WEBVTT - Baron’s Lippert on Secular Growth and Technology 0:00:15.000 --> 0:00:18.159 Welcome to Inside Active, a podcast about active managers that 0:00:18.200 --> 0:00:20.960 goes beyond sound bites and headlines and looks deeper into 0:00:21.000 --> 0:00:25.840 their processes, challenges and philosophies and security selection. I'm David Cohne, 0:00:25.840 --> 0:00:28.720 i lead mutual fund and active research at Bloomberg Intelligence. 0:00:29.040 --> 0:00:32.040 Today my co host is Michael Casper, us small cap 0:00:32.080 --> 0:00:35.440 and sector strategists at Bloomberg Intelligence. Mike, thanks for joining 0:00:35.479 --> 0:00:35.880 me today. 0:00:36.200 --> 0:00:36.840 Thank you, David. 0:00:37.120 --> 0:00:38.519 So you wrote an interesting. 0:00:38.159 --> 0:00:41.879 Note recently on earnings fundamentals and current rally. Can you 0:00:41.880 --> 0:00:44.800 provide no review of what earnings fundamentals are telling us 0:00:44.800 --> 0:00:46.560 about the current bullmarket rally. 0:00:47.120 --> 0:00:48.720 Yeah, so, at least for the S and P five 0:00:48.800 --> 0:00:51.520 hundred in the second quarter, it's almost like as if 0:00:51.880 --> 0:00:54.520 Tariff's never happened. So if you went back to the 0:00:54.600 --> 0:00:58.320 January estimate for the second quarter, it was about nine percent. 0:00:59.120 --> 0:01:00.960 They cut that all the way down to two point 0:01:01.000 --> 0:01:03.600 eight percent for two Q and what we ended up 0:01:03.640 --> 0:01:07.959 with was a little over ten percent, So pretty much 0:01:07.959 --> 0:01:12.960 all that tariff draw down inconsensus estimates gone, at least 0:01:12.959 --> 0:01:15.120 for the second quarter. Back half estimates still a little 0:01:15.120 --> 0:01:17.560 bit weaker than they were at the beginning of the year. 0:01:18.080 --> 0:01:20.920 About half. We're looking at about seven percent growth for 0:01:21.360 --> 0:01:24.160 the second half, But again the trend has been towards 0:01:24.240 --> 0:01:26.360 beats for the S and P five hundred, and we 0:01:26.360 --> 0:01:29.720 did a recent note on earning signals for stock prices 0:01:29.959 --> 0:01:33.200 and what that might mean for equities going forward, And 0:01:33.319 --> 0:01:36.120 what we're really seeing is a lot of the early 0:01:36.240 --> 0:01:38.840 year concerns start to clear up. Right, So the bar 0:01:39.000 --> 0:01:41.600 was incredibly high for twenty twenty five going into the year, 0:01:42.160 --> 0:01:45.680 that again has come down considerably, making it a little 0:01:45.720 --> 0:01:47.760 bit easier for the S and P five hundred to 0:01:47.760 --> 0:01:50.720 beat subsequent quarters. The issue, I would say, or at 0:01:50.800 --> 0:01:52.800 least the risk on the horizon, is the twenty twenty 0:01:52.800 --> 0:01:56.160 six bar, which is well over ten percent for each 0:01:56.200 --> 0:01:59.200 of the three quarters that we have clarity on the 0:01:59.320 --> 0:02:02.040 last time that we've had that was twenty twenty one 0:02:02.040 --> 0:02:05.000 and twenty eighteen, so one was post tax reform, the 0:02:05.040 --> 0:02:08.640 other was post COVID recovery. So it's quite unusual to 0:02:08.680 --> 0:02:11.120 have a ten percent growth backdrop without some kind of 0:02:11.160 --> 0:02:16.800 recovery or fiscal policy coming through to help stocks. But 0:02:17.000 --> 0:02:19.119 the other signs that we're watching that that have been 0:02:19.320 --> 0:02:23.200 more constructive for socks. Earnings breadth has improved. Cyclical minus 0:02:23.240 --> 0:02:29.480 defensive sector earnings and revenue better better than cyclicals are 0:02:29.480 --> 0:02:33.160 looking better than defensives on that end. Revision momentum very positive, 0:02:33.320 --> 0:02:37.720 and the margin outlook has been improving despite all the 0:02:37.800 --> 0:02:40.880 terrorfs that have come down the pipe. So things looking 0:02:40.919 --> 0:02:42.960 a lot better on the earnings front than they are 0:02:43.040 --> 0:02:46.000 at the start of twenty five, at least after the 0:02:46.040 --> 0:02:47.160 liberation to announcement. 