The big squeeze: when bottlenecks work to your advantage

Bottlenecks—situations where supply cannot expand at the rate of demand—function as primary drivers of long-term investment value. By identifying these scarcity points, investors can pinpoint companies with significant pricing power and the ability to resist competition. Baillie Gifford partner Mike Taylor utilizes this framework to categorize investments into rapid growers, compounders, and cyclicals, ensuring a diversified portfolio that captures structural growth while mitigating market volatility. Examples include Medpace, which navigates the complex regulatory hurdles of clinical trials; Games Workshop, which leverages intellectual property to maintain brand exclusivity; and mining firms like Freeport-McMoRan, which benefit from chronic underinvestment in critical resources. Successful long-term investing requires rigorous stress-testing of these supply constraints against potential technological shifts, such as AI-driven discovery or new manufacturing techniques, to ensure the bottleneck remains enduring rather than fleeting.