(Bloomberg Businessweek) -- Over more than four decades managing money, Ron Baron has heard all the advice. Diversify your bets. Cut losers. Let the valuation numbers guide you. He’s taken virtually none of it and in so doing has achieved a record of investment success that’s the envy of Wall Street. There is one rule he adheres to: buy a handful of stocks and hold them—almost no matter what.
It’s a style fraught with risk. But Baron has made the right picks, most notably placing early bets on Elon Musk’s companies—by far his top holdings. Having the nerve to stick with them has propelled his New York-based firm into the top 10% of US mutual fund managers by assets. The Baron Partners Fund was the sole actively managed mutual fund, out of almost 1,500, to outperform the tech-heavy Nasdaq-100 index over the five, 10 and 15 years through July 2023, according to Bloomberg Intelligence.
“Invest for the long term is the idea,” the 81-year-old says in his Midtown Manhattan office, “just finding great businesses and not selling.”
He will have a chance to drive home that message Friday during Baron Capital’s annual investment conference at New York’s Lincoln Center. Amid the rise of low-cost vehicles that track indexes, which have amassed more than $8 trillion in the past decade, largely at the expense of stock pickers, he can point to his market-beating record. The summit also lets Baron offer something else index-tracking funds can’t—showmanship.
Thousands of people are drawn each year to the event, with its agenda of economic and market insights, along with surprise performances from some of the world’s biggest stars. Past acts include Paul McCartney, Lady Gaga and Justin Timberlake. Baron, ever a booster of his investments, offers Tesla giveaways and free scoops from Scream Truck LLC, an on-demand ice cream company he backs.
Baron also advocates for his investments in other ways: He sends scrubs made by Figs Inc.—another company he backs—to his doctors, and he was outspoken earlier this year in favor of Musk’s $56 billion pay package from Tesla Inc. The cars he drives? Tesla models S and X.
The Baron Partners Fund, one of the firm’s oldest and largest portfolios, first bought shares of Tesla in 2014, and the stake now makes up about a third of its assets. The fund’s second-largest position is Musk’s SpaceX, which isn’t publicly traded.
The outsize stake in Tesla had the fund headed for a down year just a month ago, but the market bump awarded to the world’s richest man over his ties to President-elect Donald Trump changed that. Tesla shares were up 24% since the Nov. 5 election through Thursday, and now the fund has gained 16% year to date through Wednesday, but it’s still underperforming the S&P 500 and Nasdaq-100 over the same period.
Whether the stellar results of a concentrated portfolio like Baron’s are due to skill or luck is an endless academic debate. Critics say that making concentrated bets ramps up risk. That generates headlines when it works, while funds making bad bets simply die quiet deaths. David Cohne, a Bloomberg Intelligence analyst who wrote a widely read report last year highlighting Baron’s results, says the investor and his team can claim more than just good fortune. “They do a lot of analysis, visit companies—there’s a lot that goes into it,” Cohne says.
Baron says part of his knack is letting winners appreciate when other funds might sell. The industry’s propensity to change up portfolios too often hurts performance, he says: “Everyone else is focusing on what’s your next quarter going to be.”
The Baron Partners Fund reluctantly trimmed its position in Tesla in 2021 as it was getting too large, amid a huge rally in the shares.
Baron started his firm in 1982 with a $10 million investment from George Soros, and there’s still no retirement in sight, he says; he’s got too much to do. But he shares the workload with his two sons, Michael and David, who are also portfolio managers. “I want to have our business be several times as large in the next 10 years as it is now, and several times again in the 10 years after that,” Baron says.
That ambition sits in stark contrast with the industry’s biggest headwind. Baron Capital can’t claim immunity to the trend of cheaper index funds peeling away money from active managers—its assets have declined more than 20% from their peak of some $59 billion in late 2021.
Baron’s funds have seen outflows for over a year through October, says Adam Sabban, an analyst at Morningstar Inc. “It would be hard to assume large inflows for Baron Capital and most other active equity shops,” Sabban says. “Certainly, the Ron Baron factor does carry some weight, but it’s a really tough industry.”
The firm’s annual summit may be its greatest single opportunity to bolster its brand. Meg McAuley Kaicher, 56, will be traveling from Greenwich, Connecticut, to attend what she calls her “nerd conference.” The Realtor and financial consultant has been investing in Baron funds for more than a decade; she and her husband have about a third of their investment portfolio with Baron. “The return on investment long term beats the S&P 500,” she says. “His expertise more than justifies the fees.”
Marc Freedman, who oversees almost $1 billion at Freedman Financial in Peabody, Massachusetts, has been putting money in Baron funds for about 20 years—with $25 million currently invested. His clients often don’t want him to reallocate profits elsewhere, lest they be disqualified from meeting the minimum investment threshold of $40,000 to attend the Baron Capital conference, he says. “One of their favorite parts is to wait until 2 o’clock in the afternoon when Ron’s ready to take the stage to offer his economic outlook—which is always optimistic—and then people stick around for the entertainment,” he says. “That’s when this place is packed.”Read next: Elon Musk Has a New Project to Run—Trump’s Government
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