A very senior journalist at the Financial Times once said to me: “Be American.” The person meant be positive. Don’t fear failure. Don’t worry about setbacks. Have the courage to look to the future and push the envelope to exceed the limits of your ability.
I have refined that advice to: “Be west-coast American”, or even: “Be east-coast Chinese”. These are the regions where some of the most innovative technology businesses are based, as they are run by bold people who often defy convention and want to change the world.
Consequently, they are also the regions where some long-term fund managers think investors should buy stocks because these are revolutionary companies that are changing the way we live.
As Apple (based in Cupertino, California) has shown most dramatically, with the astonishing rise of its share price in the past decade and its record quarterly earnings at the end of 2014, the best long-term investment returns are produced by these groups.
On the west coast of America there are also the technology giants of Amazon, Facebook and Google as well as Tesla Motors, manufacturer of electric cars, and Illumina, which provides technology for sequencing the human genome that could ultimately eradicate disease.
On the east coast of China, there is Tencent, the mass media, internet and mobile phone services provider, Alibaba, the ecommerce giant, and Baidu, the search company.
In the case of the Chinese groups, there are question marks. Alibaba, for example, is facing a class-action suit in the US over allegations it failed to disclose important information ahead of its initial public offering.
But, in the long run, founder Jack Ma may have a point when he says that such scrutiny will only help to make the company stronger as it is exposed to the stricter norms of western markets.
James Anderson, head of global equities at Baillie Gifford, the fund house, says: “You could argue that the centre of the investment world is in the middle of the Pacific Ocean — between the east coast of China and the west coast of America. These places are where the companies that are changing the world are based. They are the ones with a strategic competitive advantage because of their technological innovation and long-term orientation.”
Significantly, he does not hold any stocks based on the east coast of America. Despite the boom in technology start-ups in New York, Mr Anderson still thinks the US city and London, where financials and big oil groups dominate, are places that largely circulate money rather than create wealth. He adds that Shanghai, despite its location on the vibrant Chinese east-coast, is similar to New York and London.
In Europe, he thinks the place most similar to the US west coast and Chinese east coast, which has been a magnet for “terrific technology” companies is Berlin. Examples of these include Rocket, the internet company, and Zalando, the ecommerce group.
In the UK, the technology companies that might become the giants of the future tend to be based around the university cities of Oxford and Cambridge, such as Oxford Nanopore, a DNA sequencing group. As an aside, some of the genome sequencing breakthroughs used by the San Diego-based Illumina originated in a pub in Cambridge.
Of course, there is a place for value investing, or buying stocks that are mispriced and cheap, or corporate governance-driven investment. But investors who really have their eye on the long term, or are looking for companies that will stand the test of time and improve our lives, are likely to offer the best long-term returns.
In the past 60 years, it has been oil groups such as Exxon and Mobil that have dominated the stock indices and profit rankings.But will the oil groups still do so in six decades time? Are they innovative enough to remain at the top as alternative sources of energy become more popular? The Californian solar industry may provide the answer.David Oakley, Financial Times, Exclusive MDT/FT
World Views: Be west-coast American, or east-coast Chinese
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