By CCN Markets: Widely admired and successful mutual fund manager Ron Baron, CEO and chief investment officer of the Baron Funds, expressed his support for Elon Musk and Tesla on CNBC on Tuesday. What is Ron Baron Thinking? This comes as a bit of a…
This comes as a bit of a surprise, because Ron Baron has a multi – decade history of prudent and diligent investments across all kinds of stocks.
Virtually every one of his funds has beaten both the S&P 500 and its respective benchmark index since inception. This is no small feat, especially considering several of the funds have topped the S&P 500 by 300 basis points or more.
I understand why Ron Baron invested in Tesla initially. He has always pursued an investment philosophy based on “sunrise industries”. These are industries that are at the beginning of a multi-decade lifecycle.
This contrasts with “sunset industries”, which are businesses that are fading into their twilight years. Polaroid was a good example of a sunset industry, as digital technology replaced film.
Yet there seems to be no logical reason why Ron Baron would be standing behind Elon Musk, regardless of what opportunities exist for Tesla, and considering Elon Musk’s behavior.
But even if you remove Elon Musk from the equation, and the slow rollout of competitors’ electric vehicles, Tesla is not the only game in town.
While other manufacturers have been slow to get into the game, eventually they are going to catch up. Eventually there will be plenty of competition in the electric vehicle space, and Tesla will be just another competitor, and one that (for now) appears focused on the luxury market.
The Baron Funds, in the aggregate, own about 1.6 million shares of Tesla, valued at some $360 million, and is Baron’s 13th largest position.
The inclination would be to think that Ron Baron is selling his shares as he pumps up Tesla on CNBC, but he claims that his funds are not selling shares.
Yet the most mystifying claim Ron Baron has made is that Tesla could generate $1 trillion in revenue by 2030. That would be a 50-fold increase over 2018’s revenue. He also said that Baron Funds’ investment in Tesla could grow by a factor of 20 by the year 2030.
That claim is absurd. It means Tesla would be valued at $800 billion by then.
Ed Butowsky, Managing Partner at Chapwood Capital Investment Management, tells CCN:
“This is uncharacteristic of Ron Baron, who is known as a long-term value investor. Tesla is not a value stock. It also seems odd that Ron Baron would trust his money with someone as erratic as Elon Musk”
Last modified: January 10, 2020 3:30 PM UTC