Patience: the ultimate virtue

Toby Ross explains why patience is key to how we invest.

Last year, I was involved in the fascinating process of graduate recruitment. It involves reviewing some 2,500 applications, from individuals with a variety of backgrounds. Perhaps 10 of these people will be offered a place on our Investment Research graduate programme, on the basis that we think they have the potential to be exceptional investors.

 

Curious, patient and brave are three words we use to describe our investment philosophy at Baillie Gifford. When it comes to interviewing candidates, some of these traits are easier to assess than others. Curiosity is the most straightforward; I can throw ideas out there and see how the candidate engages with them. Bravery is a bit more challenging but can be assessed by difficult choices the individual has had to make, or how willing they are to challenge me.

 

Now consider patience. How do you assess that?

 

The best-known test of patience is undoubtedly the Stanford University Marshmallow Test, where children are promised two marshmallows if they can resist eating one for 15 minutes. The psychologists who conducted this study claimed that the ability to defer gratification, in other words be patient, was a predictor of which children would go on to have successful lives. The idea was that impulse control – the ability to wait for something better to happen – would be helpful in many ways and would encourage hard work for a future benefit. 

 

It got me thinking about how you could adapt the marshmallow test as a tool for interviewing budding investors and the changes that would need to occur to make it fit for purpose.

The firm’s partners are focused on what's right for our clients over the long term and encourage investors to stick to their guns. In other words, be patient.

Firstly, our approach to investing doesn’t have a clearly defined time limit. The individual would need to accept that nobody is going to tell them how long they will have to wait, staring at the marshmallows.

 

Secondly, those payoffs would need to be uncertain – and they would have to change over time. There would not always be two marshmallows sitting there after 15 minutes. There could be three. Or eight. Or just one. The temptation to gobble a few marshmallows and take some risk off the table would undoubtedly be there, and it’s probably what most candidates would do.

 

Finally, you’d need to introduce the ‘fear of missing out’ on something better. How would they react if someone offered to swap their pile of marshmallows for cheese, or six chocolate doughnuts, or a bottle of wine?

 

I think we can all agree it’s not a practical way of interviewing people – especially over Zoom. Additionally, it wouldn’t capture many of the other ingredients that we’re looking for in our future investors. Yes, it might help us to understand behaviour traits, but it would tell us nothing about the insights that come through research. And insights are the seed which patience can water.

 

Why is patience so important to us?

 

We talk a lot about time horizon at Baillie Gifford. But the patience aspect is about predicting what the world might look like in 5-10 years’ time and then having the patience to wait and see if this comes to fruition.

  

Process is key in fostering patience. Every strategy at Baillie Gifford is autonomous and sets its own decision-making structures. These structures are often designed to help take action when necessary, but also to discourage unnecessary tinkering. For example, one strategy I’m involved in meets to make changes to the portfolio once a quarter. Decisions can of course be taken whenever they are needed – but a slower cadence of reviews means less tweaking.   

 

Many of our strategies also separate out the discussion of an idea from the decision-making, to allow for more time for reflection. When you've had a good idea, the temptation is to buy it as soon as possible. But what matters isn't a couple of per cent on your in-price. It's about whether your idea has longevity. It could take years of research before we conclude that it’s the right decision to buy. There’s no rush.

 

Teams can also help you be patient, if they ask the right questions. This is one of the hardest balances to get right. An unsupportive team that continually undermines your confidence in the upside case can prompt you to act at the wrong time. But a team that understands the value of patience, and that seeks to understand your confidence and helps you to build on it, can help give you strength.  

 

Finally, Baillie Gifford’s ownership structure is key. The firm’s partners are focused on what's right for our clients over the long term and encourage investors to stick to their guns. In other words, be patient.

 

Learning to be patient             

  

I'm not sure we do always recruit people who are intrinsically skilled at not eating marshmallows. However, patience can be learned. You can see it everywhere at Baillie Gifford and I’m confident that – given time - the graduate trainees we welcome to the firm will come to understand the virtue of patience.

Toby Ross

Investment manager

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