BALTIMORE - The small brownstone building on quiet Cathedral Street in downtown Baltimore is hardly remarkable. But behind its heavy doors is someone who is making a name for himself as a heavyweight stockpicker - Eddie Brown.
Mr. Brown is president of Brown Capital Management Inc., where business is booming. Brown Capital's assets under management have jumped almost 30% this year alone - to $3.2 billion, more than double what it managed in 1995, and almost 10 times what it managed five years ago. This year it has added about $700 million in assets - $199 from a host of new clients and the rest from appreciation in its portfolio.
Its biggest coup came last December when Texaco Inc., the White Plains, N.Y.-based oil giant, hired Brown Capital as one of seven new money managers to oversee a total of $186 million. Neither Brown nor Texaco officials would comment on the distribution of business.
"We are hitting on all cylinders," said the 56-year-old Mr. Brown.
Texaco isn't the only one impressed with the firm. In the past year, Brown Capital has landed:
$250 million from the Oregon Public Employes' Retirement System, Salem;
$100 million from the State Retirement and Pension System of Maryland, Annapolis; and
$80 million from the City of Philadelphia Board of Pensions.
Outperforming the indexes
Mr. Brown is widely known for his ability to find stocks that rise in value - a talent evident in his performance during 1996 when he bested the industry's benchmarks: his small-capitalization picks rose 22.9% vs. the Russell 2000's 16.6% return; midcap picks rose 24.7% vs. the Russell Mid-cap Growth's return of 15.6%; and large-cap picks rose 24.5% vs. the Standard & Poor's 500 Stock Index's return of 23.3%.
And as of late last month, he is having a good year in small-cap picks, which are outpacing the Russell 2000, 22.2% vs. 15.8%. Returns in other areas are lower than the benchmarks. His midcap picks are returning 18.8% vs. the Russell Mid-Cap Growth's return of 20.2%; and his large-cap business is returning more than four percentage points less than the S&P's 500, 22.6 % vs. 26.8%.
He attributes the fall-off to the fact that he hasn't invested in blue-chip stocks, such as Coca-Cola Co., Gillette Co. and Procter & Gamble Co., which largely have driven the market.
"I'm never pleased with lagging. This year is not over yet. We will be ahead," Mr. Brown said, adding the company since 1990 has substantially outperformed the indexes.
High praise for stock-picking
"He's been sensational," said Louis Rukeyser, host of "Wall Street Week With Louis Rukeyser," in a recent interview. "He has perennially been one of our best stockpickers."
Mr. Rukeyser once wrote in his monthly newsletter that Mr. Brown is "one of the most careful, and successful, students of securities alive today."
That is high praise, and there is little wonder why Mr. Brown has been so successful. Besides the $250 million from the Oregon Public Employes' Retirement System, the firm's largest clients include pension giant California Public Employees' Retirement System, Sacramento, $455 million; and Calvert Group, a Bethesda, Md.-based mutual fund company, $239 million.
Mr. Brown acts as if he's surprised by the firm's growth and success. He chuckles when he talks about it.
Eddie Carl Brown was born Nov. 26, 1940, in Apopka, Fla., a rural hamlet 13 miles from Orlando. He was raised by his grandparents in a one-story frame house with no hot water or indoor plumbing. Heat came from a wood-burning stove, light from kerosene lamps.
Mr. Brown's grandfather picked oranges and grapefruits in the nearby citrus groves, and his grandmother tended plants at a nursery. When he was 9, Mr. Brown's grandmother started taking him to Orlando.
Better ways to earn money
She knew he was smart because he did well in school, and she wanted to show him that there were better ways of making a living than picking oranges and tending plants.
As they walked down the streets of the city, she pointed to men in suits and white shirts and ties.
"If you go to school, get a good education, you can sit behind a desk, wear a white shirt and a tie," Mr. Brown recalled her saying.
The youngster needed little convincing. He dreamed of being the first in his family to go to college.
When he was 13, his grandmother died, and Mr. Brown moved to Allentown, Pa., to live with his mother, who made a living as a domestic worker.
The transition wasn't easy. He was getting good grades, but teachers at Allentown High School tried to persuade him to enroll in shop classes instead of college preparatory courses.
Mr. Brown was stunned. There was no way he was going to take vocational education classes. Mr. Brown, his mother and a family friend argued his case with school administrators.
"How am I going to get into college taking industrial arts courses?" Mr. Brown recalled asking.
School administrators backed down, and Mr. Brown finished among the top of his class. He graduated when he was 16.
Mr. Brown graduated in 1961 from Howard University in Washington, with a degree in electrical engineering. At Howard, he met Sylvia Thurston, and the two married in 1962.
After graduation, Mr. Brown joined the Army Signal Corps, but left to take a job with IBM Corp. as an electrical engineer. He earned a master's degree in electrical engineering at New York University. In 1968, he left IBM to earn an MBA at Indiana University.
Money management career begins
After graduation, he worked for Irwin Management Co., a money management firm in Columbus, Ind., and in 1973, he got a job at T. Rowe Price Associates Inc. in Baltimore.
