Tom Slater, head of Scottish Mortgage Trust (SMT), recently penned a memo titled "The Age of Resilience: Only Companies That Survive First Can Eventually Outperform."

SMT's history dates back to 1909, having operated continuously for 116 years, making it one of the world's oldest investment trusts. While chronologically mature, its investment portfolio reflects a remarkably youthful spirit.

As of June 30, 2025, SMT managed approximately £15.1 billion ($19.3 billion) in assets, with private company investments accounting for roughly 25% of the portfolio.

The portfolio encompasses leading global enterprises including MercadoLibre, Amazon, Meta, PDD Holdings, Taiwan Semiconductor, as well as innovative private companies like SpaceX, ByteDance, and Epic Games.

Over recent years, SMT weathered shocks from rising interest rates, tech stock valuation contractions, and geopolitical uncertainties, experiencing notable drawdowns at times. However, over the long term, it has maintained an annualized return of approximately 12% over the past decade.

Such performance reminds investors that short-term volatility is often simply the norm for growth investing.

In his latest memo, Tom Slater emphasizes that true long-term winners are not companies that appear risk-free, but rather those that demonstrate resilience during shocks and continuously reinvent themselves.

This viewpoint aligns with Baillie Gifford's Netflix investment case: holding for 10 years with 20x stock price appreciation. Netflix wasn't immune to doubt and crashes, but through cultural and business model adaptability, it ultimately emerged from downturns to become a global entertainment icon.

Slater categorizes Netflix among companies capable of "creating their own weather."

"In an environment full of unpredictability, resilience is not a secondary virtue but the core of long-term success," Slater wrote to shareholders in the March annual report, expanding on this theme in his latest memo.

He emphasizes focusing on predictable elements: we know that in five years, artificial intelligence will be more powerful; electric vehicle batteries will be cheaper with longer range; cloud computing and data management software will be more robust.

**The Age of Resilience: Only Companies That Survive First Can Eventually Outperform** *By Tom Slater*

In an era where uncertainty peaks, Scottish Mortgage seeks enterprises capable of weathering shocks.

Companies like Meta, Shopify, and Ferrari possess substantial financial strength and can continuously innovate in changing markets, embodying this characteristic.

The trust remains willing to pursue exceptional growth while seeking greater confidence in the adaptability of portfolio companies.

However, as with any investment, your capital is at risk.

In 1921, Chicago School economist Frank Knight distinguished between risk and uncertainty.

Risk—something quantifiable and hedgeable through insurance—has always been central to traditional economic models. But Knight believed that what truly governs the real world is uncertainty: something no expert or analyst can measure.

Currently, this uncertainty manifests as pandemics, natural disasters, financial stress, trade wars, and even actual warfare, colliding and interweaving into chaotic and unpredictable scenarios.

Knight's perspective: uncertainty, or "the inherent, absolute unpredictability of things," creates opportunities for entrepreneurs.

They and their investors earn returns not by bearing calculable risks, but by enduring unknowable burdens.

From Scottish Mortgage's perspective, we are at the peak of "Knightian uncertainty," where geopolitical struggles make the complex adaptive system of the global economy even more turbulent.

You can speculate about President Trump's long-term objectives, but we simply don't know the potential outcomes, much less assign probabilities to them.

**Embracing Uncertainty**

I believe investors gain advantages from views on company potential and future possibilities that differ from market consensus. We must see opportunity value before others do. This means becoming comfortable with uncertainty. If a company faces only foreseeable, quantifiable risks, the market would have already reached consensus on its value.

Recent years' experiences have deepened our thinking about different qualities of "exceptional growth."

In 2022, during the rising interest rate cycle, the trust experienced difficult times following an unusually prolonged expansion.

This didn't change our investment process but forced us to examine more carefully: does the company possess sufficient resilience to adapt to sudden challenges?

Our willingness to support companies' "blue sky visions" remains unchanged. But we've become clearer: what truly needs addressing is the company you're operating today, not what you hope it becomes in the future.

No matter how good the opportunity, if a company cannot overcome inevitable obstacles, it ultimately cannot realize its potential. The key to investing lies in maximizing success probabilities.

One portfolio case example is Swedish battery manufacturer Northvolt.

Last November, it filed for bankruptcy. We had endorsed founder Peter Carlsson's vision of building a European champion enterprise during the rapid electric vehicle adoption era.

