“The biggest mistake you can make is not failing to sell something you should have sold, it’s selling something that you should have held on to.”
So says Tom Slater of Baillie Gifford, the UK investment giant that has earned gargantuan returns in recent years following successful bets on growth stocks such as Tesla and Amazon, among others. Both stocks (particularly Tesla) have appeared very expensive at various times in recent years, but Baillie Gifford’s decision to hold tight has certainly paid off.
Amazon shares have risen more than 6,500 per cent since it began buying shares in 2004 while Tesla’s have soared almost 9,000 per cent since 2013.
In a Financial Times interview last week, Slater referred to being influenced by the research of Prof Hendrik Bessembinder, who found just 4 per cent of stocks historically accounted for all of the total stock market gains. Some stocks go higher than you ever thought possible; ergo, you should focus on the potential for extreme upside and hold on.
There are two problems with this argument, however. Firstly, Amazon and Tesla are exceptional cases; many growth stocks soar before sinking (think of Nokia, Blackberry manufacturer Research in Motion, or innumerable dotcom stocks).
Secondly, it’s incredibly difficult to find the handful of super-stocks that drive overall returns. To make sure you benefit, Bessembinder argues for very diversified portfolios, as concentrated portfolios will likely miss the big winners that disproportionately influence market returns.
However, Baillie Gifford’s flagship fund is concentrated; Tencent, Moderna and Tesla account for almost 15 per cent of assets while its top 10 holdings make up 42.8 per cent of the fund.
Holding onto uber-growth stocks in an uber-growth market has paid off for Baillie Gifford, but market cycles come and go. Trees don’t grow to the sky.