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The transcript from this week’s, MiB: Ron Baron of Baron Funds, is below.

You can stream and download our full conversation, including the podcast extras on iTunes, Spotify, Stitcher, Google, Bloomberg, and Acast. All of our earlier podcasts on your favorite pod hosts can be found here.

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This is Masters in Business with Barry Ritholtz on Bloomberg Radio.

BARRY RITHOLTZ, HOST, MASTERS IN BUSINESS: This week on the podcast, I have an extra, extra special guest. What can I say? Ron Baron, founder of Baron Capital, he’s a legend, I don’t even know where to begin with this guy. He founded Baron Capital in 1982, he performance numbers he’s put up have just been obscene. Everything he does, he seems to find his way to just spectacular returns whether it’s public companies, or private companies, or real estate, just Google search him on East Hampton and the property he bought for $100 million in the midst of the financial real estate collapse in 2007, he turned that into gold.

I mean he just has an eye for intrinsic value and a process for doing things that really is just amazing. What I ended up doing in this conversation was kind of giving him a nudge and then just getting out of his way, he just tells all sorts of stories about how different investments work out.

I ask him “What are you doing the growth space, I really know you as a small-cap guy?” and that’s how he built his reputation, and he describes the small caps that he bought when he was first getting started in the 1980s, you know, small companies like Disney and Hyatt and International Gaming and it’s hilarious because 40 years ago, those were small-cap companies, he just seem to have a knack of identifying the companies that were about to go from relatively small to giant. And it’s pretty hilarious to hear him discuss that when he was a broker in the 1970s, he was upset because he would buy stocks, watch them triple, and sell them, and then watch them go up 30 x over the next 30 years which is why his turnover ratio is insane, it’s like 4 percent.

He’s very Warren Buffett like, he never sells, he finds a good company and he rides them forever. So he is a legend in the industry, I find this to be just an endlessly entertaining and fascinating conversation.

With no further adieu, my conversation with Ron Baron.

VOICEOVER: This is Masters in Business with Barry Ritholtz on Bloomberg Radio.

My extra special guest this week is Ron Baron, founder of Baron Capital, he began the firm in 1982 and it has become known for its long-term fundamental active approach to growth investing, 17 of their mutual funds have assets of $49 billion, one of the funds run by Ron and his son Michael was up 148 percent in 2020. Nearly all of their funds have been beating their benchmarks since their inception way back in 1982.

Ron Baron, welcome to Bloomberg.

RON BARON, FOUNDER, BARON CAPITAL: Thanks, Barry.

RITHOLTZ: So let’s go way back to your childhood, you had written, you were 14 when you talked your father into letting you by your first stock, you put $1000 into the market and by the time you hit college, it had quadrupled to $4000 and you are hooked, you just began studying the market almost obsessively, you write.

Tell us a little bit about how that led to your interest in being a of money manager.

BARON: Was dad was an engineer for the Army and my mother was a buying agent (ph) for the Army, and so professionals and the people who were most successful were doctors and lawyers and if you had a house on the lake that was worth $50,000, our house was worth $20,000. And so – and the guy on the lake, he owned rides on the boardwalk, go to Cadillac, and probably made $100,000 a year, that to me was success.

And so I wanted to be a doctor, I didn’t get into medical school, when you we’re talking about the first investment, I’ve been working at since I’ve been 13, or since I’ve been 14, when you got working papers, so my first job was as a caddy. Had all these summer jobs, caddy, waiter, busboy, lifeguard, water ski instructor, cabana boy, one summer, I actually had a job where I was working 9 to 5 as a lifeguard and 11 to 7, I worked in the emergency room as on orderly, and people would come in on Saturday night shot or stabbed, and then I have to hold them down, a skinny little kid, or hold them down on a gurney until the next of kin came and gave permission to operate, the people die while I was holding them.

So my job was I would have to clean bed pans, I have to hold people on the — on the gurney until they got permission to operate. And then in the internal — on the ICU, when people died, I would unplug them and then I’d have to put the bodies, wrap them in sheets and have put them in the freezer, that was my job. 11-7 for there and 9-5.

So I was always interested in being successful, I didn’t know exactly what success was, and when I invested, I convinced my dad to allow me to invest in stocks, he was never able to invest in stocks. When I convinced him, I was able to take my thousand dollars, the half of my Bar Mitzvah, and I ultimately invested it in Monmouth County National Bank.

My dad said, “you know, it’s not the stock market, but tell me about a company you want to invest in, explain to me why you want to invest in it, research it, and if it makes sense to me, you can do it.”

And the local bank was owned – Monmouth County National Bank was principally owned by one of the wealthiest people in – probably the wealthiest person in my neighborhood, and he owned that bank, three-story red brick building, white pillars in front, virgin style building, Senator Stout from New Jersey has his office in the building, and I looked at the company and I convinced my dad to let me invest and that’s why he had my savings and we were getting 2-1/2 percent interest to 2-1/4 percent, so you are bringing yoru passbook, every quarter, they print out your interest, so I ultimately invested in that.

And then I would go home, so I was interested in girls and sports, but every day, I would look at the Asbury Park Press and they had 10 or 50 in local stocks, and every day from the time I invested, my 100 shares at $10 a share, every single day the stock either stayed the same or went up an eight or 16th or a quarter, every single day, and then seven months later, eight months later, it was acquired for $17 when I paid $10 for it, and so all of sudden, my $1000 became worth $1,700 and I said “Oh my god, nothing to this. I want to do this.”

RITHOLTZ: (LAUGHTER)

BARON: And so I wanted to be an investor somehow and I would read about a well-known investors, Gerry Tsai with Manhattan Fund, and then I went to – and then I graduated college, didn’t get into medical school, I didn’t want to go to Vietnam and I had a fellowship — PhD Fellowship at Georgetown and I thought I would do that for year and biochemistry, and ride my motorcycle wearing my white jacket, pretend I was a doctor.

RITHOLTZ: (LAUGHTER).

BARON: So I did that for a year, and I was making $1,600 a year I was working as a bartender and a waiter at 1789 in Georgetown. And then in the summer on Fridays and Saturdays to make extra money, and I was living in the basement in Rock Creek Park, and that summer, one of my friends who actually did get into medical school, my best friend, said “Okay, why don’t we see if we can sell Fuller Brushes? Maybe we can make money doing that.”

So we went into a neighborhood, we sold a record number of Fuller Brushes, it was a Black neighborhood, so record number of the Fuller Brushes in Southeast Washington I think it was. And then when we ultimately went back to deliver those brushes, there were no deposits and people wouldn’t even answer the door, and you’d hear a little voice inside, saying “Mom, it’s the Fuller Brush man” and they said “Get away from the door” and so not a single person took a brush that they bought.

But it did change my life because we went – we came into a building, a high-rise, and it said “Absolutely No Soliciting” and so I said, “Okay, Bob, you start at the top, and I will start at the bottom, we will meet in the middle somewhere.” You know,, we just bang on doors.

And so we bang on doors, and somewhere in the middle of building, a guy answers the door and he’s a few years older than I am and he is well-dressed, he has an apartment and he has furniture and he has windows that look out on the sky instead of you know, standing on a chair to look out to grass, because you are in a basement and he is pressed, and I see he has a wife, she’s cooking dinner for him in the kitchen and I said, “what do you – how come you are not in Vietnam?”

He says “Well, I’m working in the Patent Office, I’m a patent examiner.” And I said, “Well, how do you do that” and he is making $11,000 a year, I said “How do you do that?”

He said, “Well, I take the law boards and I get into law school, then you can get a job in the Patent Office as an examiner.” And I said “Okay, I want to…” and he invites me in, buys some Fuller Brushes actually, but the big thing is he tell me about here is this critical skills job about that I can fit for — I fit into and the starting salary was $7,729.

