Actual investors look to the future. Not the past.

Many investors avoid yet-to-be-profitable companies for fear of looking stupid if they never generate free cash. Actual investors don’t care so much. Or rather, we care more about how a company might make money in the future. If we can envisage that, we ask how much capital it needs to be able to sustain itself through its own cash flow.

Healthcare offers a good example of how our lives will be transformed. From trial-and-error methods of drug discovery, we’re getting better at understanding the genetic causes of disease and tailoring therapies to the patient. The cost of the gene sequencing that enables this has collapsed, thanks to firms such as Illumina. Along with telemedicine – turbocharged by the Covid-19 pandemic – it points to a massive disruption of healthcare, so assuming the continued dominance of today’s ‘big pharma’ makes little sense.

Imagining the new healthcare world means backing the companies likely to thrive there, such as vaccine maker Moderna or cancer drug developer Genmab. Some companies we own are not yet profitable, nor would we expect them to be at this stage. Working at the frontiers of medical science, some will bear fruit, and others will be proved wrong. But waiting until a company is profitable before anticipating further growth is not what Actual investment is about.

Future-mindedness doesn’t just mean prospecting for exciting new companies. Familiar and unloved businesses that have shown minimal growth and whose stocks are undervalued can sometimes reinvent themselves. They sort out internal problems, outfox competitors caught on the wrong side of the capital investment cycle, or successfully move into an adjacent business.

Netflix offers an extreme example of the last of these, a DVD rental business that disrupted its own model to become the world’s largest content streaming service. CEO Reed Hastings sidestepped future failure and imagined a new kind of entertainment service.

None of this is to argue that the past never matters. Baillie Gifford was founded in 1908 when we invested in Malayan rubber to supply tyres for the Ford Model T. The automobile age and many subsequent waves of innovation taught us how new technologies attract capital and how the cycle of investment and return plays out. We learned to imagine how future industries and companies could emerge.

Looking to the future will always be an imprecise art, but it’s important to practice it. We should assume that almost anything in any industry can be done better. Actual investors support those companies looking for a better way in the hope that the value of that discovery will be recognised.

The content of this website is intended exclusively for professional investors in accordance with MiFID legislation. ’Professional investors’ are potential investors who are deemed to have the status of “professional clients”, within the meaning of MiFID (2004/39/EC), as transposed in Ireland. It is not intended for retail investors.
Baillie Gifford Investment Management (Europe) Limited is authorised and regulated by the Central Bank of Ireland (Reference number C182354) as an Alternative Investment Fund Manager and UCITS Manager to Baillie Gifford Worldwide Funds plc. Its registered office is 4/5 School House Lane East, Dublin 2, D02 N279, Ireland.
This website is informative only and the information provided should not be considered as investment or other advice or a recommendation to buy, sell or hold a particular investment. Read our Legal and regulatory information for further details.

Any stock examples, or images, used on this website are not intended to represent recommendations to buy or sell, neither is it implied that they will prove profitable in the future. It is not known whether they will feature in any future portfolio produced by us.