0:02:48.200 --> 0:02:51.720 Thank you great, well, something we can watch out for. 0:02:52.560 --> 0:02:56.040 But I'd like to seg into our today's guest to 0:02:56.080 --> 0:02:59.359 the podcast. Michael Lippert is the vice president and head 0:02:59.400 --> 0:03:03.360 of Technology Research at Baron Capital and the portfolio manager 0:03:03.400 --> 0:03:08.160 for the Baron Opportunity Fund ticker bioi X and the 0:03:08.200 --> 0:03:12.000 Baron Technology Fund ticker bt e c X. Michael, thank 0:03:12.040 --> 0:03:13.079 you for joining us today. 0:03:13.440 --> 0:03:14.200 Thanks for having me. 0:03:14.960 --> 0:03:18.480 So let's start with the philosophy behind your investment decisions. 0:03:18.760 --> 0:03:21.600 How would you define the Barren philosophy. 0:03:21.760 --> 0:03:24.000 Yeah, we've been in business for over forty years, founded 0:03:24.000 --> 0:03:28.119 by Ron Baron, who's well known, and we are quint 0:03:28.200 --> 0:03:30.679 essential long term investors. I joke with some people and 0:03:30.760 --> 0:03:33.480 I first joined the industry. I switched careers later on 0:03:33.600 --> 0:03:36.000 from being a lawyer to be an investor, and people 0:03:36.040 --> 0:03:38.040 give you books. So I got a book on Warren Buffett, 0:03:38.200 --> 0:03:41.480 and when I read Warren Buffett, who's famously a value manager, 0:03:41.720 --> 0:03:44.320 I said, wow, this person sounds like just like Ron, 0:03:44.400 --> 0:03:46.440 even though we're considered to be a growth manager. Why 0:03:47.200 --> 0:03:50.960 we invest in businesses, not just stocks, and we try 0:03:51.000 --> 0:03:55.120 to find great businesses run by top entrepreneurs that are 0:03:55.160 --> 0:03:57.480 simply going to grow for a very very long time. 0:03:58.240 --> 0:04:00.320 You know, there's the same and the short term, you know, 0:04:00.360 --> 0:04:02.240 the market is a voting machine, and the long term 0:04:02.240 --> 0:04:05.760 it's a weighing machine. We effectively believe in that right 0:04:05.800 --> 0:04:08.360 over the long term, the market will get fat, sorry, 0:04:08.560 --> 0:04:12.040 stocks will get fat on revenues and profits. You put 0:04:12.080 --> 0:04:14.480 them on a scale, you put a reasonable multiple on them, 0:04:14.480 --> 0:04:17.000 because you know, multiple in the short term is sentiment driven. 0:04:17.400 --> 0:04:19.719 And if you find companies that can really get fat, 0:04:19.880 --> 0:04:21.560 they're going to create great value. And if you look 0:04:21.600 --> 0:04:23.320 over the last you know, let's just call it whatever, 0:04:23.360 --> 0:04:26.440 forty fifty years, the Internet age. You know, the Googles, 0:04:26.520 --> 0:04:29.839 the Microsofts, the Apples of the world. They basically just 0:04:30.160 --> 0:04:33.200 kept going and going and going. And so we invest 0:04:33.240 --> 0:04:35.760 in what we call secular growth trends or themes. These 0:04:35.760 --> 0:04:39.840 are things that are almost undeniable Internet cloud computing. Try 0:04:39.839 --> 0:04:42.200 to find the companies that have competitive advantages so they're 0:04:42.200 --> 0:04:45.520 going to take market share among these trends. And just 0:04:45.640 --> 0:04:47.479 one last point. One of the things we look at 0:04:47.720 --> 0:04:50.440 we call it second or third acts, you know, second 0:04:50.560 --> 0:04:53.840 or third s curves or multiple tams. Companies that can 0:04:53.880 --> 0:04:56.680 do more than one thing, go from a single product 0:04:56.720 --> 0:05:00.279 or service company to multiple product services. All come means 0:05:00.279 --> 0:05:02.520 want to be what's called, you know, a platform company. 0:05:02.560 --> 0:05:05.320 And you know, maybe the most famous one would be Amazon, 0:05:05.320 --> 0:05:07.680 which started life as a you know, online bookseller, and 0:05:07.720 --> 0:05:10.920 we know all the things that Amazon is today including aws, 0:05:10.960 --> 0:05:12.440 probably its most valuable business. 