I go from making $1,500 a year living in a basement to making $7,729 a year for the next three years in a draft exempt job. And I said, “Wow, that’s great” so I took the board, did real – did real well, got into George Washington Law School, went to school at night and patent examined in the day time.

And then when I got to be 26, I’m now — I was always interested in stock market. I’ve read about it, never had any courses on it, never had any course in economics except for Eco 101 in college.

And then I read all these books. And — and then I’ve got to be 26, and I couldn’t be draftedanymore. And the day after my birthday, I quit my job in the Patent Office, and they had a going away lunch for me at the — at the Holiday Inn, which I was late for, across the street from Crystal City in — in Virginia.

I’m late for the lunch, a date, no girlfriend. And as I get there and I’m late, everybody understood where I was. And — and so I come in on a motorcycle and — and — and everyone started joking around. And — and my boss was Mr. Liebman (ph). Somehow he really liked me, and he sort of identified with this crazy guy who is young and long-haired, in boots, Stevie Warren (ph) and — and somebody like me. And — and so he was always promoting me and — but I — I was never very good as a patent examiner.

But he’s dead. So his speech — his going away speech to me at the Patent Office lunch to — to honor me for — he says, you know, there’s a — “You know, Ron,” I didn’t like being a patent examiner so much, and he was okay at it but, you know, it wasn’t his thing.” And — but, you know, he’s always been interested in the stock market, and that he’s going to go to New York and — and — and find his calling.

But there was another patent examiner. He had the same idea where he also didn’t like being a patent examiner so much, and that was a long time ago in 1930’s and — and he lived in Switzerland or Germany. And — and that was Albert Einstein. And he did Okay, and I expert Ron to do Okay.

(LAUGHTER)

So he was comparing me to Albert Einstein. And then I go to New York and I, of course, am now in debt $15,000. I was actually in debt $14,400. That is $15,000 debt, but it’s $600 in cash. I go to live again in a basement of one of my friends from college — from high school and — in Maplewood, New Jersey. And I would go every day to New York to try to knock on doors to — to interview for a job as an analyst. It was just impossible to get a job.

1969 I was — I was unemployed for three months. I was running out of money. Called my dad, you know, “I’m never getting a job in — on Wall Street.” I would — I would apply for jobs as a chauffeur, thinking that — for a guy who’s the head of a Wall Street firm, thinking that, gee, if I can talk to him and if I can get a job for him then maybe I can talk away into some starter job there, like a mailroom guy or something. And — but no jobs.

And — and — and ultimately I convinced Tony Tabell from Delafield Harvey Tabell, which is part of Janney Montgomery Scott to give me a chance. And I wrote a — hired me in the fall of 1969, and I was the Research Department for Janney Montgomery Scott, a brokerage firm in Philadelphia. And I have 250 offices – 250 brokers and five offices.

And Tony every week was in Princeton, which is where I live with him in his firm, Delafield Harvey Tabell. And — and — and what I would do is I would go — he went every week get stocks for me to go visit the companies and go visit him, and I write a letter. And then the letter went to all the salesman.

And then so I left Washington making $11,000 a year, and here I am making $15,000 a year and promised me $18,000 by the end of the year. I didn’t get the raise. And — and then — and then I got fired because I wrote a negative report about a company that — that ultimately went bankrupt, but I screwed up Janney Montgomery Scott for (inaudible) the underwriting.

And then there it was very easy for me to get my next job in Alan Abelson from Baron’s. He would — he was on my list for this letter that I wrote every week. And so I wrote a letter every week for Janney Montgomery Scott, gave it to their salesman about the companies I’ve been to visit, go to the 250 brokers in these five different offices or six offices. And that was what they sold to their clients every week, the companies I’ve been to visit.

So ultimately that was for — for three years. And then now I go to New York and get another analyst job, and then I went — I became partners with a friend of mine from law school and we sold research to — to hedge funds. I had 100 clients ultimately and hedge funds, mutual funds, anyone who is well-known. I — I would do research and sales number (ph) — their commissions.

And — and I went from — from having a negative net worth of — of $15,000 in 1970 to getting — to making $1 million in a year in 1980’s — being worth $1 million. And then 1982 started Baron Capital. At that time, we had $10 million under management — and million. That’s within the M. And …

RITHOLTZ: (Inaudible) …

BARON: … it was sold from — from one person. He had a (inaudible). And — and — and he had given six people …

RITHOLTZ: Really?

BARON: … six people who were his favorite stockbrokers in the 1970’s, ’76 or ’77. He gave each of us $5 million after he had had a tough year, so they said, “(Inaudible), why don’t you have some other people manage money for you and just you, and you pick this six favorite brokers.” I was one of them. And my $5 million became worth $10 million.

And everyone else who buy and sell and trade, and — and my — my little segments of that quantum fund is called Mandrake — Mandrake the Magician, Mandrake. And what I would do is I would just buy stuff and I hold it. And — and — and that’s why the $5 million name became $10 million.

And then 1992 we were up to $100 million and we started our first mutual fund 1987, Baron Asset Fund. And initially in ’82 there were three people, Susan Robbins, Linda Martinson and me. Then 1992, at $100 million and maybe we were 10 people then, now we have 100 — now we have $49.1 billion. And we’ve made our clients $47 billion in profits.

RITHOLTZ: Wow, that’s amazing.

BARON: And I’ve gone from having, you know, a negative net worth to $1 million net worth. And now Forbes says I’m one of the wealthiest people in the country, and I have 5.5 percent of the — you know, $2.7 billion of the (inaudible) invested in the mutual funds is me (inaudible) …

(COMMERCIAL BREAK)

… to me.

RITHOLTZ: That’s an amazing story. I have to ask this. So I know you primarily as a small cap manager. In fact, the Baron Small Cap Funds is up an average of 11.4 percent a year since its inception. Its benchmark is the Russell 2000, which is only up 7.4 percent. Let’s discuss a little bit how you built your reputation originally around small caps. Tell us a little bit about that.

BARON: Well, Baron Small Cap Fund happens to be managed by Cliff Greenberg not by me, and he has done terrific. And Baron Growth Fund is managed by me and with — with Neal Rosenberg. And the CAGR on that one since that inception in 1994 is 14.16 compared to 9.04 for the — for the Russell 2000, 10.5 for the S&P.

And then …

RITHOLTZ: Right.

BARON: … so all these funds — so starting off, the idea that we had originally — well, I was doing research in the 1970’s and selling it for commissions. My ideas were smaller companies like McDonald’s, Disney, Federal Express, Nike, Mattel, Hyatt, they were small companies, $1 billion, $2 billion to $3 billion (inaudible). And my idea was that I was getting about one percent in — in commissions for every idea that I had.

And so I would go around and — and if I get someone to spend $600,000 or $700,000 or $800,000 on a stock, I would make $6,000 or $7,000 or $8,000 in commission. And — and then it didn’t take me long to figure out, “Okay, well, if I got him to buy a stock for $6,000 or $7,000 or $8,000 commission, then if I got him to sell a stock then I will make another $6,00 or $7,000 or $8,000 in commissions.” That’s — that was my — my, you know, so that was how I paid the rent.

And then after about five or six or seven or eight years, I was — I look back and I said, “Man, I am a disaster.” I looked at all these companies and …

(LAUGHTER)

… and — and they had gone up so much. And — and I said, “I could’ve been rich,” you know, I said all these things. “What am I crazy looking at these things and selling them so quick.” And I invested in Daylin with Ken Langone.

And he called me up one day and he says, “Hi, I’m Ken Langone. We went to college together.” He’s about 10 years older than I am or eight years older than I am, went to Bucknell. And he said, you know, “People like us, we got to stay together.” I say, “People like us? What are you talking about?” And so he says, “Why don’t we go to lunch?”

And so we go to lunch at — I guess it was lunch at the Waldorf, and it was the Bull & Bear restaurant, but he (inaudible).

