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Jacob Wolinsky
Jacob Wolinsky
Articles  | Author's Website |

Ron Baron's Speech at Schwab Invesment Outlook 2011

Today I attended the Schwab Investment Outlook 2011. Ron Baron, and Richard Bernstein were on one of the panels that spoke. The topic of the panel was really an open forum discussing a wide range of issues.

Below are my notes from Ron Baron's comments I wrote them up very informally, I will soon post Richard Bernstein's remarks. First a brief bio about Ron from Guru Focus:

Ron Baron is the founder of Baron Capital Management. He is Co-Portfolio Manager of Baron Asset Fund and remains Portfolio Manager of the Growth and Partners Funds. Baron graduated from Bucknell University with a B.A. in Chemistry, and later attended George Washington University Law School in the evenings.

Investing Philosophy:

Ron Baron invests primarily in small and mid-size growth companies. He likes companies with open-ended growth opportunities and defensible niches. He applies a bottom-up company research, invests for the long-term, and tries to purchase companies at what he believes are attractive prices. He invests in growth companies using a value-oriented purchase discipline. Baron ignores short-term market fluctuations when he believes the fundamental reasons for purchasing a company have not changed. He holds investments for longer than five years on average.

He manages approximately 18 billion dollars, and his funds have returned 345% cumulatively over the past 15 years versus 170% return for the S&P500.

Ron Baron sees himself as an investors as opposed to a strategist.

Has invested in Charles Schwab since 1992.

Has no stock market opinions or predictions.

Judges stocks individually and regularly meets with management.

In 1999 was 10 or 15% high than now, in between 1999 and today the stock market has doubled with earnings close to 100, So P/E multiples have halved.

Stock market fluctuated for 16 years but businesses got better, and then set stage for 17 great years from 1982-1999.

He thinks we have same opportunities as 1980s and 1990s.

Debt as GDP similar to post WWII.

He stated that there is a lot of money on the side lines, with two trillions on balance sheets, and trillions of dollars overseas.

Thinks we have to inflate dollars, Gov. Spending 1.5 trillion more than it is bringing in (25% of GDP instead of usual 20%).

Bernanke is lending by printing, and has praise for Ben Bernanke. His whole life studied depression, and he is the man who was stopped next one.

Overseas they are not happy about inflating dollars but they want our economy to do better so they understand the need.

Talks about constant shifting prices of Gold and its poor performance as an investment.

On 9/11 he was scared he might not be able to use cash at gas station. It took hours to get arround New York.

5-6 years ago gold was 400-500, Baron scared of end of world possibility so he bought some gold coins so we could get out of country if world collapses. Bought 300 coins, wife thought he was crazy.

Coins were worth $5 now worth far more.

He stated his entire gold stake is is 300 coins of gold.

Talked to John Paulson about it and thinks, but rather invest in businesses and gets a return.

Is pure alpha investor, hates beta as a metric.

Stated that have done better than market by 500 600bps over 10 15 or so years. About 13% returns long term.

Strategy is to invest in long term and he liked Charles Schwab, which was changing the mutual fund industry.

The company went up 10x from 1992-1999 and went up another 5x in 1999 then we sold

Whole world is short termed focus, we focus long term.

It can be greatest business but you need a driver like great management.

George Soros was his first investor.

Looks for companies with high barriers to entry.

Hates selling short.

In 73-74 he was selling short, had 100 clients. He would sell research to clients, but did not like it.

Right now wants people to think of Baron as long term investors and he wants those long term investors to invest with him in.

Wants investors to think of Baron Funds as a good business.

Selling short could muddy the water.

Responding to question, in 1999 Schwab was small cap in 1992 $600m, Baron Growth buys companies only below 2.5 billion and will have to sell at $10 billion. $10 billion is to manage risk like the case where Schwab went up astronomically.

This helps manage risk

Invested in Wynn Resorts in 2001 with $130 million investment and sold out at $800 million plus 60-70 million in dividends. He sold out again when it reached that market cap size.

Believes there are many problems in economy that have not been addressed that it creates opportunities.

Medical Care has a lot of problems. Does not think ObamaCare will cause deficit to decrease, partially because taxes start in 2012, while most features do not kick in until 2014.

Companies that can provide better costs in Medical care is an attractive area.

Owns shale oil, which sells for 1/5th the price of regular oil.

Infrastructure is another area.

Thinks technology, health care, and infrastructure all very cheap.

High Frequency Traders (HFT) are front running orders, and are costing investors more money.

HFT make raising capital hard, because it makes markets more volatile and more risky, and therefore more expensive to buy stocks.

Spoke to friend and Baron told him he's nervous. Friend stated last year was buying bonds for 35 cents on dollar last year and sold them at par now.

Bottom line it all works out, and there will always be some type of fear when investing.

Market will crash again, but it wont be what people are looking for or protecting against.


About the author:

Jacob Wolinsky
My investment ideas have been inspired by many of value investors including Benjamin Graham, Charles Royce, John Neff, Joel Greenblatt, Peter Lynch, Seth Klarman,Martin Whitman and Bruce Greenwald. .I live with my wife and daughter in Monsey, NY. I can be contacted jacobwolinsky(AT)gmail.com and my blog is www.valuewalk.com

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