0:05:13.520 --> 0:05:16.560 So when you're looking at these secular trends, how do 0:05:16.600 --> 0:05:19.760 you define and validate you know that an emerging theme 0:05:19.960 --> 0:05:21.160 is truly durable? 0:05:21.800 --> 0:05:24.440 Yeah, I mean it's it's honestly just just research. I 0:05:24.520 --> 0:05:27.479 wish I could say something magic. We have a team 0:05:27.640 --> 0:05:33.719 of over twenty you know, research professionals. Our analysts become 0:05:33.839 --> 0:05:37.120 focused on and you know, seek to become experts in 0:05:37.480 --> 0:05:41.440 different industries. Some industries are so complicated and so diverse 0:05:41.480 --> 0:05:44.000 that we have multiple people on them So for example, 0:05:44.080 --> 0:05:46.040 right now on AI, we have a full what we 0:05:46.160 --> 0:05:48.920 call AI working group, people from all over the firm. 0:05:49.760 --> 0:05:52.080 And when I think about a theme or a trend, 0:05:52.120 --> 0:05:54.159 it's not dissimilar from a company when you learn in 0:05:54.400 --> 0:05:57.400 business school. People can't maybe can't see the podcast, but 0:05:57.600 --> 0:05:59.719 you know, things follow an S curve and you want 0:05:59.760 --> 0:06:02.479 things to inflect, you know, upwards at some point, and 0:06:02.560 --> 0:06:04.640 so we spend a lot of time trying to find, 0:06:05.120 --> 0:06:07.400 you know, that inflection point. And as I was thinking 0:06:07.400 --> 0:06:10.640 about our podcast this morning, like we're not timers, so 0:06:10.680 --> 0:06:13.840 we don't have to exactly get it right. Oftentimes we 0:06:14.200 --> 0:06:17.360 maybe a little bit early before the inflection point. Sometimes 0:06:17.440 --> 0:06:20.040 we're late. However, and if you think about the inflection, 0:06:20.160 --> 0:06:22.200 that's deep part of the growth of a big trend. 0:06:22.279 --> 0:06:26.960 Cloud computing can last seriously twenty years. If you miss 0:06:27.080 --> 0:06:29.880 the beginning, you can still participate in a long time. 0:06:29.960 --> 0:06:32.479 So we really look at, you know, what's the driver 0:06:32.640 --> 0:06:36.359 of that trend, what is the market backdrop, what's the 0:06:36.480 --> 0:06:40.120 traction that it's getting, you know, what's the size of 0:06:40.160 --> 0:06:42.960 that opportunity. You know even what it will take in 0:06:43.040 --> 0:06:46.480 terms of human behavior, whether it's enterprise or consumer behavior 0:06:46.720 --> 0:06:49.000 to get adoption, and we look for what I call 0:06:49.080 --> 0:06:52.800 proof points, actual evidence that something you know, is getting legs. 0:06:52.839 --> 0:06:56.240 And so you know, for example, during COVID, there were 0:06:56.279 --> 0:06:59.880 lots of themes that people got all excited about, you 0:06:59.880 --> 0:07:02.159 know that some of them never really picked up and 0:07:02.160 --> 0:07:04.919 amounted into anything, but we we try to invest in 0:07:04.920 --> 0:07:06.800 the ones that are you know, believe are real. I'm 0:07:06.800 --> 0:07:09.760 sure we'll talk about AI and of course, you know, 0:07:09.800 --> 0:07:12.320 we're now not even three years into it, we're obviously 0:07:12.320 --> 0:07:15.120 convinced that is a real major theme and will impact 0:07:15.240 --> 0:07:16.920 you know, every industry in the world for the next 0:07:17.080 --> 0:07:19.480 at least twenty years will have an AI two dot 0:07:19.440 --> 0:07:22.040 oh at some point of course. So you know, you. 0:07:22.040 --> 0:07:24.880 Mentioned some of the stuff that doesn't stick. So I 0:07:24.960 --> 0:07:27.040 kind of want to follow up with, you know, how 0:07:27.400 --> 0:07:30.080 what is it exactly that you're looking at that lets 0:07:30.120 --> 0:07:33.800 you distinguish between short term bads and you know, something 0:07:33.840 --> 0:07:35.920 that's going to be a lot longer term. 0:07:36.360 --> 0:07:37.920 Yeah, I mean, I would say there was lots of 0:07:37.960 --> 0:07:42.960 talk about, you know, whether blockchain technology would be more 0:07:43.000 --> 0:07:45.640 than just simply you know, supporting crypto, all the different 0:07:45.760 --> 0:07:48.400 