RITHOLTZ: Sure.

BARON: And so I knew him. He didn’t — no, and he said, ,”Look, you’re buying this company Daylin, and — and I’m buying it. It just could come out of bankruptcy.” And it was run by a guy named Sanford Sigoloff. And there were two guys who had a business inside of that that I felt was really cool, Marcus and — what was the other guy’s name? They both ran Handy Dan, ultimately became Home Depot.

RITHOLTZ: Right.

BARON: And — and so — so I invest in this company at — for my clients and Ken is investing (inaudible). He was telling me, “Every time I see something you fight me for the stock. Why don’t we just do something where we split things? You take half and I’ll take half.” I — I said, “Fine, that sounds good to me. And if I see something, I’ll show it to you. You see something you show to me.” I will split at 50-50, I said great. He was buying for himself, I was buying it for my clients.

And stock goes from $2 to $4 or $5 a share. I still own my stock because I make commission selling. And — and he hangs on and then ultimately, he write — he finances the whole thing. And those guys who were running Handy Dan gets fired and then he go to Ken. He raises the money for him and builds Home Depot. That’s Home Depot. That’s where it comes from.

And if I had been an investor I stayed with it, you know, they have been so much earlier for me to be successful. But — but small companies, companies that other people weren’t following so much, they’re growing real fast. And — and that’s — that’s where we focus.

This week — a week before I’m writing about this in my current quarterly letter. I was — I — I got a phone call from Chuck Mathewson. The same thing happened with me with him where — I guess in the 80’s, and he and I were both buying international game and the market cap was $100 million. He was buying it to take it over. I was buying it to make brokerage commissions.

And — and — and — and he — he calls up and he says, Why don’t we — and it’s the same kind of split thing.” I said, “Fine.” And so I make my doubles and triples or quadruples or something, and — and he stays with it. And it goes from $100 million of market cap to $10 billion — $10 billion — $100 million to $10 billion. He told me I was the only guy ever really understood what this mega bucks was and — and how important it was and how (inaudible) to, you know, making up all these slot machines in all these different casinos.

And he says — and ultimately like in — I guess, it was around 2000’s, and the — the government he sent a (inaudible) in New York wanted to have independent directors for — independent chairman for mutual funds, and Chuck became the chairman of our mutual fund company, Baron Funds for five years and we want to have an independent director — independent executive chairman.

And so he calls me up about — and now he’s probably 85, 90 years old, and he’s retired. He’s living in Reno. And last time I saw him was about a year ago, two years ago, I was visiting a plant — test a plant in Reno, and he invites me over and spent an afternoon with him. It was so much fun. But he calls me up and he’s now Chairman Emeritus for Baron Funds and Chairman Emeritus also for International Game.

And he called me up. He says, “Ron, congratulations on — on — on Tesla.” He says, “You know, I never thought this would work. And, you know, you were right, you hung in there and everyone was criticizing you and you believed. And you were right, I was wrong. And everybody else was wrong. You made — you know, congratulations on that.”

And — and — and then I’m talking to my trader who’s been working at Baron Capital since 1987, I think he told me. And I’m talking to him about a conversation that — that Chuck had with me. Oh, yeah, Chuck, the way he starts the conversation is he says, “You know, when I first met you in the 1980’s, you know, all you’re — you’re talking about was investing in wireless telephones.”

And he says — and this is — this is how I started off my next shareholder letter, the letter from Ron. It’s, “Ron,” here’s the quote, “Ron, when I first met you 35 years ago you were investing in wireless telephones. Wow, that’s a pretty forward idea,” I thought. That’s Chuck. He’s taking — out in the 1980’s and I’m investing in U.S. Cellular, and McCaw Cellular, and Lin Broadcasting, and George Lindemann’s Metro Mobile.”

And — and he said, “Man, that’s crazy. The wireless telephones, I was thinking of Maxwell Smart, “Get Smart” on television. You know, you …

(LAUGHTER)

… take off your shoe, you’re talking to your shoe. And — and — and — and — and, of course, wireless phones, that’s — that comes, you know, everything.

And — and then I was talking to — to David (ph), a trader, about, you know, conversations. And he says, “You know, I was talking about Tesla and Chuck just called to congratulate me about Tesla.” And he says, “Fine, you always invested in things like this. You know, when I first joined you in the 1980’s you were talking about cellular telephones. You had just gotten back with Judy from a vacation in Italy — a week vacation in Italy and you just — you’ve said, “Man, everywhere I go people are talking on these real cell phones. This is going to be unbelievable. I have — whether you’re rich or whether you’re poor.”

In that time, you know, we bought a — when we started Baron Capital, I still — I bought a telephone. 1982, I bought one. It was $5,000. It was a briefcase — the size of a briefcase. And now it’s late 80’s and they’re — and they’re down to smaller phones. They still — they look like a — a — you know, a brick or something, size of a brick.

And — but, you know — and he said, “And you were talking about it then, and that’s what you want to invest in and all these companies.” So you always invested in those kind of things.

And so — so the idea was initially to invest in companies that were worth more than they were selling for in the stock market. And if you could buy a hotel room, for example, or, you know, if it costs you $100,000 to build and you made $10,000 a year after you built it, and you could buy it in the stock market for $70,000, and — and then it would go to value, that’s — that’s how I started.

And then, you know, when — when I — when I went out on my own testing if that was a safe thing to do, I didn’t — you know, (inaudible) Warren Buffett’s thing where you (inaudible) cigarette butts on the street. And — and Mario Gabelli, you know, it’s about, you know, buying things, you know, discounted cash flow. And — but that wasn’t really what I love doing. I love finding these businesses that would — that could grow tremendously from — from what they were now.

And — and that’s where — so it started off finding smaller companies and people in the world. Then what would happen is that, you know, out of the 10 things that you bought, two or three would be amazing successes. And then, you know, a few won’t be so ordinary. The more you bought them and the harder it was to sell them to get out of the other side, and then they’re always left over with things that — you know, how do you get out of them? And — and — and the answer was you don’t.

So I was not that interested in that. And — and — and I wanted to have a business that was going to last for a long time. And so again going back to my parents, I wanted to have a business that people — like my parents would be able to invest in the stock market. You know, and — because I — I always believed and — and so I always believe in this sort of thing. And — and — and the idea behind the mutual funds was that here is a way that I would be able to give a service to people like my parents so they could save for their retirement and — and — and their life events.

I got a phone call about — so — so — you know, so we have a house in Long Island and one in Florida where I am now. And then, of course, we live in New York. And our house in Long Island, one of my sons and his wife were staying there about a month or two ago. And we get a — and he calls me up and he said, “Dad, I just got four bottles of Dom Perignon from — from” — he tells me who it’s from. And I said, ,”Oh, wow. Bob, he — he worked with me when I was at Herzfeld & Stern from ’73 to ’82.” He was a retail stockbroker.

And he sends me four bottles of Dom Perignon. I said, “Man, it’s a lot of money. I got to call him to thank him.” I can’t understand why he would send me, you know, champagne. I called him up and he says, “Ron, you know, between ’73 to ’82 when you were working at Herzfeld & Stern, and then ultimately you and Susan who was my assistant left,” Susan is now Vice President of Baron Capital and she’s our healthcare analyst, and — and asked and I said, “I have to. And you were selling your research to hedge funds and institutions. I saw what you were doing.”

And — and I have a — and I have retail broker — retail broker and they were my — my clients. I — I piggybacked in some of your ideas. But I said, “Well, if I have a chance to invest with you, I am going to invest with you.” And so you started your first fund in ’87, I invested in it. And then in 1992 when you started Baron Partners Fund, it sounded like a very cool idea.

