A Fund Legend Shares Stock-Picking Secrets

Ron Baron is chairman, CEO, and portfolio manager at Baron Capital, the investment firm he founded in 1982.

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KIPLINGER'S: You're a master of growth investing, which involves finding companies with prospects for faster-than-average profit growth, among other measures. What do you look for?

RON BARON: Everyone can understand what a growth company is. What is hard for most people is being able to understand competitive advantage-the most important thing. That's something you can't figure out with an algorithm. You need to understand a business, how it operates and what makes it difficult for others to compete. It may have a license, patents, or a head start in technology. For example, Tesla's competitive advantage is in its culture of rapid innovation. Tesla has a 10-year lead in making batteries and electric cars; it has revolutionized an entire industry. We make investments on the basis of what we think a business will be worth in five or 10 years as opposed to what it's worth right now. Our goal has been to double our money about every five or six years. We have been able to accomplish that by investing for the long term in businesses that we believe are competitively advantaged and managed by exceptional people. We worry about businesses, not about stocks and stock markets.