uses of it. I would say during COVID it was 0:07:48.400 --> 0:07:52.000 a big move on NFTs and things like that. Even 0:07:52.000 --> 0:07:54.640 when we think about crypto trading, you know, we looked 0:07:54.640 --> 0:07:56.840 at some companies that were going public, and while we 0:07:56.840 --> 0:08:00.000 were definitely believers that crypto trading, for example, you know, 0:08:00.040 --> 0:08:03.160 would expand across the market and you know, lots of 0:08:03.200 --> 0:08:06.320 self directed investors would do crypto, we didn't know that 0:08:06.400 --> 0:08:09.200 any one particular company had a competitive advantage. We looked 0:08:09.200 --> 0:08:12.760 at trading historically and other than like the CME for example, 0:08:12.800 --> 0:08:15.160 that would have a future that was you know, really 0:08:15.280 --> 0:08:19.280 developed proprietary to them. You know, everybody had trading, so 0:08:19.320 --> 0:08:22.520 we looked at things like that. But again there's no 0:08:22.760 --> 0:08:25.600 easy way. It is honestly just doing the work. And 0:08:25.640 --> 0:08:28.160 the work for us are talking to the companies involved 0:08:28.440 --> 0:08:31.560 that we're looking at that are you know, the leader's 0:08:31.640 --> 0:08:34.440 pioneers for example, of a product or service, talking to 0:08:34.480 --> 0:08:38.360 their competitive set, talking to customers. Of course, you can 0:08:38.360 --> 0:08:40.200 do lots of polling and there's lots of data when 0:08:40.240 --> 0:08:42.839 it comes to a consumer. With enterprises, again you can 0:08:42.880 --> 0:08:44.880 go out and talk to them and again it's just 0:08:44.960 --> 0:08:49.880 it's candidly looking for real proof points of adoption people 0:08:50.000 --> 0:08:53.840 actually using a product or service and truly getting value 0:08:53.880 --> 0:08:55.400 out of it, and we try to measure that and 0:08:55.440 --> 0:08:57.360 so again I'm at a high level that but that 0:08:57.480 --> 0:08:58.280 is what we try to do. 0:08:59.240 --> 0:09:01.120 So if we even take a set back further, you know, 0:09:01.160 --> 0:09:03.800 we've talked about what you're looking for. What does the 0:09:03.840 --> 0:09:06.960 research process look in practice? You know, where are these 0:09:07.000 --> 0:09:11.120 ideas coming from? Is the analysts? You know, things happening 0:09:11.160 --> 0:09:14.559 in the industry, even your own views of what's going on. 0:09:14.880 --> 0:09:17.600 Yeah, I mean, the true answer, David is all the above. 0:09:18.440 --> 0:09:20.560 You know, people always ask me, you know, how you 0:09:20.600 --> 0:09:23.360 do something. I say, listen, if we're starting the firm today, 0:09:23.720 --> 0:09:25.440 of course my answer would be different. But We've been 0:09:25.480 --> 0:09:28.120 in business for forty something years. I've been with Baron 0:09:28.240 --> 0:09:30.480 for almost twenty five years now. You said, one of 0:09:30.520 --> 0:09:33.240 my titles is head of Tech Research, and I'm always 0:09:33.240 --> 0:09:36.920 asked what that means. It is effectively player coach. Right, 0:09:36.960 --> 0:09:39.600 I'm in the field, on the field with the analysts, 0:09:39.600 --> 0:09:41.560 but I'm a little you know, a little bit coaching 0:09:41.600 --> 0:09:44.000 to make sure we're focused on the right things. Even 0:09:44.080 --> 0:09:45.840 focused on the right things right now. Is not just 0:09:46.120 --> 0:09:47.959 the right answers, of course, you want to get the 0:09:48.000 --> 0:09:51.120 right answers, but the process of making sure you're asking 0:09:51.400 --> 0:09:53.640 the right questions all of the things That means for 0:09:54.679 --> 0:09:57.320 our research. I'm trying to make sure collaboration is not 0:09:57.400 --> 0:09:58.880 just a word that we put on a slide deck, 0:09:58.920 --> 0:10:02.560 but actually happens in practice. Every firm says collaboration, you 0:10:02.600 --> 0:10:06.000 have to actually really really do it. So all of 0:10:06.040 --> 0:10:08.880 these things are just the research. And so when it 0:10:08.920 --> 0:10:13.079 