So I did something that I never do and I advise my clients they should never do. I borrowed $200,000 to invest in Baron Partners Fund. I had to invest with you. And — and so when you put in the $200,000 and he says — and then after doubled or tripled, I sold half of it, and — and I left the other $100,000 in. And the other $100,000 that I took out, I put that into this little fund of funds (inaudible) Castle (ph), which I wanted to — which — which — which we had at Baron Funds — at Baron Capital for some of the employees to invest in some of the people who I was friends with. And — and then some of it I was doing myself.

And so he says — and then that — that $100,000 left in Baron Partners Fund, that is now over 40,000 shares of Baron Partners Fund. This was over $7 million. So the $100,000 became worth over $7 million. And then the $100,000 I took out, that became worth $1.7 million. And — and then he says, “And basically I want you to know that you’ve paid for my son to go to medical school. He just graduated from medical school. You’ve paid for him to go to medical school.”

(LAUGHTER)

“In addition to that, I have another child whose disabled and I never really understood how I’m going to take care of him for the rest of my life. And you’ve taken care of him for the rest of my life.” So — so here, so there isn’t anything that you could do that I wouldn’t — that I wouldn’t believe in.

And I walk down the street, you know, my — my youngest son got married last September — a year and a half ago. And — and he’s — he’s from — there from Virginia Beach. And his parents came up and, of course, for the wedding and everything. We have a wedding in our house in — and — and they came to our office. And when we’re walking home from our office in the General Motors building to our apartment, as we’re walking on Madison Avenue, two people jumped out of doorways to say, “Thank you, Ron. Thank you, Ron.”

And — and …

(LAUGHTER)

… Jana’s (ph) mother, who I’m working with, Judy is working with her dad — she says, “Does this always happen to you? It’s unbelievable. All over the place, people are always saying thank you.” And I — when we have our annual meeting, they come out of our conference afterwards. It’s the same thing where they say, “Gee, you know, thank you for my life. Thank you for doing this. Thank you for” — I mean, it’s — it’s amazing.

One of my — this — is this guy I was telling about, Ray Noveck actually — who’s my high school friend who was living in Maplewood, when I was living in his basement trying to get a job on Wall Street, he’s now director of Baron Funds and he has been for 25 — 30 years.

And — and, you know, he calls me up and he says, “You know, I’m — I’m 77 now and — and I have been investing with you through the very beginning. And thank you for all this — you know, you — you know, I don’t have to think about stuff anymore.” And I was — for a while, I was trying to pick stocks and, you know, to read a lot and — and so I can’t pick stocks. I — you know, I — I come to your meetings, you know, to the board meetings every three months, and I see what you’re doing. And I listen to the analysts who are working for you, so 172 people now at Baron Capital and it’s 41 or 42. Our — our analysts and portfolio managers have been there really long time.

And — and I see — and — and — well, every — not (inaudible) a long time and we hire one or two people a year, three sometimes. And we hire 10 or 15 people a year in total. And we — you know, they could be in risk management, so they can be legal, accounting, you know, compliance, sales. So (inaudible) these to I.T.

Of course, I — I wouldn’t have any clue as far as what we need to hire because I know what I need to hire for to research, but all these other people. I’m in-charge of 40 people and — and Linda Martinson who is the third employee. Susan Robinson, I and Linda, she’s the President of the firm and Chairman of the mutual fund. So she has all these different titles — and chief operating officer. And she’s the one who hires all these other people that we need.

And initially, other guys there would say, “Why are we hiring risk? What is that all about? What is this attribution? What do those people do?” And always, you know, saying and thinking, gee, if we’re hiring all these other people then that means that I’m going to make less money. And so — because some of that money is going to them instead of to me. That’s my mindset that people have when a business grows and everyone thinks that it’s growing because of their rates. Of course, there are rates. But everyone thinks everything is because of them until they go home at night and think about it, and they say, “Aw, maybe it’s not all because of me.”

But — but then all of a sudden …

RITHOLTZ: That’s right, smaller piece of a bigger pie.

BARON: Yeah. And — but then all of a sudden everyone says, “Gee, I can’t write my shareholder letters without talking to Claudia. And so Claudia is this — a young woman who (inaudible) MIT in Math, and she has all this risk metrics and everything that she looks at and explains things to me, but she can explain where we’re making money and where we’re not. “Ron, taking this much risk.”

And — and for me, I don’t really care that much about. I — I have to see we’re not making — we’re not losing. And — and — and — and to make sure things don’t get too out of whack. But for the most part, you know, Henry Fernandez from — from — from MSCI, so he advised me to speak to his Board of Directors. And — and he says, you know, he wants for me to talk about capital allocation and about investments that he should be making, should be buying back stock or should be paying out dividends or through making acquisitions or what should we be doing? And do I like — do I like this and I talked to the board?

And — but he said, you know, most of the things that we do — I mean, that’s not what you do. You’re an investor and you’ll find companies that you think are going to become dramatic — and MSCI. So Henry says, you know, “Ron, I would not have a public company were not for you.”

In 2009 when I’m going public, so 2008 when I’m going public, I couldn’t go public, now you’re doing it. So he’s an immigrant whose parents — they had a — the dad was a general in Venezuela and there was a change — a coup and they had to flee from the country and he goes to Morgan Stanley. That’s what Morgan Stanley — MSCI. And he starts the business.

And then ultimately, he’s (inaudible) to bring in public, but when he goes public, you know, the market isn’t receptive, but we’ve invested in the company. And — and then — and the stock doubles and that goes back down, and now we made about 20 times your money.

And he said …

RITHOLTZ: Well …

BARON: … I often — I often ask myself, how is it, you know, some other guys at Baron Capital sold, but you didn’t. You’ve always bought more. And — and you hung in there the whole time. And other people are criticizing for — you know, this acquisition. But you understand the strategy of what we’re trying to accomplish. And well, that’s not — you know, you’re not competing against an index. You compete the indexes all the time, but, you know, not every single year. But over the long-term, you kill them.

And — but — but, you know, and — and — and oh, all the things I described to everyone else about, you know, volatility and standard deviation, just everything I described to everyone else, that’s important that they need to have. You’re an investor. You’ve (inaudible) these businesses. And whether it goes up or down, you don’t think about it.

Jay Pritzker who’s one of the people who — who — who is the first, you know, really mentor when I — when I’ve started. And — and he told me that — I was investor on Hyatt then. And — and he told me once, he says, “Ron, you know more about Hyatt than I know about Hyatt.” He says — you know, and — and — but the idea was about trying to understand the businesses in which we’re investing so well that you can just write to. And he would tell me, he says, “I don’t ever think about the price of a stock but — during the day, you know, during the year. The only time I ever think about stock prices is when I’m either going to buy or whether I’m going to sell.”

RITHOLTZ: Let’s talk a little bit about how you put the long in long-term investing, a couple of names. You’ve owned Charles Schwab since 1992, Choice Hotels since ’96, Vail Resorts since ’97. Where do you get the conviction to be so long-term in your core holdings?

BARON: There’s something about every business, the most important element of the — you know, of course, they got to grow and you really got to like and trust the people. And — but what is important is about because of advantage, what is it about these businesses and what you’ve invested — which we’ve invested. It gives them a chance to last for a long time and get some pricing power.

And the case at Charles Schwab, that was the — we had a mutual fund business. And 1992 we had $100 million in management, $50 million was the mutual fund, $50 million was separate accounts. We could not make that business grow. ’86 is $50 million on mutual fund. 1992, we had $50 million in mutual fund. We couldn’t make it grow.

And all of a sudden we get into Charles Schwab on the platform side. We’ve learned about financial advisors to learn about — I had no idea who they were like you, (inaudible).

RITHOLTZ: Yeah.

BARON: And we learned about them and we learned that they’re clearing through Schwab and — and — and they have — Schwab has a platform, the Mutual Fund Marketplace and then they have one source. And we got on — so we got people who are advisors to recommend to Charles Schwab, which was for $20,000 we would — we would have to do the work and they weren’t sure they were going to have a worthwhile spin on us and where with the demands. So we got a whole bunch of people to call.

