Backing a Bull

Backing a Bull

By Sean Roth

Real Estate Editor

As James Brinkley stepped away from the podium at The Rotary Club of Sarasota meeting, two words summed up his assessment of the investment market o pure excitement. Relying heavily on U.S. history, Brinkley, chairman of Legg Mason Wood Walker Inc., prognosticated a decidedly optimistic view of the long-term vitality of world-business markets.

Brinkley, 67, should know. He has advised clients and sold investments for 40 plus years. He was the second employee of Mason and Co., which in 1970 merged with Legg & Co. to form Legg Mason Wood Walker.

In 1962, prior to joining William & Mary classmate Raymond Masonis firm, Brinkley had to make a choice between a job in the construction materials industry for Lehigh Portland Cement or selling investments. The investment job paid 30% less, but it offered other financial incentives, including commissions.

iIt was a much similar time to today,i Brinkley says. iEisenhower had just announced the national highway policy. Cement was booming. But I loved equities. It was my goal to become financially independent. I am so grateful to have worked in an industry I love for the past 40 years.i

Baltimore-based Legg Mason has grown quickly since its founding. The firm, which now employs about 5,250, was recently ranked by Forbes magazine as the No. 1 iBest Managed Companies in Americai in the diversified financials category. Forbes also ranked Legg Mason as first in the financial services industry in the iBest Big Companies in America.i

For five years, the firm has maintained a 23.8% rate of return.

A look at the companyis stock chart from 1990 to today shows a steadily climbing wiggly line, with only the tiniest corrections for monumental events, including the 2000 stock market collapse. The firmis Value Trust fund, managed by famed stock-picker Bill Miller, has beaten the Standard & Pooris 500 index for a record 14 straight years.

One of Brinkleyis biggest reasons for confidence in the market in the forthcoming year: growth of free-market economies.

iThe media sells us on the risks and dangers,i he says. iThey never talk about the effect of freedom and opportunity. Since 1850, no true bonafide democracies have gone to war.i

That, Brinkley says, is in no small part because of the linkage and interdependence of democratic economies.

However, Brinkley says, the short-term future is still open to pitfalls, such as with energy consumption.

iSooner or later we need to focus on conservation,i he says. iAs Chinais infrastructure increases you are going see an increased demand for automobiles. We are also in a precarious position with global terrorism.i

Brinkley, in response to a question on the accounting scandals at Enron and WorldCom, downplayed the lingering effects on investors.

iWhat happened was you had 6,000 companies doing things right and about 20 companies that didnit,i Brinkley says. iThose (20 companies) got 99% of the press. Whenever you have an 18-year expansion and that build up of wealth, somebody is going to try to take advantage of it. Now you have more transparency then ever before.i

The steady growth of skilled technical workers in India and China and the increase in overseas job outsourcing place more responsibility on the U.S. government, Brinkley says, to promote ieducation, training, technology creativity, hope and opportunity.i The government, he says, must emphasize math and sciences and adopt favorable policies to foster pioneering companies.

iThere hasnit been a major technical breakthrough since the (Internet) browser in 1994,i Brinkley says. iWe will get one, but itis just not here yet.i

Even with the lingering problems, this year should be a good one financially, he says.

iThis is the first time since 1984 when all the major regions of the world are experiencing steady economic growth,i he says. iYou have seen the emergence of Japan along with most of Asia. South America is doing better. China is courting South America to be its import-export partner of choice.i

Hard workers

When asked what he looks for in an employee, Brinkley says, first integrity then intelligence. iBut mainly hard work,i he says. iThat is incredibly important. A smart, hard worker can overcome genius. We look for a good track record with people. Then we look for passion.i

Brinkley says there are three main keys to his investment success.

iYou have to understand the fundamental probabilities,i Brinkley says. iThere are some people that are just better than others. For example, I bet you could identify five golfers, and four of those five golfers will be in the top 20 for the year. They are just that much better.i

Second in importance, is asset allocation which has been shown to perform better, Brinkley says. In other words, sector players do better in the long run than those that follow specific companies.

iThe third principle is human nature,i Brinkley says. iHuman nature has not changed in over 6,000 years of recorded history. Understanding that is critical. Two years ago, the Nobel Prize was given for work in behavioral economics. You have to understand yourself as well as what the other (investors) are thinking. Warren Buffett once said, eI want to be fearful when others are greedy, and I want to be greedy when others are fearful.i Mood and emotions create opportunities. Buy the opportunity not the mood or emotion.i