Ron Baron: Why His $8 Billion Tesla Windfall Could Balloon Further

Who is Ron Baron, and Why is he Worth Listening to?

Ron Baron is the Founder, Chairman, and CEO of Baron Capital, which manages $45 billion in assets under management. Baron, who started his firm in 1982, has exhibited the rare ability to consistently outperform both the S&P 500 Index and most money managers over his long, illustrious career. Investors in the Baron Partners’ Fund, Baron’s flagship fund, have enjoyed annualized returns of ~15%, which is ~50% higher than the S&P 500 Index over the same timeframe.

How did Ron Baron Achieve his Market Outperformance?

Ron Baron is best known for his fundamental, buy-and-hold approach. In 2010, Baron participated in the Tesla (TSLA) IPO roadshow and was impressed by the company’s CEO, Elon Musk. At the time, Tesla was still a young, unproven company, so Baron made only a small investment. However, between 2014 and 2016, Baron bought ~$400 million worth of TSLA shares after the company proved that its Model S could garner widespread demand.

Despite some large drawdowns and volatility throughout Tesla’s meteoric rise, Baron held onto all of his personal shares. Baron has personally made a mind-boggling $8 billion off Tesla shares. Although Baron recently disclosed that he sold roughly 1/3 of his client’s TSLA shares, he still has extremely high conviction in the stock, as evidenced by his ~40% share of his net worth tied up in it.

Ron Baron Maintains his Bullish Tesla View

Friday, Becky Quick interviewed Baron on CNBC. Baron provided an update on his Tesla thesis. Below are some of the most important quotes from the interview:

·       On his Tesla Price Target…“I’m thinking about $2,500 of where his (Elon’s) stock is going to be in 10 years.”

·       On his Tesla position... “I have not sold a single share.” “I don’t expect to sell Tesla or SpaceX in my lifetime.”

·       On Tesla’s Short-Term Sacrifice… “They’re reinvesting in their business – penalizing current profitability to become a much bigger business in the future.”

·       On Elon Musk Staying as CEO… “Elon is the ultimate ‘key man’ of key-man risk. Without his relentless drive and uncompromising standards, there would be no Tesla.”

·       On Elon Musk’s Pay Package... “He doesn’t really get paid unless the company goes up six times in value.”

·       On Elon Musk’s Motivation... “He’s not doing this to save up for a beach house. He cares about how he wants to be remembered, his legacy.”

·       On Optimus… “They are going to be labor-saving and lead to sustainable abundance.”

Bottom Line

Ron Baron’s track record, discipline, and ability to invest in transformational companies make his opinion important for long-term investors. Baron’s most recent comments suggest that his bullish conviction in Tesla is as strong as ever.

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This article originally published on Zacks Investment Research (zacks.com).

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