There is a rule of thumb on Wall Street that when a fund knocks it out of the park in any given year or has an exceptional winning streak for a couple of years it is bound to fall to earth sooner rather than later and lag the market, its peers, or both for several years. It’s called reversion to the mean.

With few exceptions, this week’s guest has been in the winning streak category for a while. He is Michael Lippert, Head of Technology Research at Baron Capital and portfolio manager of the firm’s high-growth stock oriented Baron Opportunity Fund 

Morningstar’s one caveat about the fund’s performance has been its volatility, as it focuses entirely on companies with high rates of growth, not on the mitigating effects of returning capital to shareholders with stock buybacks or dividends. Volatility is a topic Lippert tackled in-depth in a recent quarterly letter to fund shareholders. I ask him to share his views with us.   

WEALTHTRACK Episode #1745; Originally Broadcast on May 07, 2021

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MICHAEL LIPPERT

• Portfolio Manager,
• Baron Opportunity Fund

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ACTION POINT

AVOID MARKET TIMING

• Usually leads to lower returns than buying & holding stock, mutual fund or index
• Active trading results in significantly higher volatility
• Historical evidence shows market timing leads to significantly lower returns than buy and hold strategy
• Market timing also leads to increased volatility
• “…the volatility of investor returns is higher than the corresponding volatility….” in individual stocks, portfolios of stocks & market indexes
• Results hold true in U.S. & major international stock markets – and in multiple investment periods since 1925
• Volatility 15-75% higher than buying & holding the same positions
• “…the bad timing of investors with respect to volatility suggests another argument for passive-style investing strategies that minimize trading, and avoid timing the markets.”  

Source: “The Volatility of Stock Investor Returns” Ilia D. Dichev, Emory University, Xin Zheng, University of British Columbia, 1/22/2021 Download the report.

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ONE INVESTMENT

DEVELOPING WINNER: BUY ZOOMINFO

ZI data by YCharts

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STOCKS

Stock mentions in this episode:

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FROM THE ARCHIVE

Michael Lippert’s previous appearances on WEALTHTRACK:

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WEB EXTRA

LIFE LESSONS

High-performing portfolio manager Michael Lippert is taking the hard lessons learned from a life-threatening accident back in 2015 and applying them to the pandemic experience.