In the historic district of mount Vernon in Baltimore is a luxury four-storey building of the 19th century. In his living room, decorated with wood and with stained-glass Windows through which pours the sunlight, there were three investors from among the best on wall street and teasing each other.
“Usually, getting rid of something [in the portfolio], we correct errors Kempton”, — laughs out loud Keith Lee, referring to the of Kempton Ingersol, portfolio Manager Brown Capital Management and son-in-law of the CEO and founder of the company Eddie brown.
59-year-old Lee — President of Brown Capital, under which assets are $12 billion, and the leader of the team of portfolio managers, which research firm Morningstar has placed in your hall of fame. The former star linebacker of the University of Virginia, Lee once played for “new England Patriots”. “I played a reference,” he jokes.
Today is Wednesday, the yard is almost noon, and share prices are heading South. These managers laugh, while most other active financiers lose money. This confirms the efficiency of the counterintuitive approach to finding a good stock. Brown Capital adheres to the old school and not chasing fashion on wall street. Firm hunts for inconspicuous, but rapidly expanding companies. Have you ever heard of Balchem, Bio-Techne, Manhattan Associates, Tyler Technologies, or Veeva Systems? This is the best asset in the portfolio Brown. In the long term, these investments yield to compete with that investment in Apple.
Basically, Brown is invested in emerging companies with revenue less than $250 million the company Approach is simple: find businesses that save time, money, save lives and relieve headaches. Then, determine whether the management skills necessary to implement a growth strategy that will bring their products or technologies in new markets. If these requirements are met, you buy shares and wait.
The flagship project of the Brown Capital Fund Small Company Fund that combines stocks of forty companies (this part is updated not less than once in ten years). For example, Cognex, a manufacturer of vision systems of NATICK, Massachusetts, Brown first invested in 1992. Then the company’s market capitalization was less than $200 million Today, these shares constitute 5% of the Fund, the market capitalization Cognex reaches nearly $8 billion this year, the volume of the Small Company Fund was up 21%, ahead of the market. For the past ten years, the return on investment averaged 19%.
“We treat it very seriously, says Li, who founded the Small Company Fund 28 years ago. We just try not to take too seriously,”he said.
Informal corporate culture of the company and its desire to acquire undervalued stocks of growing companies are largely a reflection of the incredible life journey Eddie brown — the main character of one of the greatest, but previously untold success stories of African Americans on wall street.
78-year-old brown was born in Apopka, Florida, in 1940. His mother was only 13 years old. The boy grew up under the care of grandparents in that part of town where there were no paved roads, running water or electricity in homes. His grandfather worked on the citrus plantations near where brown even as a child was driving the truck, and grandma was Chernoreche in the greenhouse, where they grow philodendron. Grandma brown’s grandson drove to Orlando and showed him office staff, saying: “If you stay in school and keep your grades up, then one day you too will sit at the table as the man in the white shirt and tie, and you won’t have to work in the field in the heat.”
Brown was motivated by two things. His uncle Jake, a businessman carrying on their trucks citrus workers and moonshine, taught him that you can earn without a boss. Teachers in segregated schools, where he studied under brown, and taught other lessons. “They have it hammered into our heads that if you’re black, you have to try twice,” he recalls.
In 1955, when brown was studying in the 10th grade, his grandmother died. Cousin was afraid that Eddie will follow in the footsteps of his uncle (Jake ended up in prison), so I called 27-year-old mother brown, who then lived with her boyfriend in Allentown, Pennsylvania, she took her son.
In the North white administrators in the new high school brown, without testing, decided that he had to repeat the tenth grade and learning for the program of technical specialties. But brown’s mother insisted her son was placed in the class College prep. Test for career guidance showed that brown could become a good engineer, after which he applied and enrolled at Howard University, a historically black University in Washington.
