Baron Funds: The Masters of Growth Investing

Baron Funds: The Masters of Growth Investing

On a recent sunny morning in New York City, Ron Baron, founder, chairman and chief executive officer of Baron Capital, is standing and studying Sixteen Jackies, a famous painting of Jackie Kennedy by Andy Warhol that Baron purchased through a dealer. The office walls are adorned with dozens of paintings by Warhol, Roy Lichtenstein, Jasper Johns and other modern art masters. In Baron’s corner office, Babe Ruth’s 1920 contract and a 1940 letter written by Albert Einstein about the plight of Jews in Europe hang on the walls; President John F. Kennedy’s rocking chair sits by a table. The view from the 48th floor of the General Motors Building on Fifth Avenue is spectacular: You can see all of Central Park, the Upper East and West sides of Manhattan and both the Hudson and East rivers.

Baron, a multibillionaire, is one of the greatest growth-stock investors of all time, investing in companies with the potential to increase profits at a faster-than-average rate. During a time when relatively few actively managed funds can beat their respective index benchmarks (and more investors are gravitating to passive indexing), Baron’s long-term approach to growth investing continues to shine.

As of the end of the first quarter, 15 of 17 funds, representing 98.5% of Baron Funds’ $49 billion of assets under management, had beaten their index benchmarks since inception, several of them by an annualized five percentage points or more. Baron Growth is the top midsize-company growth fund since its inception in 1994; Baron Partners ( BPTRX ) and Baron Focused Growth ( BFGIX ) are the top performers among all mutual funds since their inceptions in the 1990s.

Ron Baron is a trim, remarkably spry 79-year-old. He’s certainly old and wealthy enough to retire to his 59-acre oceanfront estate in East Hampton, Long Island. But a conversation with him quickly reveals an almost childlike enthusiasm and thirst for knowledge.

“He has an incredible passion for what he’s doing,” says Linda Martinson, founder, president and chief operating officer of Baron Capital, who has been with Baron since 1983. “He’s the most curious person on the planet. He wants to learn about everything.”

Baron grew up in Asbury Park, a beach town in New Jersey where he drove an ice cream truck and worked as a lifeguard to help pay for college. His parents wanted him to be a doctor, but he didn’t get into medical school. In any case, he caught the investment bug at a young age. Baron recalls investing $1,000 of gift money from his bar mitzvah in Monmouth County National Bank, a local bank that was soon taken over. “All of a sudden, my $1,000 became worth $1,700,” he says. “I said, ‘Wow, there’s nothing to this.’ I was always interested in the stock market.”

After working as a security analyst on Wall Street through the 1970s, he founded Baron Capital in 1982 with $100,000 in capital. For much of the first decade, he mainly managed private partnerships before launching mutual funds in 1987. From 1992, when the firm managed $150 million, Baron calculates that his funds have generated more than $44 billion in realized and unrealized gains. Fund offerings have expanded to include foreign stocks, healthcare and real estate , but always with the same growth focus.

“We only do one of kind of investing,” says Martinson, “and we do it well.” Patience in the Stock Market Pays Off

One distinguishing feature of Baron Capital is its unusually long-term approach to investing. For example, Baron has held stock in Charles Schwab ( SCHW ) since 1992, Choice Hotels ( CHH ) since 1996 and Vail Resorts ( MTN ) since 1997. The average holding period for a stock is six to seven years, compared with less than a year for the fund industry, says Michael Baron, who comanages Baron Partners with Dad.

The approach resembles that of the private-equity industry, where investors expect to hold shares in private enterprises for five or more years when investing. Michael recalls that as he was growing up, whenever his father discussed investing, “It was not what stock was up or down, but about businesses, what made them special.”

“A lot of investors say they’re long term, but then they sell in a bad market,” says Michael Lippert, who manages Baron Opportunity ( BIOPX ). “The pool of investors focused on what a company will earn in five years is much smaller than on what it’ll earn next quarter or year,” says Andrew Peck, co-chief investment officer (with Cliff Greenberg) and a portfolio […]

source Baron Funds: The Masters of Growth Investing

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