Lessons from Ron Baron

Billionaire investor Ron Baron, founder of Baron Capital, is renowned for his long-term, growth-oriented investment philosophy. His approach, which has led to significant returns for his clients, centers on identifying well-managed, competitively advantaged businesses and holding them for the long haul.

On Long-Term Investing

"We are not renters of stocks, we are owners of businesses." A core tenet of his philosophy, emphasizing a long-term ownership mentality.
"When we buy a stock, we are not looking to sell it. We are looking to hold it forever." This highlights his exceptionally long investment horizon.
"The average holding period for our funds is about 13-14 years, while the average for most mutual funds is nine months to a year."[1] This statistic starkly contrasts his approach with the short-term focus of many in the market.
"Successful investing is not just about finding the right company but also holding on to it as it grows."[1]This underscores the importance of patience in wealth creation.
"To really outperform and hold a company for so long, we have to invest in companies that have a long-term bright future that we can hold for the long-run."[1] This speaks to the necessity of identifying businesses with durable growth prospects.
"We invest for the long term and, over time, become quite knowledgeable about the businesses that we invest in."[1] Deep understanding of investments is a prerequisite for long-term conviction.
"If they are investing today to make money tomorrow, next month, or even next year—that's risky."[2]Baron's definition of risk is tied to a short-term mindset.
"The stock market and the economy basically double every 10 or 12 years."[3] A reflection of his optimistic, long-term view of economic progress.
"I tell them if you sell, I can almost promise you that you will never buy it back again."[4] A warning against market timing and the emotional toll of selling winning investments.
"The goal of his company was to 'give middle-class people…a chance to grow their savings.'"[5] This reveals the foundational mission behind his long-term investment approach.

On Identifying Great Companies

"What turned out to be a better idea was investing in great businesses with growth potential, great people running them and a competitive advantage."[2] This quote succinctly summarizes his three core investment pillars.
"We focus on companies that are smaller."[1] Smaller companies often have a longer runway for growth.
"Baron only invests in growth stocks, viewing them as 'the best way to make money over time.'"[5] A clear statement on his focus on growth over other investment styles.
"I focused on sales growth as opposed to earnings per share growth."[2] Top-line growth is a key indicator of a company's potential.
"It is always about learning how businesses make money."[2] A fundamental aspect of his research process.
"He focuses on picking out small and mid-size companies with growth potential and competitive advantages."[6] A description of his target investment universe.
"We look for companies that are competitively advantaged for the long term."[7] Durable competitive advantages are crucial for sustained growth.
"We believe Block's businesses are resilient, and greater management focus on cost discipline should drive further margin expansion."[8] An example of the specific, forward-looking analysis his firm conducts.
"We continue to own the stock due to Block's long runway for growth, durable competitive advantages, and track record of innovation."[8] This reiterates the key criteria for their investments.
"Gartner's proprietary insight extends to corporate technological roadmaps, enabling the company to assess future trends."[9] Highlighting the importance of a company's unique assets and market position.

On People and Management

"You have to love what you do, really work hard and guard your reputation above everything else."[2]Advice that applies to both investors and the leaders of the companies he invests in.
"Investing in great people—that's what happened with Musk after the second time I met him."[2] A testament to the central role of leadership in his investment decisions.
"Understanding character is an essential baron competitive advantage."[7] His ability to judge management is a key part of his firm's edge.
"It's what algorithms can't do."[7] Emphasizing the human element of investment analysis.
"Without his [Elon Musk's] relentless drive and uncompromising standards, there would be no Tesla.”[10] A specific example of the transformative power of a visionary leader.
"He's [Elon Musk] not doing this to save up for a beach house. He cares about how he wants to be remembered, his legacy.”[10] Looking beyond financial incentives to understand a leader's motivation.

On Market Volatility and Mistakes

"We look at whether we've made a mistake — and it's never about the price."[1] A mistake is a flaw in the business thesis, not a decline in the stock price.
"If we've made a mistake in terms of a business plan not working out as expected, we sell."[1] A disciplined approach to cutting losses when the fundamentals deteriorate.
"Just get out as fast as you can when you make a mistake and, hopefully, not too often."[1] Decisiveness is key when an investment thesis is broken.
"This uncertainty has actually played to the strengths of our business."[4] Viewing market downturns as opportunities.
"We are always investing at times when other people don't want to invest, at times when the earnings often are not there.”[4] A contrarian approach that capitalizes on fear.
"The time to sell is when the fundamentals of the business change, when the competitive advantage that business has is no longer the case, then you can sell."[4] A clear framework for selling decisions.

On Investment Philosophy and Process

"Ron is a bottom-up investor. That means that he does not think about macro, he does not think about the interest rates."[1] His focus is on individual companies, not broad economic forecasts.
"We don't do that [macro investing]."[1] A direct rejection of a top-down investment approach.
"The biggest risk for investors right now is that they think because they're smart, they can predict politics, the stock market or oil prices, for example."[2] A warning against the futility of market timing and macro predictions.
"Baron believes the biggest mistake investors generally make is to avoid paying a small premium for a strong growing business.”[1] An argument against dogmatic value investing that overlooks quality and growth.
"[I]nvest in companies, not stocks."[5] This emphasizes the importance of focusing on the underlying business.
"The best way to invest, according to Baron, is to own the business."[6] Reinforcing the ownership mindset.
Our strategy is to invest in businesses that grow faster than our economy."[7] A clear goal for their investment selection.
"We are always talking with companies, studying the businesses and making sure that our assessment is going in the right direction."[1] Continuous research and due diligence are paramount.

On Wealth Creation and Mindset

"I love what I do and so I still want to keep doing it forever."[11] Passion is a key ingredient for long-term success.
"Exceptional takes time."[11] A simple yet profound reminder of the need for patience.
"Question everything."[11] A call for independent and critical thinking.
"Inflation just keeps going at four or five% a year."[11] Recognizing the eroding power of inflation is a key motivator for investing in growth assets.
"The value of your money falls in half every 15 years."[3] A stark illustration of the impact of inflation.
"Own things."[11] A straightforward directive to invest in assets rather than holding cash.
"Our goal is to double your money every five or six years."[7] A specific performance target for his funds.
"For young people who don't have that kind of cash lying around, he provided a backup plan: have your parents or grandparents invest for you."[12] Practical advice for starting to invest early.
"$5,000 invested per year for three decades would ultimately grow into more than $800,000, he said."[12] An illustration of the power of consistent, long-term compounding.
"I want to be a trillion-dollar firm.”[13] A reflection of his ambitious and forward-looking mindset, even after decades of success.

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