One of the most intriguing truths of Eddie C. Brown’s life is that he was born to a 13-year-old mother. He was ferried to his grandparents at just two years old and he lived with them until his grandmother died. As a child and a young man, he longed for the opportunities that education provided and the luxury of never having to worry about money. These facts combined to depict a life in which the odds against Brown appeared mountainous.
Today, he is a reputable founder and president of Brown Capital Management with over $10 billion under his management,
“I knew at an early age, around 10 or 11, that I wanted to be independent and my own boss. What stuck out to me was doing whatever was necessary so that I could be successful and be successful in running my own business,” Brown said of how he craved wealth as a child.
Brown earned both a bachelor’s and master’s in electrical engineering from Howard University and New York University, respectively on scholarship. He briefly worked with defense contractor Martin Marietta, served in the military and joined IBM’s Systems Development Division. During this time, Brown discovered a love for investing and enrolled for an MBA at Indiana University’s Kelley School of Business. He went on to work for Irwin Management and later as a growth-stock fund manager at Rowe Price where he became the firm’s first African American portfolio manager.
In 1983, Brown founded Brown Capital Management. His regular appearance on the PBS financial television program Wall $treet Week with Louis Rukeyser helped attract investors in the firm’s early years. Brown has managed to keep his firm afloat through various economic recessions of the past four decades.
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These five strategies from financial guru Eddie C. Brown will help you become a better investor.
1. Develop an investment approach
Not only is an investment approach vital in filling in paperwork, but it also helps an investor set financial goals and make informed decisions. The major approaches to investment are top-down and bottom-up investing. Brown developed his own philosophy called GARP, an acronym for growth at a reasonable price while starting his firm. He knew that most investment clients compare the performance of their portfolios to well-established financial benchmarks and choose one of the Russell series which are pegged to a market capitalization assignment. Brown chose this approach because he is very valuation conscious and wanted his firm to focus on growth-style investments.
2. Perform extensive research
Although it might seem attractive to invest in mature companies such as Microsoft, Apple and Amazon, they have expensive stocks and limited growth potential. The true gems are companies that show promise to become future stock-market superstars but are still in the early stages of operations. However, such companies are not so easily found. Analyzing corporate earnings reports, SEC filings, press clippings and other material helps investors discover companies with potential. This research is also necessary for deciphering the requirements that will lead to sustained strong performance over a multi-year period.
3. Play the long game
Brown believes that the simplest investment strategy is the best. He finds businesses that ‘save time, money, headaches and lives’ and evaluates whether management has the skills to execute a highly intensive marketing and growth strategy. If this criteria is met, Brown buys up on the stock and waits. The firm mostly buys growth companies that have revenues of less than $250 million and has an average turnover of about once per decade in its 40-stock Small Company Fund. It initiated an investment in Cognex Corp., a maker of machine vision equipment in 1992 when the company’s market cap was under $200 million and had grown to nearly $8 billion by 2019. Brown Capital Management represents 5 percent of the fund.
4. Stay clear of trendy stocks
Brown has built a $10 billion firm by championing unloved growth stocks and following a counterintuitive app. Trendy stock options are highly volatile, and unpredictable in the market and experience rapid price fluctuations. Some of Brown Capital’s top holdings such as Balchem, Bio-Techne, Manhattan Associates, Tyler Technologies and Veeva Systems though relatively unknown have had long-term returns that rival Apple’s. This is how Brown Capital Management afloat through the burst of the dot-com bubble, 9/11 and the Great Recession.
5. Don’t panic
The stock market shares its unpredictability with potent forces of nature like hurricanes and volcanoes. It is all too common for stock values that have been built over decades to inexplicably implode. Brown considers it irrational to sell in a market on a downward spiral as it furthers mass panic and fuels the freefall of prices. He consequently sat in his office doing nothing and let the stock market anomaly run its course during Black Monday. When the crisis was over, he found that his firm’s portfolios went down significantly less than the market.
“Markets go up, markets go down. This one just went down more than anyone imagined. It’s not the end of the world—life will go on,” Brown told his wife on Black Monday.