Thread by @mastersinvest

'Why most things believed about investing are WRONG.' Baillie Gifford

- It is often not just wrong to take a profit, it can be the worst possible mistake

- Nearly 60% of global stocks over past 28yrs did not outperform 1m treasury bills

Excellent!!

bailliegifford.com/en/uk/institut…

'Professor Hendrik Bessembinder notes that a mere 1 per cent of companies accounted for all of the global net wealth creation. The other 99 per cent of companies were, it turns out, a distraction to the task of making money for clients.'

'.. The capital asset price model (CAPM) so beloved by the financial industry is therefore nonsense because the normal distribution of stock returns that underpins it is imaginary. This should shake the very foundations of the investment industry.'

'It provides not an opinion but a collection of facts as to where returns come from and what investors should focus on. The entire active management industry should be trying to identify these superstar companies since nothing else really matters. Investing is a game of extremes'

'But, here lies the problem, it requires a vastly different mentality to that displayed by the financial industry today. It requires focus on the possibility of extreme upside, not the crippling fear of capped downside.'

'In addition to imagination, Bessembinder makes clear it is the long-term compounding of superstar cos’ share prices that matters. Investing thus requires patience to deal with the inevitable ups & downs such cos experience as well as ability to delay significant gratification.'

"The point is clear: in investing, it is often not only wrong to bank profits, it can be the worst mistake you make. Despite this, in almost every client meeting I am asked about our sell-discipline. No one has ever asked me about our hold-discipline, which is a shame..'

'The notion that cos can even produce such extreme returns goes against much of economic theory .. that likely has deep religious & spiritual roots. This mindset is the progenitor of a mindset of a different name common in finance, namely a belief in ‘reversion to mean’.

'It perplexes me why with the power & predictability of Moore’s law, our industry decides instead to focus far more on what interest rates or GDP growth rates mean for investing...'

'Frankly, I think we would all be much better investors if we concentrated on the future implications of Moore’s law. A 60x increase in computing power will profoundly shape our world. The question we must grapple with is what this new world will look like.'

'Stocks added [to a portfolio] ostensibly for risk control reasons are not just a mistake but a cynical exercise in enabling investment managers to add assets well beyond their alpha-generating capabilities...'