In investing, past performance does not guarantee future results. But if you want your money to grow over the long term, there’s a lot to learn from investment professionals with a long and impressive track record.
Earlier this year, analysts at investment research firm Morningstar identified the three best-performing mutual funds over the 25-year period ending in 2025. The winner was the Baron Opportunity Fund, which returned 13% annually. For reference, the S&P 500, the benchmark for the entire U.S. stock market, returned 6.8% annually over the same period.
Manager Michael Lippert, who marks his 20th year at the helm of the fund this month, is quick to credit Opportunity’s outperformance, crediting the company’s ethos led by billionaire growth investor Ron Baron and the team of analysts who help select investments for the fund’s portfolio.
Still, over the past quarter century, Mr. Lippert’s strategy of identifying and investing in fast-growing companies benefiting from disruptive and innovative technological advances has given his fund an edge over virtually all others.
Lippert recently spoke with CNBC Make It about his approach to stock picking, lessons learned from his career and advice for young investors. Always consult a financial professional before making any major changes to your portfolio.
CNBC Make It: You and your team spend all day evaluating your business. Which one would you like to add to your portfolio?
Mr. Lippert: We are focused on companies that can grow over the long term.
They have durability and sustainability of massive growth as there is a huge addressable market at large. They have a differentiated product or service, a so-called competitive advantage, they have a type of business model that allows them to capture a large market share whatever the opportunity is, and they can turn long-term revenue growth into significant profits or free cash flow growth.
Where does long-term growth occur? How do you find it?
It’s about relying on a team of really smart industry and quasi-industry analysts to learn about industry themes, changes, and trends that are happening – what we think will be intact and sustainable.
In this example, we might use the S-curve that everyone learns about in business school. There’s a lot of exciting stuff here, like NFTs and different things, but they’re never going to change completely. However, once major trends change, they can last for a very long time.
During my career, the first major trend emerged: the Internet. The Internet has now been around for 30 years. There was mobile and then cloud computing came along. And now is the era of AI.
We’re looking at these trends, these themes, these big changes, and we think the S-curve could last for the so-called business generation, perhaps 10 to 20 years. For us, long-term investing is five years at a time. We’re always thinking about that, so we’re always thinking at least five years ahead.
What characteristics do companies that emerge as winners of these trends tend to exhibit?
The best companies we’ve found don’t just do one thing. The best companies don’t just have one S-curve. Stack multiple S-curves on top of each other.
All of the world’s great companies, the “Mag Seven” companies, started out doing something different than what they are doing now. Apple started with computers and then came the iPhone. Google was a search. Now we have YouTube (and other areas of business). Amazon was all about books and selling everything.
What is one big winner that you think was exemplary of your process?
We started working with Nvidia in 2017. Our first investment was in 2018, when the whole world was looking at Nvidia as a video game chip company. As you may remember, video game chips were also used for Bitcoin mining at the time, making this stock a bit volatile.
Our analyst Guy Tartakovsky and I were thinking about the data center opportunities that are associated with AI today and how Nvidia (graphics processing unit) is positioned in data center applications, not just gaming. In the fall of 2018, our entire team visited with (Nvidia CEO) Jensen Huang.
(Huang) literally spent hours at a whiteboard teaching me about AI and machine learning. He taught us (including) why an architecture originally built for graphics still works for applications he believed would be used in data centers. And why he wins, and why it’s not just the chip, it’s all about their ecosystem and different libraries, all of which honestly led them to victory with AI. And we made the investment.
Obviously, you are also choosing investments that fail. How do you deal with mistakes?
Throughout my life, I have made many mistakes. One book that had a huge impact on me was called “Startup Nation.” It’s about Israeli innovation and why Israel has more innovation than it needs at its scale. And one of the things they follow is that in Israel you literally have to go to the army before you can go to university.[In the Israeli military]we do after-action debriefing on every mission, whether it’s a success or a failure. Especially when something doesn’t work out, I really look into it to find out why.
So I had already incorporated that as part of my process, but I kept sending quotes from that book to my team and saying, “Hey, this is what you want. Is it good? ”
When you’re always looking for the next big thing, how do you separate real trends from hype?
Fact-based investing. When it comes to the world we live in today, the world of social media, look for facts, not hype.
When it comes to the AI world, if you go to X, you’re spinning. Someone will tell you that Nvidia is the greatest company in the world that will never be destroyed. And it will make other people say, “No, it’s over. Nvidia is a great con.” And that’s true for any company.
Another thing I always say is, “Please step back.” Does it make sense? Does it make sense that blockchain technology will completely disrupt payment systems? Does it make sense once you understand how blockchain works? And really, all of us who love rewards are going to confuse humanity where we can take out Mastercard and Visa? Are you going to give them up?
What is your best advice for young long-term investors?
Investing is easier than short-term trading. Find a company that you think is special. You can clearly explain why the company is special and different, and why it needs to grow over the long term.
And when it comes to long-term investing, the way we think at Baron Capital is that every quarter, every new product release, we gradually accumulate some data, facts, evidence. If there are many points on that curve, you can just point to the next point, the next point, and the next point. It’s much easier than trying to figure out what’s happening on any given day. What kind of tariffs will come next? Which companies will make which announcements, and which podcasters will say what?
We live in a world today with so many tools. We may not have Baron researchers, but we do have ChatGPT or Gemini. You can say, “What did XYZ Company report last quarter? What new products?” You can also test the product, unless it is a business-to-business product. Available. Does it make sense for this company to grow rapidly and continue to do so for a long time? That’s what I would do.
This interview has been condensed and edited for clarity.
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