Why billionaire investor Ron Baron believes a turnaround is coming

I’ve seen every market cycle and there are plenty of attractive opportunities in this one.

Summary: Over the past 45 years I have witnessed countless bear markets, corrections and flash crashes – each bear market was followed by a longer bull run. The recent volatility and concerns over China’s growth slowdown have not fundamentally changed the landscape. There are positives in US economic data, and now is the time to stay calm and look for quality stocks.

Key take out: Incredible opportunities exist in this market, and seasoned investors know not to panic.

Key beneficiaries: General investors. Category: Shares.

Billionaire Ron Baron, chief executive of Baron Capital (where he has $27 billion under management), is cheerfully positive on the future of US equities. After 45 years as an analyst and no shortage of success (Forbes lists his personal net worth at $2b), Baron believes opportunities abound in the current volatility – provided you don't panic:

We’ve been getting a lot of inquiries lately regarding the market’s unusually volatile start to 2016. My response is simple. Stay calm and stay the course.

Here’s why. The factors that seemed to have provoked the latest selloff — fears of a China slowdown and various geopolitical crises — haven’t fundamentally changed the overall investment landscape.

Yes, China growth is moderating but this is not news. It is to be expected as China transitions from a capital-intensive infrastructure-driven economy to a more consumer- and service-oriented economy. And we will always have geopolitical crises of one stripe or another, but history has shown that the majority of these crises have little to no impact on the long-term performance of our markets. History has a lot to teach us.

As you may know, I have been an analyst since 1970 — more than 45 years! I believe this experience gives me a perspective that is different than most investment professionals. Over the course of my career, I have witnessed numerous bear markets, corrections, flash crashes, etc. I’ve probably lived — and invested — through every form of down market except one caused by a major depression, though we came close in 2007-09.

For instance:

• 1973-74: A Middle East crisis drove oil prices sharply higher, kicking off a lengthy recession.

• 1980-82 : The Fed raised interest rates to 20 per cent, pushing the economy into recession.

• 1987: Computerised “program trading” strategies flooded the market, resulting in the Black Monday crash on October 19.

• 2000-02: The dot-com bubble burst.

• 2007-09: The burst of the housing bubble set off a chain reaction that exposed major structural cracks in the financial system. The credit crunch that followed turned a downturn into the worst recession in 80 years.

These bear markets lasted from three months (Black Monday) to 30 months (Internet bubble burst). Each bear was followed by a much longer bull run. There have always been many reasons NOT to invest in stocks. The only reason TO invest in stocks is that, over the long term, stocks have always gone up — and outpaced the rate of inflation.

In 1960, the Standard & Poor’s 500 was 60. Today, it’s 1,860. While the global markets sell off, the US economy is in good shape and has been getting stronger. Unemployment is down and wages are (finally!) starting to increase. Business loans are up, which is good news for capital expenditures. M&A activity is at a record high. Interest rates are near historic lows, and we think they will remain low for at least the next several years.

Over the past year, low oil prices have cut into profits of energy companies and businesses that service them, which has impacted the markets. But we think these energy savings will soon begin to show themselves as consumers and energy-intensive businesses take these savings and deploy them elsewhere. When less experienced investors are panicking, seasoned investors see opportunities.

This is what’s happening now. We are seeing some incredible opportunities to purchase what we think are high quality growth stocks at attractive prices. We have an amazing country and we are confident that the stock market will recover.

It always has.

* This article has been republished with permission from Barron’s.

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