Forbes.com also has an excerpt of the transcript for the interview in which Baron answered the questions on investing in long term and evaluating the quality of a business: Forbes: How would you describe your investment strategy, and how is it holding up in this market?
Ron Baron: The strategy is that everything we do is long-term. We invest in a world that's focused and obsessed with short-term developments and jobs reports and next quarter's earnings--we're long-term investors. And long-term, I mean by that ... on average for four to five years, although we've also owned stocks for 15 and 20 years. So in Charles Schwab (SCHW - news - people ) we've been investors since 1992, so long-term. And that's a rarity in the world of mutual funds, and it's a rarity in terms of investing in general.
Investing for the long term and investing in businesses that have real big opportunities and investing in people who we think are capable and talented, ethical, smart, hard-working, able to inspire other people to follow their lead.
What we're trying to do is to provide alpha. Alpha means that we're trying do better than the stock market over the long term. We don't believe in the efficient market theory that everything is priced the way that it's supposed to be priced, and we think that if you invest in businesses that can become a lot bigger, people don't give you credit for that, and so therefore you tend to make excess returns. And over the long term, we've been able to do much better than the stock market.
The Baron Growth Fund is a fund that I manage, it's over 15 years old, and that's outperformed the stock market by 770 basis points a year for about 15 years.
ETFs are on the rise and computer trading is on the rise, all these things have made the market more volatile and made the idea of long-term growth less palatable.
Forbes: When you were talking about finding the right opportunity, you also seem to put an emphasis on management. How do you evaluate a management team, and how much does a company's team influence whether you invest in it or not?
It's everything. You have to find someone who you think will be a good steward of the capital that you've entrusted with him to manage. But if you have someone who's really, really smart and you don't care for them and you don't trust them, that's a really bad combination. So you have to bet on people, and a lot of people we invest in are entrepreneurial. So people are everything, and how do you value them? You do it your whole life. You do it from the time you're in grade school about who you want to be friends with and who you trust and who you think is the smartest kid in class. So everything is about, "Do you want to be friends with this person? Do you trust them? Do you think they're ethical? Do you think they live up to their word? Do you think they live up to their promises?"
As usual, the full length of the interview will be typically available with Forbes.com next week.
Here are the largest positions of Baron’s funds. You can appreciate what he means by “long term”.
No. 1: DeVry Inc. (DV), Weightings: 2.6% - 6,975,200 Shares
DeVry Inc. owns and operates DeVry Institutes of Technology, DenverTechnical College, Keller Graduate School of Management and Becker Conviser CPA Review. Devry Inc. has a market cap of $3.5 billion; its shares were traded at around $49.43 with a P/E ratio of 12.8 and P/S ratio of 1.8. The dividend yield of Devry Inc. stocks is 0.4%. Devry Inc. had an annual average earning growth of 13.9% over the past 10 years.
No. 2: Arch Capital Group Ltd. (ACGL), Weightings: 2.52% - 4,770,881 Shares
Arch Capital Group Ltd. is a diversified financial services holding company, with an emphasis on the insurance sector. Arch Capital Group Ltd. has a market cap of $4.13 billion; its shares were traded at around $83.18 with a P/E ratio of 8.8 and P/S ratio of 1.2. Arch Capital Group Ltd. had an annual average earning growth of 26.1% over the past 10 years.
No. 3: Edwards Lifesciences Corp. (EW), Weightings: 2.49% - 6,269,492 Shares
Edwards Lifesciences Corp. a leader in advanced cardiovascular disease treatments, is the number-one heart valve company in the world and the global leader in acute hemodynamic monitoring. Edwards Lifesciences Corp. has a market cap of $7.61 billion; its shares were traded at around $67.11 with a P/E ratio of 41.1 and P/S ratio of 5.7. Edwards Lifesciences Corp. had an annual average earning growth of 0.4% over the past 10 years.
No. 4: Community Health Systems Inc. (CYH), Weightings: 2.12% - 8,825,798 Shares
Community Health Systems, Inc. is a provider of non-urban acute healthcare services. Community Health Systems Inc. has a market cap of $2.88 billion; its shares were traded at around $30.59 with a P/E ratio of 10.8 and P/S ratio of 0.2. Community Health Systems Inc. had an annual average earning growth of 21.9% over the past 10 years. GuruFocus rated Community Health Systems Inc. the business predictability rank of 3.5-star.
No. 5: FactSet Research Systems Inc. (FDS), Weightings: 2.11% - 4,429,753 Shares
FactSet Research Systems Inc. supplies global economic and financial data to analysts, investment bankers and other financial professionals. Factset Research Systems Inc. has a market cap of $3.8 billion; its shares were traded at around $81.98 with a P/E ratio of 26.5 and P/S ratio of 5.9. The dividend yield of Factset Research Systems Inc. stocks is 1.1%. Factset Research Systems Inc. had an annual average earning growth of 20.8% over the past 10 years. GuruFocus rated Factset Research Systems Inc. the business predictability rank of 5-star.
You can check out Baron’s stock portfolio and trading activities here: http://www.gurufocus.com/holdings.php?GuruName=Ron+Baron