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Oracle Of Apopka

Eddie Brown grew up as a laborer in the Jim Crow South. What he’s accomplished since is one of Wall Street’s greatest untold stories, a study in growing rich on the ignorance of the crowd.

Antoine Gara

Inside a four-story, sumptuously restored 19th-century town house in the historic Mount Vernon district of Baltimore, three of Wall Street’s best stock pickers are roasting each other in a wood-paneled boardroom as sunlight streams through stained-glass windows.

“Usually when we’re getting rid of something [in the portfolio], we’re getting rid of Kempton’s mistakes,” booms Keith Lee with a laugh, referring to Kempton Ingersol, a Brown Capital Management portfolio manager and the son-in-law of the firm’s CEO and founder, Eddie Brown.

Lee, 59, is the president of $12 billion (assets) Brown Capital and leader of a team of portfolio managers that Morningstar has put in its hall of fame. A former star linebacker at the University of Virginia, Lee was once a New England Patriot. I played “right bench,” he jokes.

It’s about noon on a Wednesday and stocks are sliding. These fund managers are laughing at a time when most other active managers are facing redemptions—a testament to the firm’s counterintuitive approach to finding great stocks. Brown Capital is an old-school stock-picking operation that doesn’t chase the latest fads on Wall Street. The firm hunts for unglamorous but fast-growing companies. Ever heard of Balchem, Bio-Techne, Manhattan Associates, Tyler Technologies or Veeva Systems? They are all top holdings at Brown. And they all have long-term returns that rival Apple’s.

Brown mostly buys growth companies that have revenues of less than $250 million. Its approach is simple: Find businesses that save time, money, headaches and lives. Then determine whether management has the skills to execute a growth strategy that will push their products or technology into new markets. If these criteria are met, load up on the stock and wait.

On average, turnover in Brown’s 40-stock Small Company Fund is about once per dec ade. Its investment in Cognex Corp., a Natick, Massachusetts, maker of machine vision equipment, was initiated in 1992 when the company’s market cap was under $200 million. Today the stock represents 5% of the fund and has a market cap of nearly $8 billion.

So far this year, Brown’s flagship Small Company Fund is up 21%, trouncing the market, and has averaged a 19% return annually over the past decade. Since its inception in 1992, the fund is up 22-fold.

“We take what we do extremely seriously.,” says Lee, who started at the firm 28 years ago. “We just try not to take ourselves that seriously.”

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June 30, 2019

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