In an opinion piece for CNBC, Ron Baron, founder of Baron Capital, called his experience as a securities analyst in the 1970s “foundational,” contending with geopolitical tensions, high inflation and interest rates, and a months-long bear market. As an analyst, he recommended buying small-cap companies such as Disney, McDonald’s, FedEx, Nike, and Hyatt, and selling them when they doubled or tripled. But those stocks continued to rise, teaching Baron a valuable lesson: it was more profitable to find great companies and hold their stock for the long term, rather than try to predict what the market will do in the short-term.
Baron also highlights “pro-entropic” companies, which are businesses that thrive in periods of “disorganized chaos.” Those companies find ways to innovate during tough times, through smart acquisitions, creating value through brand loyalty, and putting money back into growing their business while cutting costs elsewhere. Over and over, Baron writes that he’s seen those companies weather any market storm, coming out better positioned once conditions normalized again, such as through the 1973-74 bear market, the crash of 1987, the 2000-01 dot-com bust, and the financial crisis of 2007-08. “[I]nvest in companies, not stocks,” he writes in the article, selecting companies based on what they’ll be worth in 5 to 10 years as opposed to their value now, with the goal being to double your investment “about every five or six years.”
In a prime example of Baron’s long-term investment process, he points to Tesla, which is the most high-profile company his firm owns. They first bought stock in 2014, betting on the company’s disruptive innovation, and held onto it even as Tesla’s sales grew but its share price remained flat. Then in 2019, the market caught on and Tesla’s stock skyrocketed. Baron only invests in growth stocks, viewing them as “the best way to make money over time.” In addition, stocks are generally a good hedge against inflation, because inflation has a positive effect on economic growth and tangible assets. Long-term investing is a simple way to fight inflation; as “your savings earn returns, compounding allows these returns to earn even more returns.” Those earnings can grow at a faster and faster pace over time.
Baron, who founded Baron Capital in 1982, views the stock market as “one of the most democratic investment vehicles,” because it allows everyone to participate, and wrote in the article that the goal of his company was to “give middle-class people…a chance to grow their savings…that is why I do what I do.”