masters in business

Ron Baron on Investing in Tesla and SpaceX | Masters in Business

Key Takeaways

  • “Everyone else would buy and sell and trade…what I would do was just buy stuff and I would hold it” – Ron Baron
    • “I love buying these businesses that can grow tremendously from what they were”
  • The conviction to invest in a company for decades comes from understanding the competitive advantage the company has
  • “The value of your money falls in half every 17 years”Ron Baron
    • “The stock market is the hedge against the devaluation of your currency. The stock market basically doubles every 10 or 12 years.”
  • Tesla is more than just an auto manufacturer; Ron sees a lot of upside in automobile solar roofs, ride-sharing, and of course self-driven cars 
    • Ron sees Tesla’s current competitive advantage as its battery technology which far exceeds its competitors 
  • “I think that in Tesla we’re going to triple in 10 years and I think in SpaceX we’re going to make 30-50 times our investment in 10 years” – Ron Baron
  • Ron sees the biggest upside of SpaceX in its ability to expand broadband internet access to 50% of the world with no internet
    • “If you want to cut back the inequality that’s present in the world you got to have people educated and the way you get educated is with broadband” – Ron Baron

Intro

  • Ron Baron (@baronfunds) is the chairman, CEO, and portfolio manager at Baron Funds with $49 billion under his management
  • Host: Barry Ritholtz (@ritholtz)

Synopsis of Ron’s Life

  • Ron’s first foray into the stock market was at 14 when he convinced his father to buy $1000 worth of his local bank’s stock
    • Since then he has been continually trying to learn as much as he can about investing 
  • After failing to get into medical school, Ron worked at a patent office during the day and went to law school at night
  • At 26, Ron decided to follow his interest in finance and pursue a career in New York City with nothing but $600 in his pockets and a $15,000 debt
  • Ron eventually partnered with a friend from law school to sell market research to a variety of funds and had up to 100 clients 
    • “I went from having a negative net worth of $15,000 in 1970 to making a million dollars in a year in 1980”Ron Baron
  • Baron Capital was started in 1982 with $10 million under management 
    • The initial money all came from George Soros who in the 70’s had a rough year and wanted his favorite stockbrokers to manage some of his money for him because his methods weren’t currently working 
    • By 1992 they had $100 million under management and have only grown since then

Evolution of Ron’s Investing 

  • Like other brokers, Ron made money off of commission when someone bought or sold a stock
    • After some years of this, while examining past performances, Ron realized that the profit from holding a good company for many years is far greater than any commission from selling
  • “Everyone else would buy and sell and trade…what I would do was just buy stuff and I would hold it” – Ron Baron
    • “I love buying these businesses that can grow tremendously from what they were”
  • One of Ron’s core principles is to create a business where average, hard-working people like his parents could entrust their money for decades 
    • The stories of people who invested with him and are now able to take care of their families touch Ron deeply 
  • The conviction to invest in a company for decades comes from understanding the competitive advantage the company has 
  • “A contract doesn’t mean anything. If you have to have a contract to enforce an agreement you’re doing business with the wrong person because any good lawyer can break any single contract you have.” – Ron Baron
    • “You only have the contract so you can keep track of what the deal was not so you can expect to enforce it”

Inflation

  • “The value of your money falls in half every 17 years”Ron Baron
    • “The stock market is the hedge against the devaluation of your currency. The stock market basically doubles every 10 or 12 years.”
  • “People say there’s no inflation today. You go try to hire someone for the same price that they paid last year and you’ll find out how much inflation is.” – Ron Baron

Tesla

  • “When we bought stock in Tesla we spent $385 million dollars between 2014 and 2016 to buy 8 million shares. The average price was $40 a share and is now $850.” – Ron Baron
    • “We’ve made 20 times our money so far”
  • “I think that it’s going to be a 2 trillion-dollar company over the next 10 years” Ron Baron
    • Tesla is more than just an auto manufacturer; Ron sees a lot of upside in automobile solar roofs, ride-sharing, and of course self-driven cars 
    • This isn’t even including a potential expansion into Asia which is already being worked on 
  • While these expansions are based on sound evidence they still remain hypothetical
    • Ron sees Tesla’s current competitive advantage as its battery technology which far exceeds its competitors 

SpaceX

  • “I think SpaceX is on the way to 2 trillion dollars also” – Ron Baron
    • “I think that in Tesla we’re going to triple in 10 years and I think in SpaceX we’re going to make 30-50 times our investment in 10 years” 
  • The holy grail of space travel that SpaceX is striving for is fully reusable rockets
    • Every rocket costs about $100-200 million to make which is thrown away after one use
  • In 2020 China claimed to have reached a critical milestone in reusable rockets and  stated that they are only 5-10 years behind Elon Musk
    • Other governments are taking notice of SpaceX and realizing that reusable rockets have profound implications for them too
    • It’s interesting to Ron that Elon Musk is farther ahead than an entire nation with the force of 1.3 billion people and the government’s treasury behind it
  • Ron sees the biggest upside of SpaceX in its ability to expand broadband internet access to 50% of the world with no internet
    • “If you want to cut back the inequality that’s present in the world you got to have people educated and the way you get educated is with broadband” – Ron Baron
  • “This is a utility like water or like electricity. You GOT to have broadband.” – Ron Baron
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