Reuters -- money manager Ron Baron / Krispy Kreme Doughnuts
March 16, 2003
Baron Kicks the Tires, Eats the Doughnuts
By REUTERS
Filed at 12:58 p.m. ET
NEW YORK (Reuters) - Stock picker Ron Baron analyzes
financial spreadsheets and other data when researching
stocks. But he also ponders intangibles such as: ``What
makes the perfect jelly doughnut?''
The New York fund manager, who recently spent a day at the
North Carolina headquarters of Krispy Kreme Doughnuts Inc.
(KKD.N) learning about baking techniques, wants to
understand everything about the companies he holds in his
portfolios.
``I love talking to companies and trying to understand
them, and ripping them apart and putting them together and
seeing how they work,'' Baron said in an interview at his
spacious offices on Fifth Avenue in Manhattan, overlooking
Central Park.
``We're investors in businesses, not so much in the stock
market,'' he said.
Baron is the founder of Baron Capital Group, a small and
mid-cap focused asset manager that runs four stock mutual
funds including two managed by Baron himself. His funds
lagged many of their peers during the bull market of the
late 1990s, but he has outperformed in recent years because
he had little exposure to high-risk Internet and technology
companies, which tumbled when the tech bubble burst.
Instead, Baron has focused on fast-growing education,
health care and niche retail stocks.
The flagship Baron Asset Fund (BARAX.O) has lost money in
the bear market, but the $2 billion fund still ranks in the
top 16 percent of mid-cap growth funds over the last three
years, according to research firm Morningstar Inc.
The $1.25 billion Baron Growth fund (BGRFX.O) has done even
better on a relative basis, ranking in the top 5 percent of
its small growth peers during that same period.
UNDER THE HOOD
While many fund managers get out and
``kick the tires'' of companies, Baron goes further than
most of his rivals in quizzing management and learning
about their business in-depth, said Christopher Traulsen, a
Morningstar analyst.
``There are relatively few growth managers who spend quite
as much time getting to know companies and management as
Ron Baron does,'' he said.
Baron said his on-site meetings with Krispy Kreme
executives, for example, helped him better understand the
company's expertise in perfecting its product -- a process
he thinks gives the doughnut maker an edge.
``There's a great expertise in making doughnuts,'' Baron
said. ``They are able to automate processes that used to be
labor intensive.''
Baron holds Krispy Kreme stock in both funds he manages.
His other favorite stocks include data collection service
ChoicePoint Inc. (CPS.N) and adult education provider
Apollo Group Inc.Unlike many growth fund managers who trade
frenetically, Baron typically hangs onto a stock for years.
But some critics have said Baron sometimes falls in love
with stocks, making him slow to sell them when they're no
longer good investments.
Baron, who socializes with some of the heads of companies
he invests in, acknowledges that in some cases he has let
position sizes grow too large in his portfolio. But he said
he never lets friendship with a CEO color how he views a
stock.
``I like people and I invest in companies that are run by
people who we like and admire and trust,'' he said. ``I
don't think if you talk to any executives of companies in
which we are shareholders that they feel we treat them in
any way with deference.''
The Baron Asset fund once had about 15 percent of its
assets in brokerage Charles Schwab Corp. (SCH.N) While
Baron sold about two-thirds of his shares when the stock
still traded above $30 a share -- it is now down to just
over $7 per share as the stock market slump has cut into
its trading business -- Baron says he wished he'd acted
sooner. Still, he said, the stock trades far above the
price he paid for it.
Baron has lost money on auction house Sotheby's Holdings
Inc. (BID.N), which once made up more than 10 percent of
the Baron Asset fund and now accounts for about 5 percent.
The company has faced a price-fixing scandal and has called
off attempts to sell itself.
Baron says he has reduced risk by no longer allowing any
one stock to make up more than 10 percent of a portfolio,
in most cases.
THE CROWD CHEERS
His fans say he has a strong long-term record and does not
make many mistakes.
``He is excellent, one of the best long-term managers out
there,'' said certified financial planner Michael Kresh, of
MD Kresh Financial Services Inc. in Hauppauge, New York.
``He's been right so many more times than wrong.''
Baron, who grew up in Asbury Park, New Jersey, is married
and has two grown children. He got his start investing when
he was a high school freshman, using $1,000 in gift money
from his bar mitzvah to buy a local bank stock.
Baron draws praise from investors for his detailed
quarterly shareholder letters and his annual, day-long
meeting for shareholders featuring presentations from CEOs
and a surprise entertainer. Last year it was Stevie Wonder.
He is upbeat about the long-term outlook for the stocks in
his portfolio, saying he's been able to scoop up stocks at
attractive prices at a time when interest rates are low.
``I think the surprise that's going to happen in the next
four or five years is that businesses will continue to
grow,'' he said. ``People will be sitting around looking at
themselves and saying 'My God, how could I have not seen
that coming?'''
Copyright 2003 The New York Times Company. |
