Source: Shaoshu Pai Investment
Baillie Gifford, a typical representative of investing in extreme growth, states that its investment objective is simple: “to own the world’s most exceptional growth companies (both listed and unlisted) and maximize long-term total returns.”
Baillie Gifford achieves its goals by investing in companies at the forefront of structural change. One of its strengths lies in pursuing the identification of long-term signals when most market participants are distracted by headlines. This inevitably requires Baillie Gifford’s investment approach to deviate from market consensus, maintain a long-term perspective, adhere to the investment process, and recognize that returns will not be linear.
However, there is one challenge: in any endeavor, being “different” is easier said than done. Sticking with the consensus is appealing and carries lower risk. For Baillie Gifford to persist in its unconventional stance, it must have undergone deliberate cultivation of thought processes. Baillie Gifford provided an example that effectively illustrates one way to approach this issue.
You may not have heard of the American sitcom Frasier, but it is considered a classic. The show won 37 Emmy Awards (including Outstanding Comedy Series) and has been praised as the “textbook of situational comedies.”
The plot revolves around Dr. Frasier Crane, a psychologist who hosts a radio advice program in Seattle.
In Season 2, Episode 13, Frasier’s father, a retired police officer, attempts to solve an unsolved murder case from years ago. Facing this mystery, Frasier proposes an absurd hypothesis: the murder might have been committed by an ape. In reality, his intention is to help his father see connections between pieces of evidence through unconventional thinking. He begins rearranging photographs of the crime scene and physical evidence, hoping that visual reorganization will reveal clues to his father.
Indeed, through this method of inspiration, Frasier’s father suddenly experiences a flash of insight. He realizes that the real murderer is Detective Shelby, the police officer who arrived at the crime scene and was also the first to discover the body.
When Frasier faces ridicule from other detectives investigating the case, his father says, “You helped me by rearranging the photos; you made the case solvable.”
Of course, this is a fictional storyline. Nevertheless, it offers us an important insight: breaking away from conventional thinking, a fresh perspective can lead to profound revelations.
Baillie Gifford’s investors take pride in their cognitive diversity and intellectual curiosity, always striving to enhance the value of how they approach problem-solving.
What unexpected connections can help form better insights? How can we break down barriers that hinder new ideas? In our search for great growth companies, we believe differentiated perspectives can challenge market consensus. This is why Baillie Gifford has built a global network of over 100 academic and independent research relationships.
While not all relationships yield investable ideas, the unique perspectives generated from these interactions make them worthwhile. We cannot simply do what everyone else does and expect different results.
Psychologist Gary Klein, in his book *Seeing What Others Don’t: The Remarkable Ways We Gain Insights*, describes how people often overlook critical details. This is an important concept because investors are searching for outstanding companies that other markets may have ignored. Dr. Klein, drawing on his research into decision-making and stories of great discoveries, demonstrates that insights do not appear randomly; they tend to follow certain patterns.
Klein studied how people achieve breakthroughs—moments of understanding that solve problems or reveal significant patterns. He began by analyzing a vast collection of clippings and case studies he had gathered, each describing a ‘lightbulb moment.’
These incidents range from minor issues, such as a police officer identifying a stolen vehicle because the driver wiped down a new car—a detail the real owner would never overlook—to larger-scale problems, like recognizing early cases of AIDS by connecting patterns across seemingly unrelated cases.
Despite the diversity of stories in the book, the ways in which they are understood share common characteristics. Klein categorizes them into several clusters:
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Contradiction: Discovering inconsistencies between expectations and observations. For example, when symptoms do not align with a standard diagnosis, a doctor might consider a rare disease.
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Connection: Someone perceives a link between previously unrelated things. American molecular biologist Martin Chalfie, after attending a lecture on how jellyfish glow due to a specific protein, realized this protein could make cells visible, bridging marine biology and molecular genetics to create a revolutionary technique for tracking living cells.
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Creative Desperation: When faced with no alternatives or a crisis, someone abandons incorrect assumptions and devises an entirely new and unexpected solution. One of the most popular examples in the book involves a firefighter trapped by a forest fire who suddenly realized that lighting a small controlled fire would burn the surrounding fuel, creating a survivable space—literally fighting fire with fire.
These clusters often appear simultaneously in the same case. In over 100 cases studied by Klein, a single case may correspond to one or more characteristic clusters. His argument is that insight is rarely linear; it can stem from recognizing contradictions, establishing new connections, or responding to emergencies.
Klein’s discovery model helps explain how insights emerge. And everyone can make discoveries more likely to occur in several ways. Two of these are:
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Curiosity: Cultivate curiosity and be ready to ask questions. Curiosity will lead you to explore differences and accumulate experiences, thereby increasing the chances of forming unexpected connections.
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Intellectual humility: Do not cling rigidly to your beliefs and remain open to new information. If we avoid anchoring ourselves to existing beliefs, breakthrough ideas can replace previously incorrect ones. Before taking anything for granted, we should carefully examine the evidence, including how the data was collected and under what conditions.
Protect environments conducive to good insights
At the organizational level, if barriers hindering the flow of ideas are removed, teams will become more insightful. Fear of making mistakes can be fatal. As Klein pointed out, mistakes are visible and measurable. Everyone can point out certain mistakes. But if you miss insights as a result and stagnate, these are invisible. And the value lost is also unknowable. Investors find it much easier to conceal missed opportunities than to cover up their own errors.
The human instinct for self-preservation may stifle unconventional ideas before they reach decision-makers. Senior management of investment institutions, remember: your job is to let unique insights flourish.
Another story in Klein’s book tells of a senior American officer bypassing the chain of command to speak directly with officers several ranks below him, ensuring that new ideas could surface. If good ideas can move upward in the military, then they certainly should in investment institutions as well.
When market experts confidently shout into the camera, Baillie Gifford understands that the future is unknowable. Human progress is driven by entrepreneurs and visionary leaders, not by stocks that change every minute. Like Klein, Baillie Gifford believes that curiosity and humility are at the core of generating diverse perspectives and ideas when exploring different companies. Finance is not as complex as outsiders imagine. People can learn it.
On the other hand, curiosity is not a quality that can be learned. This is why Baillie Gifford seeks individuals with specific qualities rather than specific degrees when recruiting talent. Doctors or mechanical engineers are fully capable of learning to write excellent research reports.
Finding people with curiosity is our true mission.
As an investment institution, Baillie Gifford also understands that mistakes will inevitably occur. Expecting a perfect track record is unrealistic. Baillie Gifford seeks companies that are growing and have the potential to shape industries and markets, or even change the world. It is inevitable that we will make some errors along the way. If we do not make mistakes, it would indicate that we are not doing enough or aiming high enough in our quest to identify transformative companies.
We may never need to solve a murder like Fraser’s father. However, when we understand what sparks insight and learn to nurture it, we open the door to discovering truly exceptional growth companies.
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