Which books – financial or otherwise – have had the biggest impact on the industry’s top fund managers? That’s what we at Trustnet wanted to find out with a new regular feature ‘The Investor’s Bookshelf’.
The first books come from the team behind the £2.5bn Baillie Gifford European fund, which includes FE fundinfo Alpha Manager Stephen Paice, Chris Davies, Josie Bentley and Mortiz Sitte.
Below, the Baillie Gifford fund managers each recommend two books that gave them a lesson, or an idea, that they have carried through into their investing and managerial careers.
Stephen Paice
‘100 to 1 in the Stock Market’ by Thomas Phelps 
"This was written in the 1970s but the message is timeless: invest in the right companies for long periods of time and you can make phenomenal returns. This might seem obvious but, as Phelps noted, not many investors have the optimism or the ambition to look for 10x or 100x returns," said Paice.
"There is a lot of useful advice in here to help investors exploit this phenomenon but reading this also made us look at the European market in more detail. We now have a much better understanding of what has worked in the past and the common traits that these big winners have shared.
"Market leadership will of course change over the coming decades, but this is a book that encourages investors to look past the slightly-better-than-average company and seek out those genuine outliers."
‘Increasing Returns and Path Dependence in the Economy’ by Brian Arthur
"This is a collection of papers written by an economist who studies complex adaptive systems at the Santa Fe Institute. We were lucky enough to have him come to our office and explain his theories on increasing returns and positive feedback loops.
"At the time these were quite controversial however they explain how many of the most successful technology companies today have thrived. So far, these companies have grown stronger as they’ve grown bigger, benefiting from network effects, digital scale and customer lock-in.
"These are important features to be able to recognise, particularly as more and more tech companies emerge in Europe. For these to be successful though, they will have to follow his advice and scale as quickly as possible and not worry so much about short-term profitability."
Chris Davies
‘Skin in the Game’ by Nassim Nicholas Taleb 
"This book is part of Taleb’s five-volume collection Incerto, which he describes as an ‘investigation of opacity, luck, uncertainty, probability, human error, risk, and decision making when we don’t understand the world’," said Davies.
"One of Taleb’s most powerful ideas is that of risk transfer in society, specifically that many people who take risks often transfer the downside of those risks to others. This often happens among politicians and chief executives, who often don’t experience the negative consequences of bad decisions.
"For me the book underscored the importance of alignment, something we place great emphasis on in our investment process.
"I feel far more comfortable investing alongside founder-owners or families who have a great deal of their personal wealth on the line if things go wrong. These co-investors are risk sharers, experiencing the same risks as us and our clients. This probably tilts the odds of a good outcome in our favour."
‘Range’ by David Epstein
"David Epstein’s book extolls the virtues of being a generalist. He’s not telling us that specialism isn’t valuable – we wouldn’t have got this far as a species if we didn’t have specialists! Rather, he’s trying to attract equivalent admiration for the jack-of-all-trades and offer help for those seeking to be good generalists.
"As investors in companies as diverse as luxury brands, online food delivery platforms and chemical distributors, we see the value of knowing a little about a lot! This can be uncomfortable for some.
"Epstein offers plenty of helpful pointers on how to become a better generalist. I’ll share one idea in particular that stuck with me: be willing to drop your tools when they’re no longer useful. Specialists often find this hard to do. Many of the firefighters tackling the South Canyon fire on Colorado’s Storm King Mountain in 1994 lost their lives because it didn’t occur to them to drop their backpacks and chainsaws when running from the out-of-control blaze. If they’d ditched their kit, many of them would have outrun the fire and lived.
"The tunnel vision that specialism can cause is not helpful for us as growth investors. We sometimes need to be prepared to abandon the ideas and tools of the past.
Josie Bentley
‘Capitalism Without Capital’ by Jonathan Haskel and Stian Westlake 
"This book is a prompt to stop and think about the rise of intangible assets – software, design, human capital, research and development," Bentley said.
"As growth investors, we learn more about technology every day and this book is a reminder that we can’t always rely on the past’s metrics to make sense of the future. Intangible assets behave differently from tangible machinery and buildings: there are more sunk costs, the ideas can ‘spill over’ to other companies, yet intangibles can also benefit more from scale and synergies.
"The authors, economics and policy researchers, explain that the different dynamics of intangible assets aren’t well accounted for in many of our systems, from tax law and economic policy, to valuation and financing.
"Much of the promising innovation we see in Europe is rooted in the intangible economy so understanding how to evaluate those assets is incredibly important."
‘Think Twice’ by Michael J. Mauboussin
"This is a great guide to help us make better decisions both individually and as a team.
"One of the central concepts is the contrast between the ‘inside’ and ‘outside view’. The ‘inside view’ looks for close-at-hand information about a specific topic, often anecdotes, to help make a decision. The ‘outside view’ considers a much broader reference class to help avoid behavioural biases, like overconfidence or tunnel vision.
"Being generalist investors, this hits home as we strive to bring a wide contextual framework to each individual investment case.
"We may be optimists but using statistical base rates, as Mauboussin argues, allows us to bring that optimism back to probabilities."
Moritz Sitte
‘The Clock of the Long Now’ by Stewart Brand 
"Brand is one of the founders of the Long Now foundation, whose mission is to foster long-term thinking in society," said Sitte.
"This collection of essays is a wonderful exploration of how societies and organisations should think about time horizons.
"My experience is that while most public companies adopt exceptionally short-term perspectives, those which can buck the trend and instead think in years and decades can reap magnificent rewards (in the long run, of course). It made me think of companies like Atlas Copco, whose management has consistently adopted a long-term perspective in running the business.
"Enduring doesn’t mean preserving the past at all costs, it means boldly taking on challenges by experimenting, failing, adapting and growing."
‘Creative Habit’ by Twyla Tharp
"Tharp is a dancer and choreographer. You may ask why this is relevant for my job as investor but I can assure you this remains one of the most important books I have read in the last decade.
"Tharp has spent decades as a creative thinker and has plenty of wisdom to share on how we can set ourselves up to become more creative: by making time for deliberate practice, experimenting and learning from mistakes, honing not just our logical minds but also our intuition.
"It has had a huge impact on how I think about my job and how I organize my time. After all, the task of identifying big winners requires above all creativity and imagination."