SCOTTISH MORTGAGE INVESTMENT TRUST
/ LEGENDS /
2 WARREN BUFFETT
IN THIS YEAR’S ANNUAL
MEETING OF BERKSHIRE
HATHAWAY SHAREHOLDERS,
chairman Warren Buffett
described the sort of company
he invests in by saying: “It would
tend to be a business that for one
reason or another we can look out
five or 10 or 20 years, and decide
that the competitive advantage
that it has at the present would
last over that period.”
While he is a disciple of
Benjamin Graham’s value
investment style, Buffett received
a lesson in the importance of
holding companies for the long
term at the age of 11 when he
bought shares in Cities Service for
$38 before selling them at $40 –
only to see them quickly jump up
to $200.
3
Through holding company
Berkshire Hathaway, originally
a textile manufacturing firm
before he took full control
and closed the mill, Buffett’s
investment style saw him
become the richest man in the
world by 2008. Early investors
in the firm could have bought
shares for as little as $275, which
by 2014 were worth $200,000.
Despite his riches, Buffett is
famously frugal, still living in the
five-bedroom house he bought
for £31,500 in 1958, while the
Berkshire Hathaway website
looks like it was designed over a
dial-up connection in the early
1990s. He has pledged to give 99
per cent of his fortune to charity
and has already donated $21.5bn
to good causes.
A MODERN EQUIVALENT
CFP SDL UK Buffettology aims to
follow the investment principles
of the Berkshire Hathaway
chairman, with manager Keith
Ashworth-Lord buying attractively
valued companies with an
“economic moat” – meaning those
with a competitive advantage
that will protect long-term
profits and market share from
peers – then holding them for
the long term. The fund is the
fifth-best performer in its sector
since launch in March 2011, with
the lowest volatility. Other top-
performing managers that buy and
hold quality companies for the
long term include Nick Train, who
heads up CF Lindsell Train UK
Equity, and Terry Smith, who runs
Fundsmith Equity.
GEORGE SOROS
GEORGE SOROS MOVED
FROM HUNGARY to the UK in
1947, where he read philosophy at
the London School of Economics.
His study in this subject led him
to apply Karl Popper’s theory of
reflexivity to markets which he
said gave him a clear picture of the
difference between the fundamental
and market value of securities.
In an article published in the
Journal of Economic Methodology,
he wrote: “My conceptual
framework is built on two relatively
simple propositions. The first is that
in situations that have thinking
participants, the participants’
views of the world never perfectly
correspond to the actual state of
affairs. The second proposition
is that these imperfect views can
influence the situation to which
10
they relate through the actions of
the participants.”
This helped Soros translate
economic trends into leveraged
plays on the direction of bonds,
currencies and financial markets.
Soros became known as “The
Man Who Broke the Bank of
England” on Black Wednesday
in September 1992 when he
shorted more than £6.5bn of
sterling through his Quantum
Endowment fund, causing the
currency to fall and leaving him
with a profit of £1bn.
He changed the portfolio to a
more defensive position ahead of
the financial crisis, allowing him
to return 8 per cent in 2008 and 28
per cent in 2009. The fund now has
assets under management of more
than $40bn.
A MODERN EQUIVALENT
There are numerous hedge funds
around today but these are out
of reach for all but the wealthiest
investors. Many retail funds make
use of hedge fund-like strategies,
such as investing in currencies
and using derivatives. One of these
is Odey Swan run by Odey Asset
Management – a group whose
original backers included Soros
himself. However, even though
the fund’s manager Crispin Odey
forecast Brexit, he assumed it would
lead to a crash rather than a rally
and performance since launch
has been woeful. Other funds that
use derivatives to make big calls
include City Financial Absolute
Equity, run by David Crawford,
and FP Argonaut Absolute Return,
managed by Barry Norris.
trustnetdirect.com
SCOTTISH MORTGAGE WAS ORIGINALLY
LAUNCHED TO PROVIDE LOANS TO
RUBBER GROWERS IN MALAYSIA IN THE
EARLY 20TH CENTURY.
PICKING STOCKS WITH
PRECISION.
Scottish Mortgage Investment Trust plays a ‘long game’ with a focused list of around 80 stocks.
Our aim is to meticulously seek out truly innovative organisations (the obvious and the unexpected) and
stick with them over the long-term. We believe this strategy gives us a strong competitive advantage in
identifying companies with real potential for significant sales growth – often as a result of their intelligent
deployment of transformational technology.
But don’t just take our word for it. Over the last five years Scottish Mortgage, managed by Baillie Gifford,
has delivered a total return of 177.3%* compared to 100.2%* for the sector. And Scottish Mortgage is
low-cost with an ongoing charges figure of just 0.45%. †
Standardised past performance to 31 March*:
2012 2013 2014 2015 2016
Scottish Mortgage 18.5% 28.9% 29.6% -0.7% 40.9%
Average of AIC Global Sector 16.6% 14.1% 14.4% -1.1% 31.0%
Past performance is not a guide to future returns.
Please remember that changing stock market conditions and currency exchange
rates will affect the value of your investment in the fund and any income from it.
You may not get back the amount invested.
For a free-thinking investment approach call 0800 917 2112
or visit www.scottishmortgageit.com
Long-term investment partners
*Source: Morningstar, share price, total return as at 31.03.17. † Ongoing charges as at 31.03.16. Your call may be recorded for training or monitoring
purposes. Scottish Mortgage Investment Trust PLC is available through the Baillie Gifford Investment Trust Share Plan and the Investment Trust ISA,
which are managed by Baillie Gifford Savings Management Limited (BGSM). BGSM is an affiliate of Baillie Gifford & Co Limited, which is the manager
and secretary of Scottish Mortgage Investment Trust PLC.