Baron Funds: Investing In A Brighter Future

Ron Baron is the founder, chairman and CEO of Baron Capital, a New York City investment management firm that manages the Baron Funds. As of 2024, Baron Capital has around US$45 billion in assets under management (AUM). The Baron Funds are carefully constructed for the long term, with the aim of outpacing inflation and helping investors meet their financial goals. The funds are constructed one company at a time, with a focus on long-term investment in secular growth businesses with strong management teams. Baron himself is known for his long-term approach to growth investing, with a focus on businesses with strong growth potential. Baron Funds have a range of offerings, including the Baron Growth Fund, Baron Focused Growth Fund, and Baron WealthBuilder Fund.

Ron Baron's long-term approach to investing

Ron Baron is a long-term investor with a focus on growth stocks. He is the founder, chairman, and CEO of Baron Capital, a New York City investment management firm that manages the Baron Funds. Baron's long-term approach to investing is based on several key principles:

• Long-term horizon: Baron typically holds stocks for 4-5 years, and sometimes even 10-15 years. This long-term horizon allows him to focus on the fundamental growth of the underlying business rather than short-term market fluctuations.
• Growth equities: Baron invests solely in growth equities, believing that these offer the best opportunity to make money over time. He targets companies that can grow at twice the rate of the overall economy, leading to compounded growth of 15% per year.
• Competitive advantage: Baron looks for companies with durable competitive advantages, such as strong management teams, large addressable markets, and long-term growth opportunities. He seeks to identify businesses that can become much larger and develop sustainable competitive advantages that others cannot duplicate.
• Buy-and-hold strategy: Baron is a buy-and-hold investor, aiming to discover and invest in great companies at attractive prices and stay invested for the long term. He only sells if a company no longer has the potential to double its value within a five-year period.
• Research and due diligence: Baron and his team conduct extensive research before investing in a company, spending months studying the business and meeting with senior management teams to understand their strategies and capabilities. They focus on the fundamentals of the business rather than short-term stock price movements.
• Focus on people: Baron places significant emphasis on the strength and quality of a company's management team. He seeks credible, dependable, and trustworthy leadership, investing in people rather than just assets.
• Mega-trends: Baron Capital prefers to invest in mega-trends driven by broad societal and demographic trends, such as baby boomer demands for healthcare. These trends are expected to have steady demand for years or even decades.
• Patience and consistency: Baron advises investors not to buy and sell based on headlines or short-term market movements. He advocates for a patient and consistent approach, holding companies for the long term to allow their growth potential to be realized.
• Value and growth: While Baron is a value investor, he does not solely focus on cheap, undervalued companies. He is willing to pay a small premium for a strong, growing business with solid competitive advantages and promising growth prospects.

By adhering to these principles, Ron Baron has achieved a successful long-term track record with his Baron Funds, outperforming their respective index benchmarks and delivering strong returns for investors.

Baron Capital's investment strategy

Baron Capital is a New York-based investment management firm founded by Ronald Stephen Baron in 1982. The company is known for its long-term approach to growth equity investments.

• Long-term investing: Baron Capital typically holds stocks for 4-5 years, sometimes up to 10-15 years. This sets them apart from other funds, which often have an average holding period of less than a year.
• Mega-trends and broad societal trends: The firm seeks to invest in companies that are likely to benefit from broad societal and demographic trends, such as the demand for healthcare from baby boomers.
• Strong management teams: Baron Capital places a strong emphasis on the quality of a company's management team, looking for credible, dependable, and trustworthy leadership. They believe that people are the drivers of a successful business.
• Growth opportunities: They invest in companies with strong growth opportunities, competitive advantages, and leadership in their field.
• Research-driven: With roots in equity research, Baron Capital's investment decisions are based on in-depth research and analysis. Their portfolio managers and research analysts are their most important source of idea generation.
• Risk management: The firm has a deeply embedded risk management culture, viewing risk as the probability of an adverse outcome leading to a permanent loss of capital.
• Outpacing inflation: Baron Capital aims to help investors meet their financial needs by delivering returns that outpace inflation.

