With everyone worried about Europe and other macro concerns, stock market valuations are below where they’ve been historically, Ron Baron, Baron Capital CEO, told CNBC’s “Squawk Box” on Wednesday.
“Everyone is worried about the European fiscal crisis, they're worried about Iran, they're worried about the fiscal cliff,” Baron said, “and they're not working on companies, they're not looking for investment opportunities.”
That has left the stock market trading below where it’s been valued historically, Baron said. Over 200 years the market valuation has been an average 15.5 times earnings, Baron noted. Today it’s a bit less than 14 times.
“People are so concerned that they give stocks a much lower valuation than they normally do,” he explained. (Read More:The Definitive ‘Game-Changer’ in the Euro Zone?).
Baron expects us to come out of the current uncertain macro environment by governments doing what they always do, “they print money and they create inflation.”
Baron also said the way to outperform the market is to do deep fundamental research on individual companies.
“Everyone's trying to guess and time the market and trade news, and I think that's a foolish game,” he said.
“The stock market in the past 20 years is up 7.5 percent a year for 20 years,” Baron said, but individual investors have lagged.
“The reason is they're trying to trade news and they don’t always get it right,” he said. But it’s not just individuals who can’t time the market well, “nobody can get it right,” Baron added. (Read More: 15 Companies With Zero Debt.)
Baron tries to find companies that are solving problems. “That’s where often opportunities to grow are, if you have a well-managed business, competitively advantaged,” he said.