Billionaire Ron Baron is described as a “passionate bull” by U.S. News and World Report, which recently interviewed the mutual fund manager about the current state of the stock market.
Baron, the founder of New York-based Baron Capital, says the stock market is underpriced and investors should be upbeat:
“Are stocks undervalued? Yes. Are stocks a good place for investors to be? Yes. One important reason is that they’re so cheap and you’ve just gone through the worst 13 years in the United States’ history. Of course, the reason the stock market has been so bad for the past 13 years is that it had been so good in the 1990s.
“Normally the stock market trades between 10 and 20 times earnings, and the median is 15½. Since 1999, what’s happened is that the multiple has fallen from 30-some-odd times earnings—which is the highest it’s ever been — to 13½ or 13.75, below the median. Now what’s going to happen is that if businesses can continue to grow, you should be able to make a return commensurate with that growth going forward.”
“They should be incredibly optimistic right now. When I was in law school … my uncle gave me a book to read with the premise that if news was really bad, you’re supposed to be buying, and if news was really good, you’re supposed to be selling, because the news gets reflected in stock prices,” Baron tells U.S. News.
“That’s the way you’re trained to think on Wall Street. When something really bad happens, you’re trained to look for opportunity. When something really good happens, you’re trained to think, well, gee, maybe it’s reflected in stock prices. … And right now, think about businesses and the opportunities they have, and the balance sheets they have, and how sooner or later there’s going to be a change in policy where they’re going to give people who have all this cash incentives to invest and create jobs.”
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