“A shoe is just a shoe until someone steps into it…” – Deloris Jordan., Michael Jordan’s mom. Air: Courting a Legend. Spring 2023.
That was how Deloris Jordan, Michael Jordan’s mom, described her vision to Nike (NKE) for a basketball shoe she wanted named for her son. Mrs. Jordan outlined the impact Michael’s story could have on Nike’s business. That was since Deloris believed Michael would become the greatest basketball player ever! “A shoe is just a shoe until someone steps into it,” she explained…and ultimately persuaded Nike to bet on her son as an influencer for the Nike brand. Mrs. Jordan represented Michael in contract negotiations with Nike. Those discussions…and Nike’s executives’ interviews with Michael and Deloris…extensive viewings of Michael’s college game films…interviews with Michael’s coaches and people who knew him well…and Deloris’ unwavering belief in her son… led Nike to create the Air Jordan brand.
Nike was founded by Phil Knight and his college track coach in 1964. Knight began selling running shoes with an innovative waffle sole he had designed for college track athletes…from the trunk of his car!
In 1984, Michael Jordan’s rookie year in the NBA and 20 years after Nike’s founding, that company was principally a running shoes business. Nike’s annual revenues then approximated $900 million, and its basketball shoe division was not profitable… and about to be closed.
In 1984, Air Jordan catapulted the Nike brand into relevancy. That’s because Nike and Deloris TOLD THE STORY about Michael Jordan, the person who stepped into the Air Jordan shoe…after Phil Knight made what seemed at the time a “risky investment” in Jordan because it “felt like the right thing to do.” Today, Air Jordan’s annual basketball shoe revenues approximate $5 billion, about 10% of Nike’s $50 billion annual sales!
Trina Spear is the co-founder and CEO of FIGS, Inc. (FIGS), the native online provider of exceptional health care worker uniforms of the highest quality. The lesson Trina learned from Air Jordan’s incredible success? She believes what drives the most revenue for a business isn’t necessarily what drives the most brand awareness.
FIGS has designed the most attractive, innovative, and technical branded scrubs for its community of health care workers by making investments that seemed risky at the time but were the “right thing to do”. It has established a competitive advantage for its brand by TELLING THE STORY and providing unwavering support for its community of individuals she calls Awesome Humans. They are the doctors and nurses who work so hard to serve the rest of us… and, whom, she believes…and we do, too… are generally underappreciated.
FIGS’ annual revenues have increased from zero to $500 million in the past 10 years. This is due to the incredible support and buy-in of the health care community. One of the first individuals who mentored me early in my career used to tell me, “What goes around, comes around.” We believe that to be so…and we also believe FIGS, in part due to its community support, is just getting started.
One more thing. Trina Spear started her business selling FIGS scrubs she and her co-founder partner had designed…from the trunk of Trina’s car in hospital parking lots…50 years after Phil Knight sold shoes from the trunk of his car!
We have an analogous story at Baron. I have often shared with the incredibly talented individuals with whom I have worked for so many years my view that Baron should not even exist. That is since few firms have been able to outperform benchmark indexes…and extremely low cost passively managed funds by definition earn benchmark returns. To outperform benchmarks we would need to recruit, train, and retain exceptional people…have a differentiated process…consistently invest in our people and business…OUTPERFORM…put our clients’ interests ahead of our own…and TELL OUR STORY!!! We have accomplished all that.
Since their respective inceptions as mutual funds, 16 of 19 Baron mutual funds, representing 98.7% of Baron Fund’s AUM, have outperformed their benchmarks.
Thirteen Baron mutual funds, representing 96.3% of Baron Funds’ AUM, rank in the top 20% of their respective Morningstar categories. Nine funds, representing 56.4% of Baron Funds’ AUM, rank in the top 10% of their categories, and five funds, representing 46.7% of Baron Funds’ AUM, rank in the top 1% of their categories. All five of these funds are the number one performers in their categories. Baron Partners Fund is the number one performing U.S. equity mutual fund since its conversion from a partnership to a mutual fund in 2003.* Its performance as a partnership from 1992 through 2003 was equally strong.
