Billionaire Investor Insights From Growth Stock Optimist Ron Baron

Ron Baron has overseen decades of stellar returns due to his optimism. Since he started his fund 40 years ago, he has remained steadfast in his approach to long-term investing. He started Baron Capital with $10 million in 1982. Baron's track record and long-term asset appreciation have helped him accumulate a net worth of $5 billion. Many Wall Street fund managers attend Baron's annual investment conference, which has featured entertainment from dozens of stars.

Baron is undeterred despite this year's market turmoil, with the buy-and- hold investor still predicting massive returns on some of his biggest bets. Even though shares of the electric vehicle maker have struggled this year, he still has 45% of his largest fund invested in the company. Baron has made a lot of money with his investment inTesla, but it has become more difficult due to the broader market sell off. The Baron Growth Fund is down 26% in 2022, compared to the S&P 500's 21% decline, and the Baron Partners Fund is down 28%, compared to the S&P 500's 21% decline. The Baron Partners Fund has an average return of 22% over the last ten years.

How did you learn to invest?

Ron went to law school at night and worked in the patent office during the day. I had many other jobs to make more money. I moved to New York when I was 26 because I couldn't be drafted anymore. I applied for jobs as chauffeurs for people who worked on Wall Street, but I couldn't find a job. If I work for them, I might be able to impress them, but not get them into a job. I got a job as a research analyst for Janney Montgomery Scott after talking my way into it. I would visit companies and send out a research letter to people who were going to sell them to clients. I lost my job after a bad stock recommendation. I called Alan to tell him my story. He offered me a job as a reporter, but I told him I wanted to be an investor. I was recommended for my next job because of my research. We sold research to hedge funds for commission. My net worth was $2 million by that time. Baron Capital had $10 million in assets.

Has your investment strategy evolved over the years?

It was about what a business was worth when I started. I bought the business at a discount because I thought it was worth more. I bought a lot of stocks like that, but the ones that didn't work out were terrible investments and I couldn't exit them. That doesn't seem to be a very good idea to me. Investing in businesses with growth potential, great people running them and a competitive advantage was a better idea. Sales growth is more important than earnings per share growth. Learning how businesses make money is the main focus. I saw how they worked and what made them fail or succeed, so I thought that was a big advantage. I wanted to learn more about Warren Buffet and how he invests. He is more of a value investor than I am.

Which investment are you most proud of?

The one we have made the most from is the one I think we will make the most of in the future, I think. I was contacted by a friend of mine from law school about investing in Antonio Gracias, who became the lead director of the company in 2007, after becoming friendly with Musk. He introduced me to Musk, who was wearing baggy pants and a plaid shirt. He is going to create an electric car to compete against legacy companies. After the stock went public, I couldn't sell it fast enough, so I continued to watch it. When the Model S was introduced, the stock went to $80 per share. We talked about space and cars for several hours at Musk's factory. After the stock doubled again, I said to myself, "I have to own it." Billions of dollars in gains have been generated by our clients because of our investment of $380 over the course of the last two years. We are going to get a five, six or seven times return on our investment in the next ten years. We invested a lot in the company.

What did you learn from your investment?

The biggest dollar loss was at the auction house. I invested $500 million in 1999 because I thought they could take auctions online. The stock fell to half its original price after the chairman was indicted. I learned a valuable lesson from owning nonvoting stock, which I will avoid in the future. I wasted my time and didn't focus on Amazon when I tried to convince Jeff Bezos to buy Sotheby's. I learned that if I meet someone like that again, I will invest with them. After the second time I met Musk, he began to invest in great people.

What would it be like to give your 20-year-old self advice about investing?

You have to love what you do and work hard to protect your reputation. When nobody sees what you are doing, you act like a fool. Do you want to be proud? Jay Pritzker told me once that if I needed to have an agreement in writing, I was doing business with the wrong person. By your word, you have to live. You do whatever you are told to do. It was a big lesson to be a handshake person.

What is the biggest risk investors face from a broad strategy standpoint or from a current investment environment standpoint?

According to Baron, the biggest risk for investors right now is that they think they can predict politics, the stock market or oil prices. They think buying or selling stock is all they have to do to succeed. People shouldn't expect to make money on investments immediately. They should be able to give a time frame. It is risky if they invest today to make money tomorrow or next year. If you want to invest successfully, you have to have a long time horizon and be prepared to invest in a business. There is an expertise to investing in businesses just like there is in cutting hair.

How many books do you recommend to investors?

Ron Chernow is the author of "Titan: The Life of John D. Rockefeller, Sr.." Leonardo da Vinci is being read by me at the moment.

Forbes, thank you

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