When Buying A Stock, Invest in Management

The Oct. 10 issue of Forbes had an interview with billionaire growth fund manager Ron Baron.

He listed 4 criteria for investing in a new company. He said many others look at the first three, so the fourth one is especially important:

1. The business must have growth opportunities.

2. The business must be appropriately financed.

3. There should be a competitive advantage (i.e. barrier to others from competing with them).

4. There needs to be a trustworthy leader that inspires people to follow them - who will invest in the business, even if it hurts the short term bottom line.

The example he gave was Ralph Lauren. His European franchisee was doing poorly, and Lauren realized that Europe was the next big market. He had to pay such a high price to acquire the franchisee, that it diluted the stock. In the long run, however, the move paid off.