comes to a given sector or industry, for example, it's 0:10:13.200 --> 0:10:16.079 rare that we're surprised because we have it quote unquote 0:10:16.080 --> 0:10:20.439 mapped out. That's my terminology. So we'll know the public companies, 0:10:20.480 --> 0:10:24.000 for example, in software, we'll know the small, medium sized, 0:10:24.040 --> 0:10:26.679 and large cap companies. We don't always think of them 0:10:26.720 --> 0:10:28.319 in terms of market cap, but we think of them 0:10:28.640 --> 0:10:31.120 what I call the development curve of how developed they 0:10:31.160 --> 0:10:33.800 are as a company. Are they emerging company, are they 0:10:33.800 --> 0:10:36.760 approven company? Are they a prospect or they im mature company. 0:10:37.240 --> 0:10:40.160 We'll then divide up a given sector or industry by 0:10:40.520 --> 0:10:42.640 different verticals and we have it mapped out. And we 0:10:42.679 --> 0:10:44.120 also do a lot of work. Even though we don't 0:10:44.160 --> 0:10:45.839 do a lot of private investing, we do a lot 0:10:45.840 --> 0:10:49.080 of work meeting the private companies. Two reasons one to 0:10:49.080 --> 0:10:51.960 get much smarter because those companies tend to be the 0:10:52.000 --> 0:10:54.800 disruptors of the public companies. So to get much smarter 0:10:54.920 --> 0:10:56.840 on that, we just had to trip out to the 0:10:56.840 --> 0:10:58.400 West Coast and we met with lots and lots of 0:10:58.440 --> 0:11:00.480 private companies. I can tell you more about that then, 0:11:00.520 --> 0:11:03.559 of course, to meet these companies before they go public, 0:11:03.600 --> 0:11:05.439 so that we know them really well when they become 0:11:05.480 --> 0:11:08.960 a public company, and hopefully that we will get, you know, 0:11:09.280 --> 0:11:12.000 because of the management direction, not because of a sell 0:11:12.080 --> 0:11:14.800 side firm, a good allocation in the company that we 0:11:14.840 --> 0:11:17.280 really want to invest in, because we've known them for 0:11:17.400 --> 0:11:19.120 years and they see that we at Baron have made 0:11:19.120 --> 0:11:21.560 the investment. And our reputation, of course when it comes 0:11:21.559 --> 0:11:24.680 to private companies and IPOs is that we are long 0:11:24.760 --> 0:11:27.760 term investors. So management teams would like Baron to be 0:11:27.800 --> 0:11:29.720 involved because we're not going to you know, trade their 0:11:29.760 --> 0:11:31.040 stock on a pop for example. 0:11:32.080 --> 0:11:34.400 So one of the things you mentioned earlier is, you know, 0:11:34.440 --> 0:11:37.000 since it's long term, you're not afraid of missing the 0:11:37.040 --> 0:11:40.280 beginning of something. But if you had the I guess 0:11:40.440 --> 0:11:43.120 the choice, would you prefer to enter a theme early 0:11:43.280 --> 0:11:46.360 before the business model has really been proven or kind 0:11:46.360 --> 0:11:50.080 of wait till the company's actually demonstrated viability. 0:11:50.200 --> 0:11:53.079 Yeah, we tend. Of course, we'd like to be early, 0:11:53.160 --> 0:11:57.480 right because you'll get more returns. However, we don't want 0:11:57.520 --> 0:12:01.240 to invest in something you know, is, for example, just 0:12:01.280 --> 0:12:03.760 a fad. It's okay if it's being in a sense 0:12:03.880 --> 0:12:06.719 perceived not necessarily as a fad, but that you know, 0:12:06.840 --> 0:12:09.600 someone is not. You know, there's a lot of debate 0:12:09.720 --> 0:12:12.000 about what the adoption will be. And of course our 0:12:12.080 --> 0:12:15.840 firm is well known for our investment in Tesla. My 0:12:15.920 --> 0:12:19.960 particular portfolio first invested in Tesla in twenty twelve, so 0:12:20.000 --> 0:12:22.840 we were very early on and of course even today 0:12:22.880 --> 0:12:25.240 there's debate about, you know, the adoption and what the 0:12:25.240 --> 0:12:28.000 penetration will be of electric vehicles. Back then, could you 0:12:28.000 --> 0:12:30.920 imagine there was much more debate. So we were able 0:12:30.920 --> 0:12:34.280 to enter at that stage