He focuses on the long term, buying Tesla at $30
Anderson successfully invested in companies such as Amazon and Tesla, with a maximum profit of nearly 9000%. In 2012, when Tesla's stock price was around $30, Anderson bought Tesla shares
Comprehensive from red and green.
I. Self-proclaimed "Charlie Munger No. 2"
Anderson's investment philosophy can be summarized as focusing on long-term growth and selecting excellent companies from the bottom up. His core investment strategy philosophy is not about macroeconomics, interest rates, or political issues, but about a global long-term growth strategy. That is, discovering and long-term investing in a very small number of high-quality companies that are the most competitive, innovative, and growth-efficient globally. To achieve this, he looks for growth companies that can double their revenue within five years.
As early as 2004, Anderson sparked a quiet revolution in the field of Berkshire's investments. At that time, he established Berkshire's new mission: truly long-term investing in globalization and reducing concerns about stock market indices. He extended the time range of investments from two to three years to five to ten years, placing more emphasis on a company's prospects and eliminating short-term noise from current profits or valuations. "There are many different ways to explain anything, rather than just one correct answer. This is a very important way of thinking."
Guided by this mission, Anderson successfully invested in companies like Amazon and Tesla, with the highest profit reaching nearly 9000%. In 2012, when Tesla's stock price was around $30, Anderson bought Tesla. Compared to the initial stock price, by the end of 2020, Tesla's stock price approached $700, more than 20 times higher. This undoubtedly brought huge excess returns to Berkshire and confirmed the accuracy of its long-term investment strategy. This reflects Berkshire's foresight. "True investors think in terms of decades, not quarters."
Anderson is open-minded and encourages diversity of thought. He does not agree with mainstream ideas and attitudes, nor does he believe in the value of any traditional thinking. Compared to Warren Buffett, Anderson considers himself more like Charlie Munger, self-proclaimed "Charlie Munger No. 2". Anderson greatly admires George Soros and also expressed concerns about the market using a quote from Soros. Soros once said, "Being right or wrong is not important, what matters is how much you make when you're right, and how much you lose when you're wrong". Anderson believes this is the essence of market returns insight. Anderson likes to look outward to deepen his relationship with the academic community. The most influential on him are Professor Hendrik Bessembinder from Arizona State University and the Santa Fe Institute in New Mexico.
Hendrik Bessembinder found that for decades, the vast majority of returns in the stock market come from a small number of companies, with not many stocks rising significantly, and the market's performance is always driven by a relatively small number of stocks. That is, from 1990 to 2018, the top 1.3% of companies in performance created $44.7 trillion in global stock market wealth. Outside the U.S., less than 1% of companies created $16.0 trillion in net wealth creation. These results highlight the practical significance of the following fact: the distribution of long-term stock returns is strongly positively skewed. 61% of companies lost value for shareholders during their listing period, 38% of companies collectively made up for these losses, and the remaining 1% of companies accounted for all net gains The research from the Santa Fe Institute in New Mexico indicates that knowledge-based companies often have increasing returns to scale. In other words, the returns of winners are exponential rather than linear. This important argument comes from Brian Arthur. Brian Arthur's understanding of the profound changes brought about by the inherent increasing returns to scale of leading technology companies based on intellectual property models is a fundamental insight into entrepreneurial possibilities over the past 40 years. This change is decisive compared to the typical declining or stable equilibrium of returns in the previous era. In this new transformation, the initial emergence of leadership and profits is both complex and easily observable rather than predictable. However, once leadership is established, the results will be huge and lasting.
Mean reversion is an important concept in finance. Mean reversion tells us that companies that have performed well for several consecutive years, basking in the glory of being good companies, will continue to grow rapidly, while companies that have performed poorly for several consecutive years are labeled as bad companies and will achieve nothing. When this stereotype is combined with a tendency to make extreme predictions, the conditions for mean reversion are ripe. Those so-called bad companies are not as bad as they seem, and they may perform very well in the future. However, Anderson does not agree with mean reversion. He believes there is no such thing as mean reversion. He clearly sees that mean reversion cannot make traditional retailers catch up with emerging tech giants, and the valuation of traditional retailers will plummet as internet giants like Amazon develop.