"He fit just perfectly," said Thomas H. Broadus Jr., a managing director with T. Rowe Price who worked with Mr. Brown for a decade. "He's smart as hell. He keeps his cool under fire. He just had extremely good, sound judgment."
Mr. Brown excelled at T. Rowe Price, where he was promoted to vice president.
But he thought of starting his own business. He had an "entrepreneurial bug" that nagged at him the older he grew. At 42, Mr. Brown reasoned that if he started his own business and it failed, he would have time to recover.
He decided in early 1983 to start the business. He broke the news to
his family over dinner. He often used dinner time to talk with his wife and two daughters about his
investment strategy and companies he liked. And he liked to listen to what his daughters had to say about their day at school.
Their reactions were mixed.
"What about my college education?" asked Tonya, who would soon graduate from high school.
But Mrs. Brown and their younger daughter backed the plan.
Starting his own shop
Mr. Brown had saved enough money to run the business for up to three years without making a profit. On a piece of paper he outlined his goals and objectives. Topping the list:
"Get some clients."
An easy way to build the client base quickly would have been to steal clients from T. Rowe Price. But Mr. Brown had a "moral obligation" to the firm.
He set up offices in the study of his suburban home in Glen Arm, Md., hired an assistant and sent out announcement cards to pension fund executives and estate and trust attorneys.
The spigot had been turned on.
A woman in Washington who had won a $200,000 medical malpractice lawsuit and saw Mr. Brown on "Wall Street Week," called to see if he would recommend someone to manage her money.
"I would like to recommend myself," Mr. Brown recalled he answered.
His brother-in-law, a doctor in Texas, hired him to manage the office's pension plan. A former client with T. Rowe Price brought her business to Brown Capital. So did a local minister.
Within the first four months, Mr. Brown's business was breaking even. Business has been brisk ever since. But today, clients who invest with Mr. Brown must have at least $5 million. The firm also offers several mutual funds that require a minimum investment of $10,000.
Fascinated with companies
Success hasn't softened Mr. Brown. He's fascinated with companies, and he loves to make his clients money.
His daughters have seen this drive, even on family vacations.
While driving down the highway in his Jeep Cherokee, Mr. Brown erupts into a recital of a company's history.
"He's always investigating and he's always on the lookout," Tonya said.
While on family vacations, Mr. Brown's been known to take a quick exit because he wants to scout out a Cracker Barrel or a Cheesecake Factory.
"He has a need to excel," said Robert E. Hall, a portfolio manager with Brown Capital. "Eddie never takes anything for granted."
Mr. Hall has taken red-eye flights from Los Angeles with Mr. Brown, and at 2 a.m., his boss is still poring through company reports.
"He has tremendous drive," Mr. Hall said. "It is not greedy drive. It is what I call a high-torque drive."
Winning national recognition
Mr. Brown's determination has won him national recognition. He was named to Wall Street Week's Hall of Fame about a year ago, joining such luminaries as Peter Lynch, who headed Fidelity Investment's Magellan Fund, and economist Milton Friedman.
Over the past five years, he has returned an annualized 24.3% among Wall Street Week's panelists. Mr. Rukeyser said the return "is not only sensational, it is the fourth best of all panelists. He has an incisive mind, and he gives sound and valued advice."
Returns have been equally as good, clients say.
"He's great," said Linda Brewton, investment officer with the California Public Employees' system. "He is one of our top-performing managers. He has consistently outperformed his benchmark since we hired him."
Of the $455 million Brown Capital manages for CalPERS, the firm handles about $388 million as a large-cap growth manager of domestic stocks. Brown's annualized return over five years for the system is 21.96%, and 29.87% over three years, Ms. Brewton said, bettering the S&P 500's 5-year benchmark of 19.94% and its 3-year benchmark of 28.83%.
Brown Capital has returned 30.54% in the first six months of the year, below the S&P's 45.16% return.
One of the firm's biggest coups was landing Texaco. The Fortune 50 company had been battered last year over charges of racism, and it wanted to repair its reputation.
GARP is his style
Mr. Brown's investment strategy is to find companies that are growing quickly, have strong earnings, but are selling at a discount: growth at a reasonable price.
Companies he likes include software maker Cisco Systems Inc.; Cardinal Health Inc., a pharmaceutical distributor; and Green Tree Financial Corp., a diversified financial services company.
He's telling clients that over the next three to five years, the stock market will return to its historic 10% to 11% annual returns, down from its current brisk pace of more than 20%.
"We are trying to talk down expectations," Mr. Brown said. "We just think it is realistic."
Mr. Brown has done well for himself. He makes a good salary, which he won't disclose, and he formed the Eddie C. and C. Sylvia Brown Family Foundation in 1994 to help African-American children in Baltimore.
As for the firm, Mr. Brown says business is going so well he could add another $4.5 billion in assets in the next five years.
"I don't want to be huge. We are going to manage lots of money, but we will limit the number of clients," he said.
