is to see beyond the present mood and buy when consensus underestimates a resilient company’s future.

3. Adaptability, long-term trends, and selectivity: the core foundation

Enduring investment success comes from identifying and backing companies that not only survive change but actively drive it, such as SpaceX’s transformation of the space industry (Baillie Gifford first invested in the private company in 2018). However, as survivorship bias in tech following the 2000-2002 dot.com crash reminds us, only a disciplined, selective approach grounded in a realistic appraisal of fundamentals catches tomorrow’s winners while avoiding the sector’s many failures.

This echoes commentary we were writing during the 1929 Wall Street Crash:

“…we have retained only those stocks which for special reasons we considered should be held”, written 31 October 1929, one week after the crash began.

Our funds then increased their exposure to the US in the mid-1930s, while still in the middle of the Great Depression,

“…based on our confidence that recovery would come in that country and would come in substantial measure”, taken from an investment commentary from 1937.

4. Get your house in order: four cardinal questions

Finding opportunities amidst uncertainty should deliver future value. However, a key lesson is “have your house in order” before looking for bargains. Turbulent periods can last longer than expected (2008-9 was described as “a slow train wreck” by one of our investors). A resilient portfolio through the initial stages is a key foundation for future success.

This resilience checklist holds true:

1. Does it have sustainable pricing power?

We are asking this question for our holdings. Pricing power reliant on the relative advantage of overseas manufacturing may now be undermined, whereas critical software services may be less impacted, for example.

2. Can it reliably generate or access capital through adversity?

Balance sheet strength and high gross margins are key. On these measures, our US equity portfolios are in good shape (and are less indebted than the index). But cash can only last for so long, so resilient demand is critical.

3. Is demand structurally resilient, even in downturns?

Historical examples include Coca-Cola’s growth since its IPO in 1919 is due in part to its resilient (addictive?) demand. Today, cloud computing providers such as Amazon Web Services are critical infrastructure for the digitised world. Elsewhere, companies like Netflix may have more resilient demand than others exposed to discretionary consumer spending.

4. Can the business adapt and lead through technological or structural change? 

Adaptability is a characteristic that is hard to analyse quantitatively but is critical for long-term success. In our experience, founder-owners and long-term management teams tend to be more adaptable than conventional corporate leaders. For example, since its founding in 1986, CoStar has emerged as the leading source for commercial real estate data. Its founder, Andy Florance, remains at the helm and is as hungry as ever, as shown by CoStar’s latest move into the residential market.

Comfortable in discomfort

We don’t know what the world will look like at the end of this current economic and political chapter. As per David Goggins, we are comfortable with that. Meanwhile, on a day-to-day basis, we constantly work to ensure our portfolios are resilient while monitoring and assessing the situation as it develops. 

A key final question: What is the risk for investors who are not comfortable being uncomfortable? Perhaps they assume the current uncertainty is temporary and will wait for it to ‘go away’. This creates stasis and avoids confronting tough questions when the world has changed. On the other hand, without this mindset, panic can set in, and you can make rash decisions by attempting to escape a situation.

Having a tolerance for uncertainty and an ability to work calmly promotes something different: an acceptance of what’s around you while retaining a vision for the long term.

In our 100+ years of investing through uncertainty, we understand that discomfort signals not danger but investment opportunity. By calmly combining noise-filtering, fundamental analysis, forward-looking questions, and a willingness to be contrarian, we don’t just want to navigate uncertainty, we aim to thrive in it.

Risk factors

The Funds are distributed by Baillie Gifford Funds Services LLC. Baillie Gifford Funds Services LLC is registered as a broker-dealer with the SEC, a member of FINRA and is an affiliate of Baillie Gifford Overseas Limited. All information is sourced from Baillie Gifford & Co unless otherwise stated.

As with all mutual funds, the value of an investment in the Fund could decline, so you could lose money. International investing involves special risks, which include changes in currency rates, foreign taxation and differences in auditing standards and securities regulations, political uncertainty and greater volatility. These risks are even greater when investing in emerging markets. Security prices in emerging markets can be significantly more volatile than in the more developed nations of the world, reflecting the greater uncertainties of investing in less established markets and economies. Currency risk includes the risk that the foreign currencies in which a Fund’s investments are traded, in which a Fund receives income, or in which a Fund has taken a position, will decline in value relative to the U.S. dollar. Hedging against a decline in the value of currency does not eliminate fluctuations in the prices of portfolio securities or prevent losses if the prices of such securities decline. In addition, hedging a foreign currency can have a negative effect on performance if the U.S. dollar declines in value relative to that currency, or if the currency hedging is otherwise ineffective.

For more information about these and other risks of an investment in the Funds, see "Principal Investment Risks" and "Additional Investment Strategies" in the prospectus. There can be no assurance that the Funds will achieve their investment objectives.

This communication was produced and approved in May 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 and Baillie Gifford and its staff may have dealt in the investments concerned.

As at April, 2025, Baillie Gifford held Amazon, Home Depot, Floor & Décor, TJX, Autozone, Shopify, Meta, ByteDance, DoorDash and Alimentation Couche-Tard. A full list of holdings is available on request and is subject to change.

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