Anderson once mentioned that the most important stage of his career was the nine months during the most severe period of the 2008-2009 financial crisis. At that time, he held stocks of Amazon and Google, watching them depreciate significantly, but he continued to hold them. However, since then, their value has continued to soar. Anderson knows that there will always be unexpected events, and there will always be a "Ides of March." "Beware the Ides of March" is a prophecy to Roman general Gaius Caesar, warning him of his assassination date. However, Anderson believes that if investors can endure it and can bear it, trying to find extreme winners is the best investment approach. Therefore, he reminds investors: "I want to say to everyone, if your fund manager starts changing their beliefs during a crisis, get rid of them immediately."
2. Discovering New Opportunities from an Outsider's Perspective
Anderson is fundamentally different from most fund managers with diversified portfolios. He always tries to better understand how great companies are built, remains passionate about the potential of outstanding companies, including Inmna and Moderna. These companies define the modern world and bring substantial financial returns. Anderson identifies such companies as "outsiders in the business world." In William Sundeck's "The Outsiders," those outsiders in the business world always discover new opportunities from an outsider's perspective, shielded from the industry's frenzy by rationality. They view capital allocation as a core task and cash flow as the fundamental goal of all work They firmly adhere to their principles, while the deceased peers continue to pile up under their feet, pushing them to the forefront and becoming the industry leaders.
Jason Kelly, the founder and CEO of Gingko Bioworks, pointed out that companies like Moderna and Pfizer "these wonderful companies, have almost unimaginable market values, but have only disrupted a small part of the stagnant economic foundation. The future that lies before us is far more important than what currently exists." Anderson agrees with this, feeling more optimistic about transformative changes and their potential than at any time in the past 40 years.
Anderson believes that the most urgent combination is data and healthcare. First, it is beginning to help us understand biology in ways that were previously impossible; second, if you combine these with new insights into genomics, we are in an era where healthcare has the potential for radical transformation; third, synthetic biology has many features that we see in other technologies. Therefore, the potential for significant global economic transformation in the coming years is optimistic. These new things will be more inspiring and influential than e-commerce and social media.
Berkshire Hathaway has held shares in Moderna for a long time. It has given us substantial insights into the next generation of chemistry, albeit only in the early stages. Its previous generation technology reduced the cost of human genome sequencing from about $150,000 to $1,000, and now they believe they can reduce it to around $2.5. Although Moderna's stock price has fallen, the prospects for success are increasing. Moderna now has a market value of $55 billion. Compared to the opportunity, this price is ridiculous. Holding Moderna now is like buying Intel in 1970 or Asme Holdings in 2000. In addition, Berkshire has invested in Recursion Pharmaceuticals (RXRX), which uses artificial intelligence to help identify candidate drugs, currently priced at around $6 per share, but with huge upside potential. Tempus is a private company, a precision medicine company, building a molecular and clinical database. This looks like a very valuable investment portfolio.
As one of the most representative companies in the past two years, Moderna has dropped 70% from its high point, despite having billions of dollars in cash and revenue increasing fivefold. However, to some extent, the entire biotechnology industry has been sold off. But Anderson cannot see anything more pessimistic about Moderna's stock than last spring or summer. Logically, investors should consider the long-term prospects of the company more. Messenger RNA technology is a dynamic platform that can be used to treat many different diseases, and Moderna's progress on specific projects seems to be progressing as we would have said when the stock price was close to $500 instead of $150. Anderson regularly talks to CEO Stephane Bancel. Unless he can find new reasons for the stock price at its current level, he will find it very attractive.
Source: Internet
ASML is a European company headquartered in Eindhoven, the Netherlands, that manufactures semiconductor equipment. How did ASML become the key to continuing Moore's Law? ASML may be the most important deep tech company in the world. In the mid-to-high-end lithography machine market, ASML holds about 60% market share. In the highest-end market (such as immersion lithography machines), ASML holds about 80% market share. Anderson interviewed a Dutch researcher who wrote a book about ASML's first 20 years as a holding company. One point he wanted to make is that ASML's President and Chief Technology Officer Martin van den Brink has always been a key figure in keeping Moore's Law running.
Jeff Bezos further interpreted Moore's Law: some key components of Amazon, such as processors, bandwidth, and disk space, become half as cheap every 12 to 18 months, which is also an example of Moore's Law. According to Anderson's recollection, Bezos then paused and added, "I don't know where this will take us, but I know it's exciting." Anderson believes that in the past 30 years, the best entrepreneur and investor in every aspect is Jeff Bezos.