Our mistake was not foreseeing its vulnerability when customer demand fell short of expectations and operational problems emerged during capacity ramp-up.

**Anatomy of Resilient Companies**

So what does resilience actually mean? In practice, specific financial characteristics matter. We ask:

Is the company burdened with debt? Are gross margins large enough to absorb revenue fluctuations? Can it consistently generate cash flow?

Beyond financials, broader cultural questions often relate to whether the company is founder-led.

I've written in trust communications: founders often make seemingly counterintuitive decisions and get entire organizations to embrace change, something professional managers struggle to achieve.

Therefore, our resilience checklist also asks about management:

Are they flexible and adaptive? Do they rely on things remaining unchanged? Do they continuously innovate? Are they competing within an industry or creating an entirely new one?

In the post-pandemic high interest rate environment, adaptability became crucial. Companies must improve profitability to maintain flexibility. Many companies proved more resilient than surface financial metrics suggested and subsequently became more profitable.

E-commerce platform Shopify exemplifies this well.

Previously, it consistently operated below break-even while continuously investing in multiple new projects. Today, it still invests and grows rapidly but has shifted to a model retaining about 20% of revenue after covering operating costs. This additional buffer enables flexible responses to new changes.

Meta represents another example. It experienced an "efficiency year," addressing weaknesses in business and cost structure, positioning it more favorably in improved operating environments.

Consider Cloudflare, a San Francisco-based internet infrastructure company founded in 2010, specializing in network security, performance optimization, and edge computing services. Previously operating at small losses, it has seen profit margins steadily rise in recent years, enabling it to withstand various external shocks.

**Companies That Can "Create Their Own Weather"**

Resilience means having options, meaning the ability to "create your own weather" during challenging periods.

Ferrari must remain sensitive to customer demand, but its powerful brand provides multiple levers to drive growth.

Online beauty enterprise Oddity grows against trends in a generally contracting industry. It enhances products by incorporating newly discovered molecules into formulations and uses AI to provide personalized customer recommendations, bringing freshness to the market.

These companies demonstrate how sufficient innovation enables progress in more complex environments. Netflix's ability to continuously add content users love means pricing flexibility and freedom to choose content investment pace.

In China, local services and delivery enterprise Meituan embodies another type of resilience.

Despite fierce attacks on its core delivery market from well-funded competitors like ByteDance and JD.com, causing growth and profit margin impacts and analyst downgrades, it withstood competitive pressure from well-funded rivals, demonstrating business model resilience. Recovery in financial metrics and market evaluation indicates its long-term value was underestimated.

For investors, this is the source of excess returns: identifying when a company's resilience is more valuable than the market believes.

I realize this new emphasis might be interpreted as Scottish Mortgage becoming more cautious and risk-averse. This isn't the case. We continue seeking great enterprises with uncertain futures but potential for greater success than anyone imagines.

However, companies that have dragged investment performance in recent years were often those too vulnerable to environmental changes, ultimately losing opportunities to realize potential.

When the next crisis arrives, we want to ensure the portfolio doesn't contain too many such companies.

Ultimately, this is about improving success probabilities—choosing where you fish.

**In Turbulence, Focus on Predictable Elements**

Since beginning investing in 2000, markets have never lacked challenging environments. But persisting in this industry for a quarter-century requires maintaining certain calm and resilience.

You can work hard and think you're doing well, but sudden events always occur beyond your control. This profession isn't suitable for everyone, especially now when "Knightian uncertainty" makes short-term market volatility increasingly severe.

Economist Adam Tooze proposed the concept of "polycrisis" to describe simultaneous multi-faceted attacks on economic foundations.

He believes traditional order is fragmenting, with new problems emerging continuously and unpredictably. This is reality we must accept—there will always be things worth worrying about.

For us, the key lies in focusing more on predictable elements. If our invested companies are doing new things, progressing in new ways, facing uncertain outcomes, they must align with long-term themes we're confident about.

For instance: we know that in five years, artificial intelligence will be more powerful; electric vehicle batteries will be cheaper with longer range; cloud computing and data management software will be more robust.

In an uncertain world, our task is continuously refining understanding of how these long-term trends might evolve while always remembering: only the most resilient companies can survive and thrive in the future.