The patron of the Allentown anonymously paid the tuition, accommodation and textbooks brown at Howard. At the University he met his future wife Sylvia (they have been married for 56 years). In 1961, brown received an engineering degree grid and began working at Martin Marietta and then as an engineer, came to IBM. At this time he discovered his love for investments and, having received a scholarship, enrolled in the school of business at Indiana University. After finishing his studies in 1970, he found work in Columbus, Indiana, Irwin Management — family office that was founded by George. Irwin Miller, CEO of Cummins Engine. Miller was one of the most enlightened capitalists of the 20th century and worked with Martin Luther king Jr. on the organization of the March on Washington.
The firm, brown was an analyst of the stock market. In 1973 President, T. Rowe Price Charles Shafer offered him a place in one of the first management companies focused on growth stocks. Brown became the first portfolio Manager of African-American origin at the Baltimore firm. Soon, Schaefer, preparing to retire, gave EMK most of their accounts. Brown was surprised, but most of his white customers, and the eye is not taken. “I learned something, says brown. — Money-the — green.”
The next stage in his career, brown came in 1979, when he began to regularly participate in the legendary PBS “Week of wall street with Louis Rukeyser”. Creating a name for himself, brown in 1983 was able to set up his own firm. His first client with a capital of $200 000 came through the letter sent to the transmission. It was Geraldine Whittington — a former personal Secretary to President Johnson and the first African American, who work in the White house at this position. Money on the investment it received as compensation for medical negligence.
“Eddie was a significant example to follow, says John Rogers, founder of Ariel Investments of Chicago. — We were inspired by how he performed in the legendary TV show that’s on Friday night watched everything.”
In 1992, a former colleague of T. Rowe Robert Hall tried to persuade brown to create a unique Fund to invest in small companies that would evaluate firms by revenue, not market capitalization. The Fund, which Hall eventually created together with Lee soon invested in many companies from the fields of health, corporate services and technology. He avoided investing in cyclical companies, real estate and banks.
To gain a competitive advantage in health care, managers, Brown has hired experts in genomics from nearby Johns Hopkins University, and learned from them. Ideas came from everywhere. For example, Panera Bread company he opened when, during one of the trips in 1986 were hungry and went in belonging to it is a cafe called Saint Louis Bread Co. About company Green Mountain Coffee Roasters (now Keurig Dr. Pepper), there was a small wholesaler of Vermont, Brown Capital learned from the article in the newspaper. Investment in its stock was the best investment firm. For the period up to 2012, when Brown Capital out of the capital of the company, its shares rose 90 times.
“I’d like to tell you that we had all sorts of incredible algorithms and very complex ways [of good stock selection], Li says. But it’s just fundamental analysis”.
Not all undertakings of the company success. One of the biggest assets of the Fund — Inogen (Californian manufacturer of portable oxygen cylinders for people suffering from respiratory diseases) decreased revenue, and in eight months its shares have fallen by 76%. In this case, the Brown Capital can afford to wait. Almost ten times the revenue of the Fund from stocks that he started buying in 2016, almost disappeared, but Brown continues to increase his position.
In 2013, after the return on investment averaged 14% per year for 20 years, Small Company Fund stopped accepting new investors. Now brown and Lee apply the strategy to an even less popular stocks of foreign small companies. Under the leadership of four managers, including 39-year-old Kabir Goala educated at MIT, the profitability of investing in International Small Company Fund with assets of $400 million over the past three years averaged 18% per year compared to 10% for comparable funds. Its largest investment — MercadoLibre, a South American version Amazon.com with headquarters in Argentina. The company has risen five times in the short time that she has invested Brown.
Brown, with according to Forbes a hundred million the state is concerned that investment firms under the leadership of African Americans, such as Holland Capital Herndon Capital are closed. In 2016, he completed an optional plan for employees, and now employees 36 Brown (70% of them belongs to a different minority) owners of the Baltimore company. Now that he has a successor, brown donates money, inspired by the example of his anonymous benefactress from Allentown. For 25 years he and his wife Sylvia have donated more than $39 million dozens of educational, religious, and creative projects, primarily in Baltimore.
“All of us dark-skinned people working with investments, must do everything possible to let the world know that it is possible to make huge profits, says brown. — It’s not just in wealth, but to have the opportunity to help others.”
Translation Natalia Balabanchevo.
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