Companies like Inmerna, Moderna, Tesla, ASML, and Amazon have derived the future investment approach of Baillie, which is crucial to have a small number of companies in some areas that can truly become leaders. This is what Anderson has been doing in the past 10 years.
Anderson has always liked a quote from economist John Kay in a book about companies, which is completely opposite to a quote from "Anna Karenina": mediocre companies are all alike, great companies are all different. This book is "Foundations of Corporate Success." John Kay's research shows that the foundation of a company's success lies in its unique capabilities, which are the product of the company's specific history. These unique capabilities, even if recognized by their competitors for the profits they bring to these companies, are things that cannot be imitated. When companies successfully combine these unique capabilities with the external environment they face, value appreciation is achieved. It can be inferred from this that there is no universal strategy for corporate success in the world, and it is also inferred that with the fluctuations of a company's unique capabilities and changes in its market capabilities, the future fate of each company is destined to experience ups and downs.
3. Find the crucial 1%
Usually, it takes three to six months for the stock market to start sifting through the differences, rather than making blanket statements about companies. Even now, there is still a valuation gap between companies whose prospects have deteriorated significantly or at least not improved, and those whose businesses have become stronger. Anderson is interested in many companies, regardless of their current environment.
Jeff Bezos once wrote, "If you see a 10% chance to make 100 times the money, you should take that bet every time, even though you'll be wrong 90% of the time." Anderson says this is completely different from Buffett's "Rule No. 1: Never lose money. Rule No. 2: Never forget Rule No. 1." However, if we only make big bets on a few companies, it's best to make sure we believe we can identify the right ones. "I absolutely agree that you have to do some brave, aggressive things, even things that may be too optimistic about your abilities." This way, "you can be mediocre and still make a lot of money..."
In recent years, the growth investment track seems to have become more crowded, as central bank liquidity has pushed unprofitable tech stocks to incomprehensible valuations, and hedge funds and private equity are also trying to get a piece of the pie. In response to this, Anderson's advice is to always maintain resilience in growth investing. The message he conveys to investors is, to overcome volatility, focus on long-term development. There will definitely be painful periods, "many mistakes made by investors are also failures of imagination". Therefore, try not to worry about short-term market trends or speculate on geopolitics, as this is not conducive to making good long-term investment decisions. Instead, Anderson is more confident in his judgments about which companies and founders to support.
Because Anderson sees that the selling of tech stocks is different from anything he has seen in his career, whether it's the bursting of the internet bubble or the 2007-2008 financial crisis. He has never seen a moment when all stocks move in sync, regardless of their future potential, "frankly, at this time, any factors that could cause these long-term anomalies are so overlooked." Anderson does not think the judgments made by "experts" in this regard are very good.
We always have high expectations for the companies we invest in, but often things don't go as planned, and stock prices may become worthless. However, we do not consider those investments to be "wrong" decisions. We are not bothered by this. For us, doing so is a waste of time and energy, rather than looking for potential winners. In any case, bad results do not mean that supporting a company as an investor is "wrong". Many companies that have brought high returns have been on the brink of collapse. All we can do is ask the right questions, consider the market background, and come to a conclusion. The reasons for disappointment are nothing more than two types: one is that the stock price did not follow the expected trajectory. This is life. Not being trapped means being too averse to risk and not daring to try opportunities. Remember, fortune favors the bold, and without taking risks, there can be no hundredfold returns. The other type is because we should have encountered some risks that should have been foreseen, and should have understood some issues that should have been understood. In this case, we acknowledge it as a mistake and learn from the experience.
True investors know that losing money in an investment is just losing the capital, but if it profits, the sky is the limit. In the long run, the wealth brought by big winners will far exceed the losses of those few investments. Fear of making mistakes can lead to missing out on many opportunities that could bring returns hundreds of times over. Bezos has already told us that there is almost nothing more important than discovering future winners. He identified common characteristics that bring good results to investors: the flexibility of business plans, a long-term culture of management, and the breadth of opportunities in the technologies they are developing.
If the stock of a company with the quality we consider appropriate falls, we should reconsider whether its business case still holds. If it doesn't, sell. If it does, buy. Inevitably, some investment outcomes are wrong. Sometimes the unforeseeable is just that - unforeseeable. But only by embracing uncertainty can we find the crucial 1% in the end.