Key points
Investment manager Kirsty Gibson describes the hunt for companies with foundational technologies on which wider industries can be built.
Embracing the potential of companies whose profits may be several years off means embracing uncertainty and opening your mind to possibility.
In his book One from Many, Visa’s founder Dee Hock talks of minds being littered with old furniture. The challenge is not getting new ideas in but getting the old ones out. That’s because old ideas lead to assumptions about how things ought to be, not what they could become.
Consider how quickly our minds jump to analogies when trying to process an innovation, applying it to existing business models or products. But this might only cover a small part of its potential. It’s harder to conceive of doing new things by new means.
Imagining with conviction is difficult. When John Bardeen and his colleagues invented the transistor in 1947, no one predicted the iPhone. We accept that we will not predict the future, but we are willing to explore what might be possible. We must take our mental sweeping brushes and try to rid our minds of old ideas, pushing each other to think beyond why something might not work or doesn’t fit within an existing model or paradigm. We must ask what the world could look like if a company succeeds.
Take Illumina. When Baillie Gifford first bought the gene-sequencing company for our clients in 2011, we had a tentative hypothesis that sequencing could become the foundation of an entirely new industry. Fast-forward 10 years and this hypothesis appears to be becoming reality.
We must ask what the world could look like if a company succeeds.
Two holdings in the strategy have built their businesses upon the technology:
- 10x Genomics, which develops instruments and consumables for the analysis of single cells
- Ginkgo Bioworks, which seeks to harness the power of biology to make just about anything
We are now considering which companies could be the Illuminas of the 2020s, laying the foundations of entirely new ways to do things.
There’s growing evidence they may be found within fintech, where software companies are ‘unbundling’ and ‘re-bundling’ foundational qualities of the financial system in novel and potentially better ways. They may also be involved in learning, gathering and communicating, where online platforms appear to be enabling serendipitous gatherings of minds in a modern equivalent to the 18th-century coffee houses of London.
In times of change, it is also key to identify those things that will remain constant. We are long term. We are growth. We have a fundamental belief in the asymmetry of stock market returns. We look for opportunities in change. We, and you as our investors, are venturing.
The path for companies driving structural change may not be straight. Some paths will weave and wend and turn out to be dead ends. Others will branch out into new opportunities and take us in directions we might not currently be able to imagine.
Our rucksack is laden with optimism, patience and the knowledge that we won’t always get it right. But in a world of asymmetric returns, we believe it is better to venture than not venture at all.
Important information and risk factors
As with any investment, capital is at risk. This article does not constitute, and is not subject to the protections afforded to, independent research. Baillie Gifford and its staff may have dealt in the investments concerned. The views expressed are not statements of fact and should not be considered as advice or a recommendation to buy, sell or hold a particular investment.
Baillie Gifford & Co and Baillie Gifford & Co Limited is authorised and regulated by the Financial Conduct Authority (FCA).
