Alex Umansky has been one of the world's best stock pickers for years, and his fund is making 6 times more than the competition in 2020. He told us the 4 pillars to his investing approach.
- Alex Umansky's Baron Global Advantage Fund has been at the top of its class for years and brought more than 60% to investors in 2020.
- Umansky told Business Insider about the core of his approach and how investors can keep themselves from being led off course.
- Kiplinger rates his fund as the best global stock fund of the last year, the last three years, and the last five years for periods ending September 30.
- Visit Business Insider's homepage for more stories.
It might come as a surprise that one of the most successful tech stock pickers in the world tells people to unplug, but Alex Umansky says that's a critical element to his work.
"Most of my time is spent reading. I turn off my screens for four or five hours every single day. I turn off TV, I turn off FactSet or Bloomberg," he said. "Exercise, go for a walk, go read a book, watch a show, whatever it is that will allow your mind to be fresh so that you can make good decisions. At the end of the day, this is all about decision-making."
The idea is to be well-informed but not overwhelmed and distracted by excess information, he told Business Insider in an exclusive interview. That's the way to stay focused on your plans and invest with conviction, something that's already challenging if investing isn't your full-time job.
"You just have to stay in balance all the time, not to be too high, not to be too low, not to be too fast, not to be too slow," he said. Tuning out the noise also makes it easier to examine your own decisions later and learn from them, all of which makes it easier to invest with conviction.
That's working very well for Umansky, who runs the Baron Global Advantage Fund. It's the best global stock fund in the world over the last year, as well as the past three years and five years, according to Kiplinger. (All for periods ending September 30.)
Over that five-year span, Umansky has roughly tripled the return of the typical fund in his class, bringing in 27.4% per year based on Morningstar data as of November 6. This year the disparity is even more extreme, as his fund is up 65.6% while his peers and his benchmark are up less than 10%.
Umansky says the credit goes to patience, not good timing.
"When this pandemic started unfolding, we were in the right companies at the right time," he said. "We are looking at disruptive change. And the biggest change that we think is happening is that economies are digitizing, and it's not just retail and it's not just advertising and it's not just banking, it's everything."
In the last 12 months Umansky has scored a 599% return on his investment in the freelancing platform Fiverr, while his shares of Chinese delivery company Meituan Dianping and cloud communications company Twilio have each roughly tripled in value. He's gained 169% from Latin American e-commerce company MercadoLibre.
All of those investments were made in 2018 or 2019, long before the world was worried about a coronavirus pandemic.
"This is really the result of the work and investments that have been made in the prior two, three, five years," he said of his recent returns.
If the world is changing that quickly, it might seem like Umansky is out chasing a lot of opportunities and betting on world-altering trends. But he says he's not. Instead he's selective and only chooses companies with unique characteristics and decisive advantages.
"We don't go trying to identify a theme and then trying to find a company that would benefit from that theme. It's more the other way around," he said.
There were 51 companies in his portfolio at the end of the third quarter, and on average the portfolio turns over every five years. Umansky says that stable approach means companies often seek out his firm for investment before they go public.
"We get a long period of time to do our due diligence and to get to know the company, to follow the company, to understand the company, whereas your typical investor gets a two-week period during the company's road show," he said. "We probably end up investing in about 10% of the companies we meet with while they are private."
Amid all the upheaval this year, he's made only two major additions to the portfolio. One is Snowflake, among the hottest IPOs of 2020.
"We feel like this is a pure play on the migration to the cloud on the growth of cloud computing," he said. "They have a cloud native architecture, and we think that's a meaningful competitive advantage that enables them to offer lowest cost, highest scalability, highest ease of use."
The other is ZoomInfo, not to be confused with Zoom.
"It enables their customers to identify and target very specific prospects, which shortens the sales cycle and basically increases the win rate. So think of them as a CRM on steroids," Umansky said.
To that end, he's following these industries and betting on the winners. As a believer in tuning out the noise, Umansky says he's far more interested in what Big Tech is doing than he is in the headline risks it supposedly faces. He says the leaders in tech are too dominant and are relentlessly building on their leads with new acquisitions.
"You can't regulate consumer preferences," he said. "Once you do that, it's very difficult, I think, for the regulators to come in and say, 'consumer behavior or consumer preferences needs to be changed.'"
He notes that a second dynamic is emerging among FANG-type stocks: They're at odds with each other more and more often.
"I think what the regulators are missing by the way is that these companies are the biggest checks and balances on each other," he said. "They are increasingly colliding with each other."
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