They said, “Okay, we’ll put you on.” And when they put us on and we started, they said, “A lot of people know who you are, but — and they had to buy what was going.” And we got on the platform funded well. We got recommended. We got one of the top fund choices, all of a sudden where we couldn’t get any money coming in starting at $10,000 a day, $50,000 a day, $100,000 a day.

And then we started growing. And so when I saw that happening and it all came from Schwab, they said, “Wow, I better really study Charles Schwab.” And I studied Charles Schwab, and I saw that people were leaving brokerage firms to go on their own and then use Charles Schwab to clear. And they didn’t want to sell the product of the brokerage firms that they were working for with asking them to sell and — or they didn’t want to just raise money, they wanted to — to have their own business.

And — and so it made sense to me. And — and I really like Chuck. The fact he was just being honored barely, I guess, the last few years at some restaurant downtown and — and — and he invited me to be one of the people at — you know, at his lunch — at this dinner.

And — and then I — I don’t know maybe 100 people were there, 150 people and he — I was up there. And — and he said — and he calls me out from the — from — from the podium about how, you know, people like Ron Baron were able to be offered to his clients, which was a really good deal.

So, to Charles Schwab, they’re responsible. It would be crazy for me to have a business like ours, they couldn’t grow. And all of a sudden (inaudible) platform and growth and for me not to realize that was a really big opportunity to have investing in.

RITHOLTZ: Right.

BARON: So we invested in. We made …

RITHOLTZ: Right.

BARON: … 50 times our money, 60 times our money so far.

RITHOLTZ: So far, are you — are you still long Charles Schwab all this time?

BARON: Yes.

RITHOLTZ: That’s 30 years ago.

BARON: That’s been a dollar a share. Now …

RITHOLTZ: Wow, amazing. I know you turnover rate is about five to seven percent. And the Baron Growth Fund, the average turnover is under three percent. That very much stands out compared to your peers who often have turnover rates of 50 or 100 percent or even more than 100 percent. They’ll turn over a whole portfolio, you know, twice a year. What are the advantages of the buy-and-sell approach that — that you’ve embraced?

BARON: Oh, and I described onto you before about Disney, and McDonald’s, and Federal Express, and Nike in the 1970’s, I have been — remained an investor in all those companies, they rose 50-60 and we’re investing in Disney in the 1970s when they were building Disneyworld in Florida.

And they had Disneyland in California which was 5,000 acres and everyone around them built their properties and made all that extra money in the orange groves in California. And in Florida, they said, Okay, we’re doing this differently this time. Instead of having 5,000 acres where we just have a park, we’re going to buy 100,000 acres and we’re going to have the hotels, we’re going to have all the other services. We’re going to get the money from that. So, I was investing in Disney in the 1970s when they were building Disneyland — Disneyworld.

I was investing in McDonald’s at a time when I would go — my girlfriend at the time was in Washington and when I would go down to Washington, I would go — every weekend, she will come to New York, I would be in Washington.

And Big Macs, I couldn’t wait to go and have Big Macs and they were like the best spent a dollar — 75 or 80 cents, I don’t know. And it felt that with the McDonald’s the big opportunity was if they were — they owned the land that was underneath of the franchisee’s property.

And the Coca-Colas were then 10 cents for a Coke, maybe fries were 10 cents. Maybe the hamburgers were 20 or 25 cents. And I said, my God, the profit margin that they’re on the verge of making, they could raise a price from 10-15 cents. And then all of a sudden, extra 5 cents is all profit or like they raise extra fries from 10 cents to 12 cents or apple pie, they had them from 15 cents to 20 cents.

So, I thought there was a tremendous amount of leverage in that pricing that they had and plus they had this land underneath of the mall or the hotels.

And there’s something about business that I felt Vail was the best mountain I had ever seen. Ski, I love skiing. That was the best mountain. Other people would have 600 acres. Aspen was 600 acres. Vail was 1,400 acres.

And there was — and the big opportunity in Vail was that when we invested in it in 1976, it was $16 or $17 a share. And then — so what happened with Vail is that it was controlled by a man named George Gillett who borrowed against the property and then built a radio station in Tallahassee, I guess it was or somewhere in Florida, and borrowed $250 million and bankrupt. Leon Black bought the debt and turned into the equity and then brought the company public so we can payback some of the money that you borrowed to buy this.

And it was $16 or $17. And then my idea was …

RITHOLTZ: You’ve been a holder ever since?

BARON: Ever since. Yes. And what I did was that when he distributed his stock at $30 a share in 2006 to all of his partners, I knew a lot of his partners and that one of his partners is one of my friends, his name is Billy Mac (ph), McColly Real Estate. In fact, I was just talking to him the other day, we were playing golf in Florida.

And he said, I only know a few stocks. I know your Tesla you told me about and I know Iridium. I bought Iridium when you told me to buy Iridium. It was $7 a share, it’s now 47.

And then Vail, I was an investor with Leon and then when he sold his — he distributed all his stock at $30 or $28, I came to you because you were buying the stock and I said, what should I do? And you told me, I told him, I said Billy (ph), what you should do is you should buy all the stocks you can buy at this price but if you want to sell your stock, I want to buy your stock.

And so, all those guys who I knew from Leon Black’s Apollo who were selling the stocks, I bought it all. And so we bought 10 percent or 12 percent of the company, around $30 a share, it’s now 270 or 280.

The big idea was it was the best place you could ski and there had been nothing done in the in town, so we gentrify it and that was a town built in the 1980s, about 1980, and it was really decrepit and their places would be junky and you would stay there and you pay $500 or a $1,000 a night and then you go skiing on a mountain for $45.

And I said if you made this town better by sell — build and then sell, build and sell, build and sell, then what would happen is that the town would be so great and everyone would come there and would be happy to spend anything you charge to stay in a town even if you didn’t own it, but we make all the money on this — on the mountain instead of $45 a day, you could earn up to $100 a day.

And so, he thought that was too risky but he asked me to make a presentation to the board. I’d say I’m not an active investor. I’m not trying to make me do things but this is the way you should — they run too much risk. I just want to fix it up and sell it.

And he did and then — and then all the people go through stocks. And then what happened is that the new person comes in, Rob Katz. Rob — I got so lucky with him. And Rob, all the ideas that I had about building and selling and building, he took off and he did and in addition to that, he took a ski pass and now he sells more than half of the tickets in advance before the season even starts, before you know if it’s going to snow.

And as a result of that, we have half the ski passes sold and he bought a network of mountains that he could sell, for example, in the northeast. Now, he can sell people to go skiing in Vail from the northeast, they couldn’t get there before, now they can buy their tickets.

Their — and so we have all this money in the till and then what happens is that instead of charging by $100 that I wanted to charge, he now charges $200 to ski in the mountain and then he has his whole network that he that (inaudible) for the ski pass a ticket, but the best mountain and the best distribution system and it’s a great brand it’s a spectacular venture (ph).

RITHOLTZ: So, Ron, I get the sense that your experience as a stockbroker, buying and selling those companies that kept going up even after you sold it, very much impacted how you behaved as a mutual fund manager. You learned — you had such a tableau (ph) experience selling winners in the ’70s that in the ’80s and ’90s, you decided I just can’t get rid of these really good companies with great growth prospects.

BARON: Yes. That’s it. That’s all I did. And if they have competitive advantage — so the big picture, the big picture I have is that my parents, so when bought — when I was five years old — and so, I’m born in 1943 and we lived in a — and we lived for — that was during the war, and we’re living — and my parents and I, of course, I didn’t know what I was doing, I’m a year old, living in Red Bank, New Jersey, in three rooms of — owned by a Racis (ph), who is a Helen Racis (ph), her husband’s fighting in the war and my dad is working for the Army.