In early August, Michael Baron, David Baron, President and COO Linda Martinson, General Counsel Pat Patalino, CFO Peggy Wong, and I met with Baron Funds’ Independent Board of Trustees, as we do each quarter. The Independent Trustees are employed by Baron Funds, not by Baron, my family’s private management company. The Independent Trustees are charged by SEC regulation with oversight of Baron Funds and BAMCO, Inc., the adviser to Baron Funds. To fulfill their responsibilities, the Trustees ask Baron executives to discuss our outlook and business operations as well as our investment strategies, tactics, and performance. They also frequently ask to speak with portfolio managers and analysts, as well as other professionals in Accounting, Legal and Compliance, IT, Sales, Marketing, and Trading.
At our May meeting, a third-party was commissioned to produce reports to help the Independent Trustees with the renewal of the Funds’ investment advisory contracts with Baron. Those reports analyzed the relative and absolute performance of Baron Funds. I was pleased to read commentary concluding that most Baron Funds outperformed their benchmark indexes and their respective peer groups. We believe our funds have outperformed by not being the same as the market. According to the reports, with respect to top performing Baron Partners Fund, there were “no peer funds that…were a reasonable style match” for that fund. I believe this is the case for most of our mutual funds as well, which is why they have outperformed virtually all other mutual funds.
I informed the Trustees that despite challenging market and economic conditions, Baron continued to consistently invest in its business. Without interruption. In addition to expanding our office footprint about 50% during the past nine months, Baron added 16 individuals to our team. Baron now employs 201 individuals. Despite layoffs in financial services and reductions in compensation for many in our industry, that has not been the case at Baron. Baron continues to hire, train, and retain. This is due to our belief that the longer talented professionals work together, the better our performance for clients is likely to be. Since Baron has never had a layoff in our 41-year history, we believe we have been able to recruit the best investors. Loyalty is a two-way street, we think. Of course, Baron’s no layoffs practice has been the case, despite the fact that our family business profitability has not always been optimal.
One more thing. Fortunately, a few of our recent hires appear to be serious athletes. At least, I hope that is the case since we’re trying really hard to improve our teams’ standings in the intramural Wall Street softball and basketball leagues, The JP Morgan Corporate Challenge, and golf competitions. We live in hope.
Thank you for joining us as fellow shareholders in Baron Funds.
Respectfully,
Ronald Baron, CEO
P.S. We hope to see you at the 30th annual Baron Investment Conference on November 10, 2023. It will take place, as it has since 2005, at The Metropolitan Opera House in Lincoln Center in New York City. This fall, we will celebrate our 41st year in business. These annual meetings are typically attended by more than 5,000 Baron Funds’ shareholders and Baron clients. I promise you will learn a lot from the exceptional CEOs who manage the competitively advantaged growth companies in which your savings have been invested. I hope you will also come to understand even better our Firm’s mission. That is to provide extraordinary investment opportunities to middle class individuals like my parents that are more commonly available only to institutions and very wealthy individuals.
We’re sure you’ll have a great time. The entertainment at lunch and in the afternoon isn’t exactly chopped liver as they say. We will also continue with drawings for what have become traditional Tesla door prizes before lunch. Those amazingly beautiful automobiles…the safest ever made on Planet Earth…are given at our expense…not yours. Just like all the expenses incurred that day. Ours. Not yours. It is our way to say “Thank you” for trusting us to manage your family’s hard-earned savings. We can’t promise investment returns…but we can promise we will try as hard as possible to continue to achieve outstanding results. See you November 10. Oh, yeah. You’ll have a better chance to win a Tesla than to win the Lottery!!! That I can guarantee.
P.P.S. Don’t forget to get an absolutely delicious ice cream cone on the Lincoln Center Plaza at the end of the day. This year, we will have four Scream Ice Cream trucks waiting for you as you leave the Lincoln Center campus. I have a small personal investment in the Scream Ice Cream business. One college summer, I drove an ice cream truck, and when I had the chance to go back to my “roots” by investing in Scream, I grabbed it. The cones are “on the house.” Just tell the ice cream man, “Ron sent me.” And don’t forget to pick up a “swag” bag as you leave. This year, in addition to our “OWN IT” Baron conference t-shirts made by FIGS and a big chocolate chip cookie, we’ve included Walter Isaacson’s Elon biography. It is an amazing story! Just Amazing!!!!! Enjoy!!
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* This is a hypothetical ranking created by Baron Capital using Morningstar data and is as of 6/30/2023. There were 2,113 share classes in these nine Morningstar Categories for the period from 4/30/2003 to 6/30/2023. |
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