Institutional investors have been clearing out of stocks. They sold $42 billion worth in the five weeks ending Sept. 21.
That followed $51 billion in sales during the five weeks ending Sept. 7 — the biggest selling wave this year, says S&P Global Market Intelligence. Bank of America clients favored defensive names over cyclicals last week, another good contrarian signal telling us it is time be bullish and buy.
“This is a pretty good buying opportunity,” says David Baron of Baron Focused Growth Fund
BFGFX.
“Even if there is a slowdown next year, a lot of stocks are pricing in pretty draconian earnings.”
No one knows for sure what the future will bring. But Baron is worth listening to, judging by his record. His fund beats its mid-cap growth category and Morningstar U.S. mid-cap broad growth index by 14 percentage points annualized over the past five years, according to Morningstar Direct. That’s big outperformance.
The catch is that it may be a stock pickers’ market.
“Not everything is going to work together,” says Baron.
Here are three ways to deal with this.
1. You can solve this problem by leaving the driving to someone else, such as Baron. His fund gets five stars from Morningstar, the highest, and it charges 1.3% in expenses.
2. You can take a peek inside his portfolio for stock ideas. “A slowdown does not change our thesis on our stocks. Our companies continue to innovate and continue to grow,” says Baron.
3. Better yet, take the “meal for a lifetime” approach and consider what you can learn from him about investing.
I tackled the last two approaches in a recent chat with Baron about his investment approach and his biggest — and most recently purchased — positions.
Here are five key lessons that might help you improve your returns, with stock examples for each.
1. Hold concentrated positions
This one is not for everyone. A lot of investing is about managing risk, and big positions increase your risk considerably because if they go bad, you lose a lot of money. But time and again, I notice that…
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