And we’re living in this three rooms and in 1944, we go live in Bradley Beach which is just down of Asbury Park and we live in a garage of apartment (ph), a detached garage apartment where it’s so small that they have to have the refrigerator, it doesn’t fit the kitchen, outside in the porch.

And so we live there till 1948. And in ’48, my parents bought their first house for $5,000 in Wanamassa, also outside of Asbury Park, for $5,000. And in 1955, the sell it for $10,000 to build a $20,000 house in west Allenhurst, also outside of Asbury Park.

So, those houses, for example, I went back three or four or five years ago to see — to see those houses, 1122 Grassmere Avenue and 542 Deal Parkway. And I go look at those houses and the house on the — in Wanamassa, that’s the one they sold for 10,000.

It was every single house on the street with the same — now, coming back, you have the World War II, they’re all the same, they were like one was yellow and one was brown and one had a little brick front and one had a clapboard (ph), they’re all the same and my house was the second from the corner, it was the nicest house in the block. I was so proud.

It had a little — a little fence around the front yard, made a quarter acre house and they had put a dormer on the roof so there was an extra room and standing there, looking at this house, taking pictures of it, and a big giant guy comes to the door. I didn’t want him to shoot me or something, thinking who is this guy?

So, I go up to him and I say I’m Ron Baron and this was — I was the one who lived in house for the — just when it was built, a brand house. And he said I know your name, actually. And I said, well, and it turned out that this guy is the construction guy and his wife is a nurse and he say she works at night and he says, come on in, I couldn’t come in because they have dogs and I’m afraid of dogs.

But I say what’s this house worth? He says $300,000. I said, wow, my parents sure made a bad sell. And then I go into the other house that they’ve — Deal Parkway in west Allenhurst, the same thing. That was the one they built for 20, and they sold ultimately for 100 when my dad retired, that’s also worth 300-350, $400,000.

And so, I think about it in terms of inflation. And when I was young and I thought $100,000 for the guy who lived down the corner and drove a Cadillac and we had an old Ford and he had a house on the — on the lake and we had house in the middle of the block in a quarter acre or something like that and said — and he own rights (ph) on a boardwalk and a real estate guy and I said, boy, I want to be successful like that.

But again, $100,000, that was all (inaudible) and they had a $50,000 house. And so, I say, how do you have that? And the concept of inflation, the concept of what things cost when I was in — when I was actually in college in 1965, my last year in college was everything was $3,500. When my first year was $2,200. My kids were $50,000 or $60,000 or $70,000.

Then my grandchildren, they’re going to the school right now, they’re six and eight years old and I think their school must be $50,000 a year, $60,000 a year. They don’t go to school anymore, it’s virtual.

So, whether it’s a car, when I bought a 240z when I came to New York for $2,000 or $2,500. And now they’re, I don’t know, $20,000 or $30,000 for these cars? So …

RITHOLTZ: More than that.

BARON: Yes. And my salary of $729 when I was a patent examiner, those are now $60,000, $70,000. So, my big picture is if the value of your money goes in half every 17 years. So, if you have $100,000 today, in 17 years you have $50,000 of buying power, 17 more years of 25, 17 more years of 12.

So, basically, I think that the stock market is the hedge against — against devaluation of your currency. So, the stock market basically doubles every 10 or 12 years. So, historically, it’s about 10 percent a year including dividends, so it’s two or three and that’s because it keeps up with the economy, 2 percent or 3 percent (inaudible), 3 percent or 4 percent inflation. (Inaudible) inflation.

You go try to hire someone for the same price that they paid last year, you’ll find out how much inflation is.

RITHOLTZ: Ron, let me — let me tell you a little bit about a bad sell you made. Those two 2040zs, that car you had, they’ve become very collectible and nice versions of them today from the ’70s, nice versions go for 80, 90, $100,000.

BARON: Wow. Well, when I bought it, when I bought it, this must be in 1970, yes, 1970, then what happened is that the list price was $2,500.

RITHOLTZ: Right.

BARON: And in order — but there was a waiting list. They mispriced it. There was a waiting list on this car and you had to pay the dealer a cash, a bribe, you had to give him $300 or $400 or $500. So, basically, it cost me $3,000 for $2,500 price of car so I can get it immediately. I bought an orange car.

And then two or three or four years later, the price has gone up and I sold the car, I bought it for $3,000 when it was listed for $2,500. And after I owned it for three or four years, I sold it for $3,200 or $3,300. I sold it for more than I paid for it and they paid overlift when I bought it originally.

So, it — it doesn’t surprise me, I guess. But $80,000?

RITHOLTZ: Yes. So, what they do with those cars is they a full frame off restoration. They take them apart down to the last nut and bolt and then rebuild them to practically brand new 40-year-odl cars.

Ron, you had mentioned McColly (ph) earlier, I want to share a quote of your about real estate that I found intriguing, quote, “We believe there is a strong case to allocate capital to real estate in the public markets in an actively managed strategy.” So, let’s discuss how you do that. How do you actively manage real estate investments in the public markets?

BARON: So, we have a — mutual fund is probably 10 years old. I think it must be certainly in the top 1 percent of a real estate mutual funds and instead of just investing in REITs, we invest in companies that are C corps and it can be a hotel business like a Hyatt, for example, or it can be a service business, like Coast Guard which enables people to walk around and buy apartments, rent apartments.

And when you walk by the building and show you instead of looking at the newspaper for a department that might be for sale, you can actually walk by one and you can look at it on your iPad and you can see what that apartment — whether it’s available and how much the rent is and you can go in and rent it.

And so — or it could be a tracks (ph) where it’s going out there in building decks over again with that composite and it’s better than the traditional wood, lasts longer and looks more effective (ph).

So, it’s not just investing in REITs or it can be investing in a gaming company, like Penn Gaming which has sold that it owns but operates the properties and now you have a play in Penn and I’ve invested with Peter Carlino in Penn Gaming since Three Mile Island, right after — there as a — I don’t remember what year it was but it was in 1970s, I think somewhere, where there was a nuclear explosion at Three Mile Island in Pennsylvania and in Harrisburg.

And I went to visit him, something — sometime after that, he was going public for the first time and I think the market cap on his company was $25 million or $30 million. He ultimately sold the company for 7 billion.

So, you find these people that you can trust and you think are really capable. Do I — what I really — would I trust this person to manage money for family? That — is that something I would feel comfortable choosing them to be someone who would be in charge of the assets that my family has if I wasn’t here? And so, it’s the same kind of idea.

So, what we’re doing is, like with Peter Carlino, there isn’t anything this guy told me that he’s ever not performed. And Stuart Stewart Bainum from Choice Hotels, there isn’t anything — I know Stewart Bainum a thousand times when I was in the patent office in Washington. I borrowed — somehow, I had to get $2,000 because ManorCare was going public in 1969 and that was a company his father had started.

And ManorCare was a nursing home company and I had read about 1965. The had the nursing to Medicare. I kind of figured out somewhat. And “Washington Post” wrote these stories and I said I got to invest in that company.

And so I invested, I borrowed $2,000 to get a margin account and 1,000 from the patent office credit union, $300 from household finance, $300 from beneficial finance, somehow I came up with another $400. I have no idea how but I had — I got the $2,000 to open an account. I think the firm was called Reynolds (ph) Company.

And invested in ManorCare. And ManorCare was ultimately — went up 1,000 times from a 1,000 times since the company had a book value of $12 million when it went public and it came public, it had $20 million when it — first trade, IPO for $20 million. That’s the value of the whole company.

We became in the 1970s, I was recommending the stock to my institutional clients in 1980s, we became the largest institutional shareholder of ManorCare and it was sold ultimately for Carlyle Group for $4.5 billion, 4.3, 4.4, 4.5, something like that. And but before it was sold, Choice Hotel (inaudible). Choice Hotel was now at $100 stock and our cost is maybe originally $3.

