'Amazon shares can go up four times from here' - £6bn manager who's owned firm for over a decade

When it comes to risk, most would assume that the main danger is taking too much.

James Anderson, manager of the £6bn Scottish Mortgage investment trust, thinks the opposite.

His concern is that investors’ portfolios are “wildly over-diversified”, and stuck in “safe” stocks that may be anything but in the future.

With his fund, which has big holdings in firms such as Amazon and Tesla, he wants to give exposure to transformative companies that are “genuinely exciting, genuinely growing”.

The 108-year-old trust recently entered the FTSE 100 and is one of our Telegraph 25 favourite funds. It has returned 210pc over the past five years.  The fund charges 0.44pc a year; there is only one share class. 

Telegraph Money spoke to Mr Anderson about whether the fund’s size is an issue, and why his holding in Tesla is so controversial.

What changes have you made to the fund recently?

There has been a recent shift from people questioning companies such as Amazon and Google as investments, to people questioning their dominance and regulation.  

Now they are recognised as the most dominant companies of our age, other companies are fighting less and are working alongside them. Companies such as Nvidia (a computing firm), which are taking advantage of this have become more prominent in our portfolio.

The radical innovation we look for can now also be found beyond these dominant companies.

Tesla has become our second largest holding, as its disruptive effect could be huge. We’re all used to whinging that Amazon destroys the high street, but Tesla can destroy the oil industry, car makers and utility firms.

James Anderson | CV

We’re never criticised as much as we are for holding Tesla. A hedge fund a week writes to tell us to sell, as many have bet against the stock. Is that what Henry Ford had - a bunch of people trying to short Ford?

Electric and autonomous cars are going to happen. I don’t understand why, on a 10 year view, people could be confident in the future of oil.  I can’t see that exploring for oil at $60 a barrel will work in the future.

Lastly, we have been investing in more private, unquoted companies. Our viewpoint is that much of the next generation of innovation is going to come from thriving unquoted companies, that may or may not go public.

Is the fund’s size an issue?

No – the last thing we want to be able to do is sell everything in 20 minutes if there’s news on North Korea. 

Our scale is helpful as unquoted stocks are now effectively choosing their shareholders. The combination of our size, reputation for patience, and the fact we’re well-known globally among technology companies, gives us access to companies other people don’t get access to.

How would the fund handle a market downturn?

I get flak for having had six or nine difficult months in the financial crisis, but it’s what I feel most proud of, as we stuck to the process. Our companies weren’t just surviving, they were getting stronger, as their competitors were going bust.

We may have volatile times, but as long as we believe our companies are enduring, we’re confident, and will keep doing what we’re doing.

My biggest fear is not a crash, but that we’re right and innovation becomes so fast it undermines everything else. Those who have “safe” stuff in their portfolio in that scenario will find it’s no longer safe.

What does the market get wrong?

Nate Silver (the statistician) said the stock market is easy to predict, because everyone is obsessed with the short term, so you have to make your time horizon longer.

The notion there can’t be an information advantage in the market is wrong too. The market reacts to events, but that doesn’t make it efficient.

There is a whole set of information, particularly from academia, that the stock market doesn’t care about, or isn’t willing to invest in. That offers a real opportunity.  

What opportunity do you see in China? And what about privacy issues?

There was so much angst about China - the extraordinary notion that it was about to go poof.

China’s internet companies are even more dominant and important domestically than those in the US. A full retail network never developed, so the internet has become more important, more quickly.

Tencent’s WeChat application has close to one billion users. You need businesses with that sort of scale of opportunity. The US and Chinese markets are the only ones with the scale to dominate outside of domestic markets.

For a European company to dominate, it needs to bust past the American dominance. Spotify (the music streaming service) may get there, but that’s an exception.

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Privacy wise, the government ability to interfere is much greater than the US, but these companies are more important to the Chinese economic system. The Chinese government knows perfectly well they need these companies for the economy to succeed.

The devil’s compromise is greatest in China, but the incentive for government support is too.

We don't think there's only one outcome. One of our planned outcomes is always the company’s value going to zero, for many reasons - in these cases, that includes because of government interference. 

The fund’s fee was cut earlier this year – will it go lower?

Certain managers have lousy records, but when their funds eventually fold they walk off with hundreds of millions. That’s wrong.

We fully intend to keep on cutting fees - there’s a “too low” but we’re a way off getting there.

What’s the minimum time someone should invest in your fund for?

It has always been our philosophy that investing is about capturing extreme outcomes.

Over five years, we’re confident of doing a good job, but the longer the better.

What have been your best and worst investments?

The best was Amazon, but not just because of the money it has made our investors. Jeff Bezos' view is that if there’s a 10pc chance of making 100 times your money, you should take it every time, which is how we see investing.

I think sins of omission are far worse than sins of commission. I have had stocks go to zero, but I think more about the missed opportunities. We were lucky to buy Apple in 2009 at a very  cheap valuation, but how we didn’t buy it before that was extraordinarily crass and feeble on our part.

'Amazon can get to four times the share price' | In Focus

How are you paid, and how much do you have in the fund?

I’m paid too much. Both [co-manager] Tom Slater and I are partners in Baillie Gifford. We get what comes out of the business at the end. There is no direct pay from Scottish Mortgage.

My holding is a very high percentage of my liquid wealth. My target has been to own 1pc of the equity of Scottish Mortgage, and I do.

What would you have done instead of fund management?

I wanted to be a journalist – curiosity is the common factor.

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