What I find interesting about James Anderson is that he really does utilize the idea of "Scuttlebutt" which comes from Philip Fisher's "Common Stocks and Uncommon Profits." Basically, this means to consult with as many knowledgeable people as possible about a company or theme.
In their interviews and writings, James Anderson and Tom Slater like to name drop the founders they have been speaking to. That's reasonable enough, they are co-investors in these companies, and most institutional investors try to get facetime with C-suite executives. What is slightly different to the average fund manager is that Anderson has a lot of time for a wide range of academics. As discussed earlier, Bessembinder's practical demolition of the CAPM guides Anderson in his investing framework. Another academic Anderson clearly admires is Carlota Perez.
For some time, Anderson and his team have thought that the "single most useful interpretation of the trends underpinning the global economy" are those from Carlota Perez and her team at Sussex University. Perez is the author of "Technological Revolutions and Financial Capital," where she investigates the structural similarities between the major waves of innovation as well as the relationship between finance and underlying progress. For Anderson, this explained why the tech bubble of the 1990's led later to a much stronger set technology companies, even though many firms busted. In The Great Transition and the Great Extinction, Anderson notes:
"If what the world is just entering is a wholesale transition to a new order then it's likely that an era of comfortable mean reversion will be replaced by a quite different but equally credible output of capitalism: the death of the old. After all this has been the logical and visible fate of those businesses in the eye of the early internet storm. Do you remember all those articles preaching how ridiculous the valuation of Amazon was relative to established players such as Borders and Barnes & Noble? Well, they underestimated Amazon but they just as clearly overestimated its supposed peers. These companies with hundreds of other retailers haven't become 'cheap' or 'value investments'. They have instead declined towards and often into bankruptcy. Deep transitions lead to permanent and catastrophic dislocation not to gentle cyclical ups and downs. Why would this not expand from retail crisis to more general bonfires of the old?"
Moore's Law
In his post Moore's Law, Anderson says that he thinks that ASML (ASML, Financial) may be the most important company in the world. He clarifies this doesn't necessarily mean it's the best investment (although Scottish Mortgage does hold this semiconductor stock).
Many commentators believe that Moore's Law has reached its peak or cannot continue. Moore's Law itself refers to the idea propounded in 1965 by Gordon Moore, co-founder of Intel (INTC), that the number of transistors incorporated in a chip will approximately double every two years. Anderson's Scuttlebutting gives us an interesting insight into this process. According to ASML's Chief Technology Officer Martin Van den Brink, Moore's Law actually started in 1900, so has been running much longer than most people realise. Thanks to ASML's breakthroughs in extreme ultra-violet lithography, Moore's Law is set to continue until 2030.
What does this mean for investors? Anderson thinks it would help drive technology stocks and be a factor in the causes of disappointments awaiting those betting on mean reversion. Accelerating computing power supports the themes in big data, machine learning, the Internet of Things and artificial intelligence. This reinforces the market power of the dominant technology players. Anderson does not like making specific forecasts, because as he's said several times across various interviews, he thinks future is inherently unpredictable, so better to just spread some bets across likely themes, carefully watch what's going on and monitor the progress.
A theme Anderson does seem confident about then is this idea that the world is constantly needed every more computer power as we increasingly rely on information technology in ever more aspects of our lives. This means those the most advanced semiconductor companies are the new masters of the universe as cutting-edge capacity will be in constant demand.
The point of me writing this series of articles is not necessarily to find stock picks. Rather, Anderson's stellar track record over the past decade makes it worthwhile looking for clues in how he thinks and the types of people he talks to during his Scuttlebutting. We might not all be able to pick up the phone to a chief technology officer, but we can certainly learn about the application of these technologies by following closely companies like ASML and Nvidia (NVDA). Knowing more about where the demand for semiconductors is coming helps us answer the questions "what gets better and cheaper?" and "what becomes possible?" Call it the spill over from Moore's Law.
Sergio Marchionne
In his final blog post of 2018, Anderson paid tribute to Sergio Marchionne who had just died. Marchionne had turned around Fiat Chrysler and Ferrari and built a series of competitive moats at these companies.
Anderson notes one time when his team invited Marchionne to speak at a conference where his theme was the acute difference between management and leadership, and that there was too much of the former and too little of the latter. He also agreed with Anderson on the idea that quarterly earnings are just noise.
Marchionne made a fascinating presentation in 2015 titled "Confessions of a Capital Junkie" that anyone interested in the auto sector should look at. Although the post's focus in a tribute to Marchionne, there is a wider lesson for investors. Leadership matters. According to John Elkann, CEO and Chairman of Ferrari, speaking to Reid Hoffman on The Masters of Scale podcast:
"Sergio was a truth teller. And for the amount of problems we had, having someone who was a truth teller was a breath of fresh air. His aptitude in being very honest really led to the extraordinary turnaround from 2004 to 2008 that Fiat went through"
Anderson, and Scottish Mortgage, invest in many founder-run companies, and one gets the feeling that founders or other talented executives with clear visions and true purpose of mission (like Sergio Marchionne) are the ones more likely to produce high growth performance.
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