of course, position our investment 0:12:34.360 --> 0:12:37.880 in an appropriate size. But we were early and if 0:12:37.960 --> 0:12:39.440 you really think about and you look at the chart 0:12:39.440 --> 0:12:41.760 of Tesla and Ron Barren, my boss, has talked about 0:12:41.760 --> 0:12:44.600 this a lot on TV. We owned the stock for 0:12:44.640 --> 0:12:46.440 a lot of I owned it from twenty twelve to 0:12:46.440 --> 0:12:48.760 twenty fourteen and got a triple and then the stock 0:12:48.840 --> 0:12:51.440 went flat for a number of years before it inflected 0:12:51.520 --> 0:12:53.600 up again, and so it was long term investors again 0:12:53.640 --> 0:12:56.960 running a portfolio, we can have some stocks that go flat. 0:12:57.160 --> 0:13:00.000 Another company that we were early on in frankly Envidio, 0:13:00.760 --> 0:13:03.240 we invested in my portfolio believe it was twenty seventeen 0:13:03.320 --> 0:13:06.640 or twenty eighteen. In Nvidia, we did not invest because 0:13:06.960 --> 0:13:09.160 it was a you know, a gaming chip company. We 0:13:09.160 --> 0:13:12.480 were investing against the AI m L back then machine 0:13:12.520 --> 0:13:16.600 learning opportunity. I laughed because we were wrong. If you 0:13:16.600 --> 0:13:18.800 look at our initial model and we thought the you know, 0:13:18.880 --> 0:13:21.960 AI penetration would be for Nvidia. I mean, we were 0:13:22.080 --> 0:13:25.040 ordered of magnitudes too low, and Nvidia just went like 0:13:25.080 --> 0:13:27.040 this for a long long time before the jet cheap 0:13:27.040 --> 0:13:29.319 PT inflection of course made it a great stock, and 0:13:29.360 --> 0:13:33.080 I think it's the best performing investment in my portfolios history. 0:13:33.360 --> 0:13:35.560 We had a full day where a team of Baron 0:13:36.000 --> 0:13:40.160 met with Jensen in twenty eighteen. We talked about AIML 0:13:40.240 --> 0:13:42.800 the entire time, and to show our investors that we 0:13:42.800 --> 0:13:44.640 were early in the kind of work that we did. 0:13:44.840 --> 0:13:47.920 I put literally put quotes from my notes into one 0:13:47.920 --> 0:13:49.360 of my quarter letters to show that what we were 0:13:49.400 --> 0:13:52.520 talking when Jensen Wang in twenty eighteen. Let's be real, 0:13:52.679 --> 0:13:54.680 four plus years. I think I can't remember a spring 0:13:54.760 --> 0:13:57.160 or fall, you know, before the chet cheap pt moment 0:13:57.480 --> 0:13:58.800 of you know, November twenty two. 0:14:00.080 --> 0:14:03.160 So you know, you just talked about Tesla. If we 0:14:03.240 --> 0:14:05.760 go back before the Navidia part, but you're talking about 0:14:05.760 --> 0:14:08.360 Tesla being flat for a few years. What happens if 0:14:08.960 --> 0:14:11.120 you know one of the companies you're invested in actually 0:14:11.200 --> 0:14:14.079 underperforms for a while. How do you keep conviction in 0:14:14.160 --> 0:14:16.679 that company when you you know, just knowing that it's 0:14:16.720 --> 0:14:17.920 something in the long term. 0:14:18.240 --> 0:14:22.280 Listen, no portfolio. It's unrealistic to almost think that every 0:14:22.320 --> 0:14:24.160 stock in your portfolio is going to perform at the 0:14:24.160 --> 0:14:26.800 same time. That's why I write a portfolio. You want 0:14:26.800 --> 0:14:31.160 to have diverse exposures for your investors. Some stocks will work, 0:14:31.240 --> 0:14:34.360 some stocks won't work. We're not timers at Baron. We're 0:14:34.400 --> 0:14:37.960 not market timers. We're not individual stock timers. Like colleagues 0:14:37.960 --> 0:14:39.960 will joke at me sometime I'll read the night before 0:14:40.040 --> 0:14:42.120 news and I'll tell people what I think the market 0:14:42.160 --> 0:14:44.560 is going to do that couldn't be completely wrong. So 0:14:44.600 --> 0:14:47.360 I'm definitely not a timer. When a stock is not working, 0:14:47.400 --> 0:14:50.720 of course, the market is telling you something. We try 0:14:50.760 --> 0:14:52.920 to understand what the market is telling us, and we 0:14:52.960 --> 0:14:55.920 try to test that