Ron Barron, founder of Barron’s Capital.
Anjali Sundaram | CNBC
We are becoming an increasingly, transactional, emotion-driven society.
With most of our lives tied to our smartphones and computers, providing endless distractions, people’s attention spans have shrunk.
On top of that, businesses have made it easier for us to act on our needs.
Purchases — from something as small as a cup of coffee or a movie ticket to as big as a car or millions of dollars in bitcoins — are just a swipe or a click away.
So what’s wrong with a world driven by emotions? We think a lot.
Take the markets for example.
This year’s spectacular failure of regional banks, Silicon Valley Bank and many others, was caused by investors being able to withdraw their money in seconds with the touch of their smartphones.
Would these banks have failed regardless? It is impossible to say.
But surely, the run on these banks was driven entirely by panicked investors fearing to be left with a bag of worthless assets, not by rational, well-thought-out analysis of the situation.
We are very close to a full-blown banking crisis due to impulsive decisions.
With this bold new approach to instant gratification and transactional relationships, what we do at Barron’s Capital may seem old, but we make no excuses. We are the ones who do it. We look for high-conviction growth opportunities in which we can invest for the long term.
To build that high level of conviction, we focus on the fundamentals: competitive advantages and exceptional executives that we believe are key to the company’s long-term success.
Our deep research bench is the foundation of our investment process: we love “real data”, not “artificial intelligence”.
Algorithms cannot predict the future or assess character, talent and vision.
Even so, an algorithm cannot analyze and evaluate the qualitative characteristics of a company and its leaders to determine whether it is a good investment.
We use our proprietary research to build a portfolio designed for the long term (though of course there are no guarantees). And while we’ve held positions for many years, we’re not buy-and-hold investors.
I personally “interview” the heads of the companies we invest in at least once a day and often more. In addition to regular meetings with management, we visit factories and headquarters, talk to competitors, customers, suppliers and industry experts, and read everything we can get our hands on.
Importantly, we do not base our investment decisions on the opinions of others. And our investment horizon is long… ideally, forever.
As growth managers, we believe a long-term investment horizon is key to achieving above-average performance. Sometimes we follow a company for years before deciding to start a position.
Once we invest, we stay invested as long as our article lasts.
We’ve held shares in Charles Schwab — currently the longest-held position — for more than three decades. We originally bought shares for less than a dollar each, which means our current share is almost 100% profit.
The hardest part of what we do is knowing when not to sell.
It may seem simple – you don’t have to do anything – but it’s not. Emotions come in the way. You naturally ask yourself. Staying on course through bad times – whether it’s a missed quarterly earnings report or a full-blown bear market – and not panicking or letting emotions take over takes incredible faith.
Because of our proprietary thinking, we can remove emotions from our calculations.
Just as a CEO doesn’t walk away because of a disappointing quarter, we don’t walk away from an investment. This strategy is key to successful investing.
Emotions are the reason many non-professional (and sometimes professional) investors buy high and sell low.
Because high days are often closely followed by high days, those who panic and sell on low days may miss out on subsequent days.
We are our mistakes.
While it may take years before we decide to invest, when we decide that the premise of our investment is wrong, or that the growth prospects are not favorable, we sell immediately. And mistakes, as much as we like to make them, are inevitable in this business.
If investors are afraid of making any mistakes, it will ultimately limit their chances of success. The key is to learn from our mistakes, so we always do a post-mortem to see what we missed or did wrong.
So, while there’s nothing wrong with occasionally making mistakes, when we do, we always want to do something new.
We look for the same ownership mentality in the leaders of our investments.
We love executives who are as personally invested in their companies’ success as we are.
Elon Musk, CEO and founder of Tesla and Space Exploration Technologies, is known to spend many nights on the factory floor under his desk.
Bernard Arnault, CEO and founder of French luxury goods conglomerate LVMH Moet Hennessy Louis Vuitton, took his five children — and now his grandchildren — on store tours when they were in elementary school. All four children now work in the company.
Amazon.com CEO and Founder Jeff Bezos It slumped for almost a decade before turning a profit in 2001 – $5 million.
These are just a few examples of the many executives who share our proprietary mindset – and in whom we invest.
Finally, I would like to point out that I take the same approach to my own business.
I have spent my entire career studying, researching, investing and “not selling” great businesses.
Barron Capital was shaped by what I learned.
Just like the businesses we find attractive, we constantly invest in our 45-member research team and over 200 employees. We have never had a layoff, and many of our employees have spent most of their careers at Baron Capital.
Most of our employees – including all of our portfolio managers – invest in our funds, many of which are significant.
We believe in our investment process and our company. we own it.
–Ron Baron is the CEO of Baron Capital..