And Stewart Bainum, one of those people. Anything he (inaudible), good or bad, Jay Pritzker was one of those people. Anything they said, Pritzker used to say to me, hey, Ron, I would talk to him about contracts and he would say, Ron, contracts doesn’t mean anything. If you have to have a contract to enforce an agreement, you’re doing business with a wrong person because that — because any good lawyers can break any single contract you have.

So, you have to look — you only have the contracts, you can keep track of what the deal was, not so you can expect to enforce it.

RITHOLTZ: So, Ron, let’s talk a little bit about one of your bigger holdings. You’ve been a buyer of Tesla since 2014. The stock has just exploded. Last year, it was up over 600 percent. Is there any upside left here? Where do you think the stock goes from here?

BARON: Well, we bought stock in Tesla. We spent $385 million, between 2014 and 2015 by 8 million shares, 8 million shares. And the average price is $40 a share, $42 a share. It’s now $860 or 850.

And so, it’s now $850 billion on market cap. It was 42-45 billion when we started. I think that in — I’ve been saying this for a while, when we bought it, I felt that we would make 20 times our money. We’ve made 20 times our money and so far. And I think that it’s going to be a $2 trillion company over the next 10 years, 8 or 10 years, that’s $2,000 a share.

And we get lucky. Yes, I can get lucky and for those autonomous driving takes off the way I think it could be, that could be worth another $500 billion or trillion dollars. Ride-sharing could be a really big deal.

The solar roofs, that could be a nice business for him. The battery business. Now, when they build factories, the factories they build are for $250,000 cars a year production and a factory — when they build them in California, when they built it in, the first one, in Fremont, that was about $17,000 of capital spending a car. Now, in China, they’re $4,000 a car.

And the factory in China, it’s probably $250,000 and people thought it was going to be $150,000 a car factory and that was an opportunity that people perceived. And but we thought that they do millions of cars a year in China and that one factory they build so far is a $250,000 car factory a year and which is now the rate its producing and that’s making somewhere around $2.5 billion a year.

So, they invested a billion that’s making $2.5 billion. When you invested in McDonald’s a long time ago, we could invest a million dollars as a franchisee. And if you worked crazy hours and you put on your apron and got all dirty, maybe you can make a quarter of a million dollars a year for a million investment, these guys have a billion-dollar investment to make 2.5 billion a year.

I mean, wow.

RITHOLTZ: Wow.

BARON: Like Wynn (ph) when he goes to China and he spend $2 million, $2 billion in the first hotel in Macau and they gave him — they were so happy that he came, they gave him land, that he sold for $1 billion. He has billion dollars net and he started making it $100 million a month.

This is Tesla. They make a billion — a billion-dollar investment and they made $2.5 billion a year. They’re going to do the same thing in Germany, same thing in Texas.

RITHOLTZ: What about SpaceX which Elon Musk also …

BARON: Wait, one more thing. And in Tesla …

RITHOLTZ: Sure.

BARON: … the battery business which I think the car business could be a $600 billion or $700 billion business in revenues a year, they’re making $200 million a year, 200 billion a year in 10 years. So, that’s how you get to this two-trillion value.

That’s not included in batteries. He thinks that the battery can be also a business as big as the car business. So, think about that. So, here, he thinks he’s going to go from 500,000 cars a year to 20 million cars a year and he thinks his battery business is going to be as big as his car business. So, I’m talking about the $2 trillion because of the cars. I’m not talking about it for the batteries.

As far as SpaceX, what that is is that that’s a business that — so we’re an investor, we own a little bit less than 1 percent. It’s a private company. And the value on it is 43 billion maybe. And that was where we started with Tesla.

I think that SpaceX is on the way to $2 trillion also. So, I think that in Tesla, we’re going to make a triple in 10 years. I think that in SpaceX, we’re going to make 30-50 times in 10 years.

RITHOLTZ: Wow.

BARON: And one of the big reasons for that is that it’s the 1960s when we started — President Kennedy, they were going to the moon and the rockets that they used, they were disposable, $100 million rockets, $200 million rockets, they use one-time and that it burns up. I always — when I was working in the patent office, by the way, just a little side here. When — one of the things I did was I gave the patents on those — on coatings that were used on the capsules that returned to earth.

So, all those capsules, to make them not burn up, I was the one who gave the patents on that stuff. It’s amazing.

RITHOLTZ: Circle.

BARON: Yes. Full circle. And so, with SpaceX, the competitive advantage that they have, the competitive advantage that Tesla has is battery and stuff. The competitive advantage of SpaceX is that they can use the rockets over and over again. So, the fuel to get into the outer space or in orbit, maybe $500,000, a $1 million and the rockets are $100 million, $200 million.

They’re throwing away $100 million, $200 million instead of just spending the fuel over and over again. So, now, Tesla, the invention that they have is that they use the rocket over and over and over again. And so, everyone said, man, you can’t do that.

Landing a rocket on a platform in the ocean that’s moving, they could use it again and again, that’s insane. Nobody could do that. It’s like dropping a pencil from your hand, landing on the eraser and it’s standing up. Doesn’t work.

He did it. And so, it — and so, if someone else is going to do it, China, when they were successful at this, landing these rockets. So, China had an editorial in “The Wall Street Journal” and they said, congratulations, Elon Musk, but boy, our brilliant Chinese engineers, you’re really missing out. You’re getting beaten not by a country, you’re getting beaten by a guy. What’s the matter with you? You got to catch up and they think — and China editorial in “The Wall Street Journal” was we think we are — I don’t remember if it’s five years behind or 10 years behind, but way behind.

Elon Musk (inaudible) behind Elon Musk. So, the idea here is that there’s 7 billion on earth or 7.5 billion and half of them don’t have Internet. And if you happen to live in East Hampton or Vail or even Palm Beach, there’s not good reception for Internet. And so, the big opportunity in a relatively short term is that they can get — they can have very low-cost of a launch.

So, Elon Musk owns 52 percent of the company, Google owns seven. We are a little bit less than one. And I think that this Internet to the broadband from satellite at your home is going to be unbelievable business, unbelievable. And because there’s so many people that need it.

So, this is like a utility. This is like water and this is like electricity. You’ve got to have broadband. And if you want to have — if you want to cut that down, on the inequality that’s present in the world, you got to have people educated, the way you get educated is with broadband.

RITHOLTZ: Do you own any other nonpublic companies or is this — is SpaceX the only private firm Baron Funds invest in?

BARON: We own Rivian which is another electric car company, a small position in that. And that’s owned 20 percent by Amazon and we have a small position in that. We’re just investing right now in cruise (ph), that’s another private company. That’s going to do a car service by the time it’s driving in San Francisco and — very shortly. That’s about the start. We’re investors in that.

And then we’re investors in a couple of small investments that — we’re investor in a battery company, the Goldman Sachs, also a very small investment, Baron Growth Fund has this investment. And the big problem with electric vehicles is where the battery is coming from. And …

RITHOLTZ: Right.

BARON: And this company, Goldman Sachs sponsored in Volkswagen is the big customer for making these batteries in Europe in using hydropower in Norway, hydropower. And then farmers network to help farmers to get (better) receipt at lower prices. We’re investor in that.

So, we have a bunch of small investments but we have in Baron Growth Fund, for example, about a bunch of investments that we invested, $10 million, $20 million that are worth $200 million, $300 million.

I had sold a bit of Tesla and I wanted people to see what I’m doing and so they don’t think that I have died and the only reason we’re still on Tesla is because I’m dead.

RITHOLTZ: Right.

BARON: So, I put a note up on our website and said that what happened is that it became a very large percentage of a few funds that we manage, Baron Partners Fund, Baron Focus Growth Fund, one off-shore fund that we have. And so, as a result of that, I decided it would be prudent for me as a business owner, not just as an investor in the company, show people that, actually we do take profits on occasion. And …

RITHOLTZ: (Inaudible).

