Bottlenecks often act as constraints on growth, but companies that create funnels through them can gain pricing power and capture long-term value. Investment manager Mike Taylor reveals some of the companies he thinks achieve this best and how he spots such pinch points before they fully form.
Mike Taylor is a Baillie Gifford partner, an investment manager in its Global Alpha Strategy and a co-manager of The Monks Investment Trust.
In this conversation, he tells Short Briefings… host Leo Kelion about how bottlenecks can confer an advantage on companies that sit astride them. That includes those that serve a mismatch between supply and demand created by others, and those whose products and services create a new pinch point, which they control. In addition, he explains why mixing a cocktail of bottlenecks in his portfolios can deliver smoother growth for their shareholders.
Portfolio companies discussed include:
- Medpace – the drug and biologic contract research organisation
- Games Workshop – the maker of the Warhammer tabletop battle games
- Tidewater – the provider of offshore vessels to the oil and gas sector
- Freeport-McMoRan – the mining company that produces gold and copper, among other minerals
- DISCO – the precision tools company, widely used in the semiconductor industry
- Samsung Electronics – the electronics conglomerate
- SK Hynix – the memory chip specialist
Resources:
Don’t Burn Your Boats: the case for selective AI investing
Global Alpha Investment Strategy
SPQR: A History of Ancient Rome
Short Briefings on Long Term Thinking podcast archive
Valuing scarcity in the age of AI
Companies mentioned include:
Timecodes:
00:00 Introduction
02:10 Investing inside and outside Baillie Gifford
03:55 Defining bottlenecks
04:45 How Medpace helps biotechs meet regulatory requirements
07:35 Founder-leader, August Troendle
09:30 Stress testing the bottleneck
12:00 Games Workshop creates its own pinch point
14:50 Shepherding Warhammer over the long term
17:45 Mixing bottlenecks to reduce volatility
20:05 Tidewater and the coming offshore vessel shortage
23:30 Freeport-McMoRan feeds the US’s copper needs
26:20 AI bottlenecks: silicon wafers and high-bandwidth memory
30:00 Enduring versus fleeting bottlenecks
31:25 Book choice
Glossary of terms (in order of mention):
Adenovirus: A common type of virus that can cause mild illnesses such as colds, sore throats or conjunctivitis, but can also be modified for medical uses such as delivering genes into cells.
Gene therapy: A treatment that works by adding, altering or replacing genes inside a patient’s cells to treat disease.
Clinical trials: Research studies in people that test whether a medicine, treatment or medical approach is safe and effective.
FDA: The US Food and Drug Administration, the regulator responsible for approving medicines, vaccines and medical devices in the United States.
Contract research organisation: An organisation that helps biotechnology and pharmaceutical companies run clinical trials.
Private partnership: A business owned by its partners rather than by public shareholders.
Supernormal profits: Profits above what would normally be expected in a competitive market.
Supply side: The part of an industry concerned with how much of a product or service companies can provide.
Demand side: The part of an industry concerned with how much customers want or need a product or service.
Rate limiter: The factor that determines the maximum speed at which something can grow, expand or be produced.
Novel therapies: New types of medical treatments, often based on recent scientific advances.
Intellectual property (IP): Legal rights over creations such as brands, stories, characters, designs, patents or software.
Free cash flow: The cash a company produces after paying the costs needed to run and maintain the business.
Energy transition: The shift from fossil-fuel-based energy systems toward lower-carbon sources such as renewables, batteries and electrification.
Compute: The processing power needed to train or run AI models or other computing tasks.
High-bandwidth memory (HBM): A type of advanced memory chip that can move very large amounts of data quickly to processors, making it especially useful for AI systems.
Steam turbine: A device that uses steam to spin a wheel or rotor, converting heat energy into mechanical motion.
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