through our research. If the market 0:14:56.080 --> 0:14:59.240 is you know, simply myopic or short term, that is 0:14:59.240 --> 0:15:01.440 one thing, and we could wait. If the market, you know, 0:15:01.960 --> 0:15:04.400 is telling us. And by telling us, I mean doing 0:15:04.400 --> 0:15:07.960 that research right, understanding why a stock is underperforming in 0:15:07.960 --> 0:15:10.000 the market, obviously, talking to the company, all the other 0:15:10.040 --> 0:15:13.600 things that we do. If it's just adoption is taken 0:15:13.640 --> 0:15:17.400 a little bit longer, there's been a change in the 0:15:17.440 --> 0:15:20.320 competitive environment and industry. Some of these things are real, 0:15:20.600 --> 0:15:22.440 which may cause us to have a different view of 0:15:22.480 --> 0:15:25.720 the investment. Less in the investment, sell the investment. And 0:15:25.800 --> 0:15:28.800 of course if a stock hasn't performed and other stocks 0:15:28.800 --> 0:15:31.720 have performed well and the long term return opportunity is 0:15:31.720 --> 0:15:35.600 more attractive, and we can confirm all the things that 0:15:35.720 --> 0:15:38.760 we have in our investment fieces that will let you 0:15:38.800 --> 0:15:40.480 know this company again be a company that's going to 0:15:40.520 --> 0:15:44.600 get fat ultimately on profits, will increase that investment. And 0:15:44.680 --> 0:15:48.280 so I won't say that both things have happened in 0:15:48.320 --> 0:15:50.720 my career, hopefully, you know, I believe we've been more 0:15:50.760 --> 0:15:53.080 on the right side where stocks haven't worked, and we've 0:15:53.080 --> 0:15:55.240 been right and they eventually work, but there's no doubt 0:15:55.280 --> 0:15:58.000 that there have been times that stocks haven't worked. We 0:15:58.120 --> 0:16:00.640 drilled down and we ultimately decided to exit that company 0:16:00.640 --> 0:16:02.840 because you know, when we exit, if you want to ask, 0:16:03.040 --> 0:16:05.240 it is honestly not because stocks are going against us 0:16:05.240 --> 0:16:08.520 in the market, because we conclude, based on our own 0:16:08.600 --> 0:16:11.920 research analysis, that we've made a mistake or there's just 0:16:12.040 --> 0:16:14.600 literally something better for us to invest in, even though 0:16:14.600 --> 0:16:16.840 it may not be a mistake, there's just something better, 0:16:17.000 --> 0:16:18.920 but it's never because of the trading activity. 0:16:19.240 --> 0:16:22.240 Okay, makes sense. I've actually just got one more question. 0:16:22.640 --> 0:16:27.560 I know before Mike's got a few market more related questions. 0:16:27.600 --> 0:16:29.640 But you know one other thing you like, I want 0:16:29.680 --> 0:16:31.800 to go back to Tesla for just a second. So 0:16:32.280 --> 0:16:36.680 if we talk about Elon, you know, you also mentioned SpaceX. 0:16:37.320 --> 0:16:39.400 So one of the things I've always trying to figure 0:16:39.440 --> 0:16:43.040 out is when you have exposure to a private company 0:16:43.720 --> 0:16:47.080 or you know, a structured entity, how do you evaluate 0:16:47.200 --> 0:16:50.440 those and kind of integrate those into your valuation and 0:16:50.560 --> 0:16:54.000 risk frameworks when information is obviously not as readily available 0:16:54.040 --> 0:16:54.960 as a public company. 0:16:55.200 --> 0:16:57.320 At Baron, we have an investment in SpaceX and the 0:16:57.320 --> 0:17:01.880 Baron Opportunity Fund. SpaceX is a approximately a four and 0:17:01.920 --> 0:17:04.840 a half percent position in the portfolio. Depending on what 0:17:04.880 --> 0:17:06.760 happens in the market, it could go down or up. 0:17:07.440 --> 0:17:10.800 We value it. We have a valuation committee, for example, 0:17:11.119 --> 0:17:13.080 that does the work in terms of how we value 0:17:13.119 --> 0:17:17.359 it in our mutual funds. There's a fairly active secondary 0:17:17.359 --> 0:17:21.520 market that certainly influences our valuation for the committee. However, 0:17:21.560 --> 0:17:27.320 as investors, we research and value SpaceX exactly