BARON: … when it something — not because there’s something wrong with the business, but because I’m afraid about the volume — the volatility of the stock but rather because I want to show people that we were responsible. So, out of the 8 million shares that that we have, 8 million one shares we sold, 500,000 shares were our clients at 450 and 500,000 shares — remember, the cost is 41 — 500,000 shares at 650 and 250,000 shares at 850.

And so, basically, it’s painful, every time I’ve sold it, but people when to say, gee, how you can — don’t you ever sell? What’s the matter with you?

And but, so what I did in Tesla is that I said that I will be — I’m not buying stocks. I only invested in our mutual funds. And that was the commitment I made. And since 1992 with a couple of little, tiny exceptions.

And the exceptions were when we wanted to have a large cap growth fund and said, Okay, I’ll invest $10 million just to -if — without knowing anything about Berkshire Hathaway and Goldman Sachs and Qualcomm (ph) without really doing research, out of these 1080 (ph) stocks and see how they do and I’ll compare that, that’s my benchmark against our large cap growth. So, we did that and I did — there’s a couple of little things like that is what I did.

And then when Tesla comes along, I said, gee, this is going to be this monster company and what I want to do is I went to the board and I said, in 2014 to 2016, I bought all the stock I could buy with a couple of funds that I manage and most of the mutual funds at Baron Capital which are real estate or health care or fintech or emerging markets or small cap, they can’t own Tesla.

And so, I — and a couple guys could own it and tries to persuade them and I wasn’t successful and they said I’m not used to taking anyone’s opportunity, if I invest in this — and nothing to it personally, but I’d like to take 50 million dollars on behalf of Baron Capital and invested in Tesla and I think I can make a billion dollars on it and I can afford to lose 50 million, it wouldn’t be pleasant but I can’t afford to lose it, but I can’t afford not to make a billion.

And if I do make it, I’ll give some of the profit to people who work at Baron Capital. And addition, have Baron Capital just be stronger and my goal is to make it best for 100 years so I want it to be — have a stronger balance sheet, even stronger than it does now and they gave me permission. I said, committing, that I will be the last person to sell. So, I’m the last person to buy. No one else is going to buy Baron Capital and I’ll be the last one to sell. I’m not going to sell anything until all the shares are still owned (ph) by all of my clients.

And the directors of Baron Funds said that makes — that sounds reasonable and it’s fine to go do it. And so, I did that and it turned into after a five to one split and a million shares. So, I told — so when the 502 million shares that we sold to our clients, I haven’t sold a single share. The 50 million became 850, 860 million or 800, 900 million, something like that.

RITHOLTZ: Okay. That’s not too bad a return.

BARON: No. Pretty cool. And I think that there’s three more times to come from that. And then — over 10 years. And so, very — the advantage that we have is that it’s hardly, I don’t know any people. I’m sure that must be out there. But I don’t know people who are investing for other people who said I’m going to make a 10-year investment or 20-year investment in a company and as long as the fundamentals are — as I expect them to be stay with it and I’m not going to worry about the price in the meantime.

And so, that’s what I do. And as long as the fundamentals, so here, the business fundamentals for Tesla from the time we invested in it in 2014 to last year, the business grew from 2.8 (ph) billion to 25 billion in sales, the stock price didn’t change. Going up and down, up and down, up and down. And that went up 10 times. The stock price caught up to the business.

And now, the business is going to grow faster than the stock price over the next 10 years, I think.

RITHOLTZ: Wow. That’s amazing.

Let me throw you a curveball for our last question. You ready for this?

BARON: Yes.

RITHOLTZ: You grew up in Asbury Park and years after you left, you were sort of unhappy because the Asbury Park football team ended up winning the state championship but they were disqualified and you were so unhappy about it, you bought trophies for the teams and got rings for all the players that were inscribed with undefeated on the field. Tell us about that?

BARON: I read the article in the “New York Times” that described that and I felt badly. I mean, when I went to high school, it was a minority high school. I mean, it was 50 percent and 50 percent white. And maybe it was about that, maybe it was two thirds white and one-third black or maybe it was 50-50. And there were 2,000 kids there. And now there’s a thousand kids when this happened and it was virtually all minority.

And those — the shining (ph) and there was 18 percent or 20 percent unemployment in Asbury Park and the boardwalk was a mess and I felt badly and so here are these kids, there are two kids who are ineligible and they played on the team and because of that, they first — I think they went on 8-0 or 9-0 and all of sudden went — we took away all the victories then went 0-9.

So, I said, my God, this is — this is everything for this town. And so, I said, maybe there’s something I can do. TAnd there was this trophy case in the front of the school where I bought the trophies for — and with the scores for every game that they had that said undefeated on the field and then every football players’ name. I had it inscribed on there.

And then I bought them rings that said undefeated on the field. And Springsteen read about it and then he gave everyone, including me, a baseball jacket, a football jacket that says the same thing, undefeated on the field. I got the Springsteen jacket from …

RITHOLTZ: That would be Bruce Springsteen of Asbury Park?

BARON: I also have another story about Springsteen.

RITHOLTZ: Go ahead.

BARON: So, when we — it was 1980, we have our first child, Judy and I, and we didn’t have a weekend house and we bought this old house built in the 1860 on two and a half acres on 920 Navesink River Road and overlooking Rumson, overlooking the Navesink River and to the left, you saw the ocean, maybe 60 feet high.

And so, and it’s now 1980 and we paid $250,000 for it. In the middle of these 15-acre state, Bon Jovi was on the street, and (inaudible) was on the street, they had big houses, we had this tiny little house and with a dirt basement. And so, we have it for two and a half years, three years, and now we have two children and we have Judy’s dad living with us and we have a nanny and we’re bursting at the seams of this house.

The guy knocks on our door and says I’d like to buy your house. And I said, well, it’s not for sale. And he says, well, how about for $400,000? I said, well, just a second. And I closed the door and I said, Judy, somebody wants to buy our house for $400,000. And she says, sell it.

And so, I open the door and I said you just bought a house. And it turns out that this was the lawyer representing Springsteen. So, he bought that house. And he lived in it for — he had to have it by — he just gotten married and he needed to have it by, I think it was like December of 15th or so, he wanted to have it for a celebration in December.

And so, we sold it to him at the end of the summer and no problem. And then what he did afterwards, his dad were — I was in the board of (inaudible) and he — which is a day school my kids went to and he would give us regularly when they would have these auctions, I would call him — his agents who turns out now, the agent is my friend.

But I would call the agent and he would give us record albums that would say — he would autograph him and it would say, fire the CK rockets and then exclamation points, Bruce Springsteen. And would auction for $100, whatever it was. I would get — I’d get these gifts that he would put out to raise money for (inaudible). That’s stuff …

RITHOLTZ: That’s great. Ron, thank you, so much for being so generous with your time.

We’ve been speaking with Ron Baron, Founder of Baron Capital. If you enjoyed this conversation, well, be sure and check out any of the other 400 previous interviews we’ve had over the past six years. You can find those at Apple iTunes, Spotify, wherever you feed your podcast fix.

We love your comments, feedback, and suggestions. Write to us at mibpodcast@bloomberg.net. Give us a review on Apple iTunes.

If you would like to get my free daily reads, you can sign up for that at rtiholtz.com. Be sure and check out my weekly column at bloomberg.com/opinion. Follow me on Twitter @ritholtz. I would be remiss if I didn’t not thank the crack team that helps puts these conversations together each week.

Reggie Brazil2 is my audio engineer. Michael Boyle is my producer. Atika Valbrun is our product manager. Michael Batnick is my head of research. I’m Barry Ritholtz and you’ve been listening to Masters in Business on Bloomberg Radio.

 

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