Overall, Baron Capital's investment strategy is focused on identifying and investing in companies with strong growth potential, exceptional management, and competitive advantages, while maintaining a long-term horizon and a strong risk management framework.

Baron Growth Fund

The fund's objective is to invest in small-cap growth companies with strong management teams, strong growth opportunities, and competitive advantages. The fund seeks to identify companies that can double in market value in 5-6 years, implying compounded growth of 15% per year.

Some of the top holdings of the Baron Growth Fund as of September 30, 2024, include:

• Arch Capital Group Ltd. (ACGL), a Bermuda-based insurance company providing property and casualty insurance, reinsurance, and mortgage insurance.
• FactSet Research Systems Inc. (FDS), a provider of financial information to the global investment community.
• Kinsale Capital Group, Inc. (KNSL), a property and casualty insurer focused on the excess and surplus (E&S) lines market.
• Choice Hotels International, Inc. (CHH), one of the world's largest hotel franchisors with brands including Quality Inn, Comfort Inn, and Radisson.
• CoStar Group, Inc. (CSGP), the leading provider of information and marketing services to the commercial real estate industry.
• Primerica, Inc. (PRI), a provider of term life insurance and investment products to middle-income households in the US and Canada.
• Vail Resorts, Inc. (MTN), the largest ski resort operator in North America, with 42 resorts across the continent.
• Morningstar, Inc. (MORN), a leading data provider for the investment community.

The Baron Growth Fund has a long and successful track record, outperforming its index benchmarks since its inception in 1994. It is an excellent choice for long-term investors seeking exposure to small-cap growth companies with strong growth potential.

Baron Capital's risk management culture

Baron Capital has a deeply embedded risk management culture. The company defines risk as the probability of an adverse outcome leading to a permanent loss of capital.

The company's entire organization is united in a single investment style and objective. They are long-term investors in secular growth businesses with durable competitive advantages that are run by great management teams.

Baron Capital portfolio managers and research analysts are the company's most important source of idea generation. With its roots in research, Baron Capital has developed deep industry expertise and knowledge about the companies in the industries they cover.

The goal of their research process is to identify and monitor investments that they believe will deliver above-average, long-term, and risk-adjusted results. Every Baron Capital portfolio is built from the bottom up, stock by stock, based on their conviction about the future growth prospects of each business.

The company's low staff turnover helps maintain consistency. Four of the five original employees are still with the firm, and portfolio managers are expected to invest in the funds they manage. The company culture is described as a "big Baron family."

Baron Capital's long-term approach to investing is a distinguishing feature of the company. For example, they have held stock in Charles Schwab since 1992, Choice Hotels since 1996, and Vail Resorts since 1997. The average holding period for a stock is six to seven years, compared to less than a year for the fund industry.

Their investment philosophy emphasizes investing alongside clients, and the company's high levels of manager ownership reflect this.

Ron Baron's background and career

Ronald Stephen Baron, born in 1943, is an American mutual fund manager. He grew up in Asbury Park, New Jersey, in a Jewish family. He is one of two children of Morton Baron, an engineer, and his wife, Marian.

As a young man, Baron worked several jobs, including shovelling snow, waiting tables, working as a lifeguard, and selling ice cream. He saved $1,000 and invested it in stocks, turning it into $4,000. This earned him the nickname "Count", which has stuck with him ever since. Baron studied chemistry at Bucknell University and attended George Washington University Law School at night on a scholarship. His first job after graduating was with the United States Patent Office.

From 1970 to 1982, Baron worked for several brokerage firms and developed a reputation for investing in small companies. In 1982, he founded his own firm, Baron Capital (also known as Baron Capital Management and Baron Funds), a New York City investment management firm. Baron Capital is known for its long-term strategy in growth equity investments and typically holds stocks for 4-5 years, sometimes even 10-15 years. The firm looks for companies with strong management teams, growth opportunities, appropriate financing, competitive advantages, and leadership in their field.

Baron Capital has had notable investments in Manchester United, Tesla, and SpaceX. As of 2024, Baron's net worth is estimated to be $5.2 billion, and he owns one of the biggest estates in the Hamptons.

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