Baillie's Slater Explains How to Beat the S&P 500

How does one outperform the S&P 500 Index by more than 10 percentage points? For Tom Slater, this week’s guest on the Masters in Business podcast and head of the U.S. equities team and long-term growth portfolios at investment firm Baillie Gifford & Co., the answer is "growth at an unreasonable price." The U.K.-based firm manages about $324 billion. Slater helps run the firm’s Long Term Global Growth portfolios and the U.S. Equity Growth Fund, which is up 135% this year.

Slater explains how only 4% of stocks account for almost all equity returns. This has three major ramifications for fund managers. The first is a mandate to identify those few candidates that can be “winner take all” companies. Slater’s top holdings include many of those firms, such as Tesla Inc., Amazon.com Inc., Shopify Inc., Zoom Video Communications Inc., Netflix Inc., Alphabet Inc., Chegg Inc. and Mastercard Inc.

The second is how this impacts the discipline around the decision of when to sell, forcing fund managers to think even longer term than they normally tend to do. Third, a successful fund needs clients who exhibit patience and are willing to ride out normal periods of volatility and weaker returns. Slater also explains why a concentrated portfolio is more likely to outperform than one that resembles an index fund.

A list of his favorite books are here; A transcript of our conversation is available here.

You can stream and download our full conversation, including the podcast extras on iTunes, Spotify, Stitcher, Google, Bloomberg, and Acast. All of our earlier podcasts on your favorite pod hosts can be found here.

Be sure to check out our Masters in Business next week with Jeff Poggi, co-CEO of McIntosh Group, a manufacturer of audiophile components widely regarded as among the finest in the world. Despite the pandemic, the company has notched their best year for sales in its 70-year history.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Barry Ritholtz is a Bloomberg Opinion columnist. He is chairman and chief investment officer of Ritholtz Wealth Management, and was previously chief market strategist at Maxim Group. He is the author of “Bailout Nation.”

©2020 Bloomberg L.P.

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