How do you explain your investment successes with Baron Capital?
What we try to do is invest in businesses that have three characteristics. They have significant opportunities to grow because they're solving problems for the country. [To] double in size in four or five years instead of in 10 or 12 years. Number two: We're trying to find businesses that have competitive advantages that other people can't easily duplicate. For example, college housing. There are more than 5 million student dorm [rooms] that are becoming obsolete or are obsolete and need to be replaced. So we want to invest in companies that will be able to build on campuses for 80-year leases and be partners with universities.
And then we're trying to find management of businesses that is exceptional, that will make businesses grow. And that's people like Steve Wynn and Chuck Schwab and Ralph Lauren who we've been able to identify when they were younger. We have dozens of them right now. They're going to make very inspiring leaders, and they're going to make their businesses become much bigger.
And after we start with these businesses, we invest in them for the long term. We're not buying and selling and trading stocks and trying to trade news. The average mutual fund owns stocks for seven or eight months. Our average holding is seven years.
What are you buying now? And what should retail investors be looking for?
I would say the best things your readers could buy are mutual funds. It's hard to see how they can do as well as analysts. Student housing—American Campus Communities—is something that we own. Are they going to be able to find the next American Campus Communities? Or are they going to be able to find the next electricity transmission business? ITC Holdings. Or the next short-line railroad? Genesee and Wyoming. Or the next cybersecurity business? Booz Allen Hamilton. Are they going to find that?
Six years ago we had 20 investors; we now have 28. How are you going to be competitive with 28 guys who every day are visiting companies and studying those businesses and every day are meeting with those managements?
I think that they should be thinking about having a professional investor. Once they have that investor, I think they should examine carefully the sort of businesses in which their money has been invested. See if the businesses make sense to them. Does it make sense to invest in a business that sells used cars? Or that sells sporting goods stores? What you should do is look for the top 10 investments in a portfolio. Go read about them. Send for 10 annual reports. Take them home at night and read them, and see if it makes sense to have your money invested.
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What else should they keep in mind?
I think you should think about doubling your money every four or five years, because I think the value of your money is going to be falling at 4 percent a year due to inflation. You've got to protect yourself. That's what stocks do.
How do you invest personally?
I haven't invested in stocks since 1992, but I am the biggest investor in the Baron funds. When I started in 1970, I had a negative net worth—living in a basement of one of my friends in high school, sleeping on a cot next to a water heater. I have four stocks that I bought before 1992. Mutual funds, I own maybe five.