The star manager, based in Edinburgh, says a short term investment style that focuses on daily headlines and performance data will result in herding, hyperactivity and overconfidence and ultimately underperformance. Anderson says the primary mistake mangers make is trying to pretend they understand the global economy with incomplete information based on GDP figures and geopolitical events.
“The market only incorporates what traders in London and New York think and they have agendas of their own and herd into opinion,” he said.
“The stock market ignores lots of other data sets apart from these and if you go and look you will find different insights into the world.”
“We received lots of letters from clients worried about Ukraine but we have no conceivable advantage and it probably has no effect on long returns anyway.”
Anderson believes the pace of the investment industry, including daily performance figures, is wholly negative as it provides opportunities to make money where others behave irrationally.
“I worry a lot about the City of London. I think it is an assemblage of hedge funds, investment banks, short-sighted media and above all a rapacious circle that talks and communicates in its own era of values.”
He says there are ongoing market inefficiencies in stock markets that offer ways to make money.
"The belief that market movements are a perfect guide to capital allocation is wrong and what they put in the water in Chicago; I just don't."
“This is big advantage to this for us because everybody is incentivised to behave in a short term manner but if you can concentrate on the longer term then the stock market offers very attractive returns and is the most wonderful vehicle to operate in.”
“The endless obsession about what you have done over the past year gets in the way of that.”
“Almost always, what the stock market tells you to do is stupid. It is not a good guide to capital allocation.”
“You get pummelled with this view that because something happens to a share price that something real has happened.”
However, Anderson says this is not the case and that it is caused by the mass action of traders.
"It is just market positioning, momentum, herding and all these other piece of nonsense and very often they are very manipulative.”
He says the way to avoid these inefficiencies is to very long term and to not get disturbed.
“Anyone who thinks sitting in front of a screens and being assaulted by noise and stockbrokers all day and given data by manipulative media outlets and is a good interpretation of how to make long run decisions need their heads examining,” he added.
“The single best thing we have done in the past year at Baillie Gifford is to get rid of quarterly performance reviews [for the investment trusts].”
“Fund managers have to answer what they can do that other people can’t do. This should begin with being very suspicious of our own industry which has serious agency problems and above all it is a stupid way of going about what we try and do.”
The level of worry over the split-up of the eurozone in 2011 following the European Sovereign debt crisis, is a good example of market turmoil caused by short-termism.
“It just wasn’t going to happen,” he said.
Anderson manages Baillie Gifford’s Scottish Mortgage investment trust alongside deputy manager Mark Slater.
The fund has returned 248.48 per cent since Anderson took over in December 2001, beating its AIC Global sector average by almost 100 percentage points.
Performance of fund, sector and benchmark since launch
Source: FE Analytics
It has been the fourth best performer in its sector over both five and ten years.
High weightings in tech stocks are shown its top ten holdings, which include Amazon, Baidu, Google Tencent and Apple.
Despite Anderson’s disdain for short term investing, he says he doesn’t have a high regard for managers who hold high cash weightings.
“Having a huge cash pile is not terribly clever. There is a belief that being pessimistic is somehow cleverer than being optimist but it is wrong as it doesn't correlate with outcomes.”
“People think entrepreneurs are madly optimistic but it's more that everybody else is madly pessimistic.”
“We are not that inactive, our turnover is around 15 per cent but we try not to look at performance statistics.”
