Anderson Investments is an investment management firm known for its long-term investment philosophy and approach. It was founded by James Anderson, who has managed the Scottish Mortgage Investment Trust (SMIT) fund for over 20 years with tremendous success. In this article, we will explore the key elements behind Anderson Investments’ investment success over the long run.
There are several notable factors that have contributed to Anderson Investments’ stellar long-term performance. Firstly, James Anderson and his team truly take an ultra long-term view when making investment decisions, with a time horizon stretching out 15-20 years. This allows them to look beyond temporary market volatility and focus on a company’s long-term growth potential.
Additionally, Anderson Investments actively seeks out innovative companies and visionary entrepreneurs that are shaping the future. The firm has been an early backer of companies like Amazon, Tesla, Alibaba when they were relatively unknown. By identifying these compounders early, Anderson Investments is able to generate exponential returns over time.
taking a long-term view and ignoring near-term noise
One of the defining features of Anderson Investments is that they completely ignore near-term market fluctuations and news flow when making investment decisions. In a recent interview, James Anderson shared an anecdote that beautifully illustrates this long-term mentality:
In 2013, Jeff Bezos explained to him that key inputs for Amazon like computing power, bandwidth, and disk space drop in cost by 50% every 12-18 months per Moore’s Law. Bezos then remarked: “I don’t know where this takes us, but I know it’s exciting.”
For Anderson Investments, this encapsulates the mindset they have when investing – not obsessing over predicting exactly where a company or industry will go, but identifying long-term trends and outliers that can compound over decades.
seeking out visionary entrepreneurs and founders
Anderson Investments spends a tremendous amount of time meeting with founders and entrepreneurs around the world to understand their visions and convictions. The firm believes that truly epochal companies are often built by bold and original thinkers who are not afraid to challenge the status quo.
Some examples include meeting the Meituan founder in Edinburgh to discuss concepts like the Scottish Enlightenment, or seeing the Tiktok founder working tirelessly to explain his long-term views for the company. By getting to know these founders intimately, Anderson Investments gains key insights into a company’s culture, values, and growth roadmap.
making big bets on outliers and non-consensus ideas
Unlike traditional fund managers who construct diversified portfolios, Anderson Investments is willing to make huge bets on a small number of high conviction companies. Academic research has shown that a bulk of equity market returns over decades stem from a tiny proportion of stocks.
So rather than distribute investments evenly, Anderson Investments takes on a venture capital-like approach of allocating 30-40% of capital to select outlier stocks. For instance, in funds like Scottish Mortgage Investment Trust, the top 10 positions account for over 50% of assets. This concentrates risks but also enhances returns greatly when the thesis plays out.
maintaining networks and relationships with academia
Anderson Investments maintains close ties with leading academics around areas like technology, innovation, and complex systems. Concepts like power laws, exponential growth curves, and fat-tailed distributions inspire how Anderson Investments analyzes businesses.
Some influential academic research for the firm includes professor Hendrik Bessembinder’s work on stock market returns, and papers from the Santa Fe Institute on increasing returns to scale for knowledge-based companies. By collaborating with top scholars, Anderson Investments ensures an intellectual edge and differentiated perspective.
In summary, Anderson Investments’ long-term success stems from: 1) Taking an ultra-long-term time horizon of 15-20 years; 2) Seeking out innovative companies and exceptional founders; 3) Making large bets on outliers; 4) Maintaining networks with academia. This investment philosophy has powered phenomenal returns but also introduces concentration risks during periods of market turmoil.