The Berkshire Special 2018

"If your thesis is correct, hold the stock regardless of what the price is doing"

Baron Capital’s Ron Baron on his firm’s investing framework, his bet on Tesla, and more

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Published 3 years ago on May 30, 2018 15 minutes Read
Baron Capital

He always wanted to be a doctor when he was a kid, but destiny had something else in store. After failing to secure admission in medical school, Ron Baron worked as a cabana boy and ice cream truck driver to help pay his college fees. In 1970, he became a securities analyst and named his dog Big Mac after one of his first successful stock recommendations. The medical fraternity’s loss eventually proved to be the investing community’s gain with Baron successfully founding a money management firm in 1982 that today has over $27 billion in assets under management. Baron explains that successful investing is not just about finding the right company but also holding on to it as it grows. Baron believes the biggest mistake investors generally make is to avoid paying a small premium for a strong growing business. Articulating on his investing framework, Baron explains why be believes Tesla is on to something big and why stock prices are irrelevant as long as the business is doing well.

Could you take us through Baron Capital’s investing process, especially since you started with small-caps? There you don’t have much information, and also face illiquidity risk.

We started off with $100 million in 1992 and today manage over $27 billion in assets. We’ve made over $25 billion in profit for our clients since we started, and I hope to double our money again over the next five to seven years. We invest for the long term and, over time, become quite knowledgeable about the businesses that we invest in. That knowledge mitigates the risk that an investor would ordinarily face. The idea about not having great knowledge about businesses couldn’t be further from the truth. Of the 146 people at our firm, we have 37 analysts and portfolio managers. The reason we hire these people is because they are supposed to become very knowledgeable about the businesses we invest in and, as a result, we hope to be more discerning about opportunities and, in turn, buy stocks at attractive prices. One such idea is that whenever companies announce that they are going to invest significantly in their own businesses, stock prices tend to fall as they are penalising current earnings. This gives us an opportunity to invest in such companies at better prices. 

Most people spend time worrying about illiquidity, and are caref

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