the same 0:17:27.359 --> 0:17:30.520 way that we research and value a public company. And frankly, 0:17:31.000 --> 0:17:33.639 private companies often give you more information than you are 0:17:33.640 --> 0:17:36.320 able to get more exposure to management because you don't 0:17:36.320 --> 0:17:39.520 have some of the same reg fd issues. So we've 0:17:39.560 --> 0:17:41.960 been investors in SpaceX for many, many years. I wish 0:17:42.040 --> 0:17:44.399 I could recall the exact time period. I believe we 0:17:44.440 --> 0:17:46.800 know the company very very well, just like we might 0:17:46.800 --> 0:17:50.359 have a model on Tesla or Microsoft or Broadcom or Shopify. 0:17:50.640 --> 0:17:54.159 Of course, we have a model on SpaceX. It's not 0:17:54.600 --> 0:17:57.679 marked to market every single day in the market, but 0:17:57.760 --> 0:18:01.439 we as investors of valuate it, you know, honestly, exactly 0:18:01.520 --> 0:18:03.360 the same way. Some of the different risks, of course, 0:18:03.400 --> 0:18:05.919 are liquidity risks. There's no doubt about that, and that 0:18:05.920 --> 0:18:08.880 will inform maybe the position size we have of the company. 0:18:09.640 --> 0:18:11.639 One of the things with a company like SpaceX, we 0:18:11.720 --> 0:18:15.280 have no intent at Baron to use these secondary markets. 0:18:15.600 --> 0:18:18.840 But there's you know, there is liquidity in SpaceX today 0:18:19.000 --> 0:18:21.480 that is a little and that's evolved in the private markets. 0:18:21.480 --> 0:18:23.119 That's a little bit different than you know, what a 0:18:23.119 --> 0:18:25.879 private company might have been ten years ago. But again 0:18:26.400 --> 0:18:29.640 for all listeners there right now, the way we see 0:18:30.119 --> 0:18:33.960 the opportunities for SpaceX and certainly their differentiation whether it's 0:18:34.000 --> 0:18:36.960 in satellite broadband or in the launch business, we intend 0:18:36.960 --> 0:18:38.640 to be very long term holders of SpaceX. 0:18:39.040 --> 0:18:42.320 So cloud computing and software as a service adoption are maturing, 0:18:42.760 --> 0:18:44.520 Where do you see the next wave of growth coming 0:18:44.520 --> 0:18:45.880 from within enterprise tech? 0:18:46.119 --> 0:18:49.040 Yeah, you know, I saw that question in there. Mike. 0:18:49.040 --> 0:18:51.480 If I call you Mike, I'm Mike too. I think 0:18:51.800 --> 0:18:55.600 that the current phase that we are in is maturing, 0:18:55.920 --> 0:18:58.479 but I think the most important thing is the next phase, 0:18:58.560 --> 0:19:02.720 right and the next phase is artificial intelligence phase of 0:19:02.720 --> 0:19:05.360 cloud computing. You know, we used to think we had 0:19:05.400 --> 0:19:08.040 three what are called hyperscalers of everyone at home or 0:19:08.119 --> 0:19:10.680 listening doesn't know what a hyperscaler is the three used 0:19:10.680 --> 0:19:14.800 to be Microsoft Age or Amazon Aws and Google Cloud compute. 0:19:15.040 --> 0:19:17.040 It's very clear from the announcements of last week we 0:19:17.080 --> 0:19:20.320 have a number four that's Oracle, and certainly we have 0:19:20.359 --> 0:19:23.000 what are called neo clouds companies like core Weave, and 0:19:23.040 --> 0:19:28.600 there's just insatiable demand for power cooling and of course 0:19:28.720 --> 0:19:33.360 compute to train and run running is what's called inference 0:19:33.720 --> 0:19:38.800 AI workload. So I think cloud computing has not matured 0:19:38.800 --> 0:19:42.040 at all, just maybe what you know CPU, you know, 0:19:42.520 --> 0:19:46.440 central processing unit dominated by the Intel five percent market 0:19:46.480 --> 0:19:49.000 share of AMD. That world has changed and we're now 0:19:49.040 --> 0:19:52.879 in the you know, AI compute, GPU compute. People call 0:19:52.920 --> 0:19:55.720 them accelerator world. So I think we're in the very 0:19:55.760 --> 0:20:00.160 early stages of that and demand is literally insatiable. I'll 0:20:00.200 --> 0:20:01.600 touch on software for a second that you can come 0:20:01.640 --> 0:20:03.919