Hedge Fund - Second Curve Capital

Thomas K. Brown is a man with a plan. After spending most of the 80's and 90's working at Smith Barney and other top firms (and earning rewards along the way), Brown made the move to head up Tiger Management's North American financial services group. He stayed under the notorious Julian Robertson until 2000, when he left Tiger to launch his Second Curve Capital, a fund that invests in financial stocks. Since then, his fund has been wildly successful, netting a 20% average annual return, net of fees, compared to just over 4% for the S&P's financials index. In other words, Tom Brown knows his financial stocks, a skill he knows is not for everyone. "The language and the accounting are different," he says. "It takes a familiarity that many portfolio managers may not have."

Tom Brown's strategy in particular is to stick with the same 300 companies, and learn them well. When picking a stock, Brown focuses on a couple different things. One, he looks at the price-to-earnings growth rate (PEG), preferring those with a PEG under 1.0. He also looks for stocks trading at a discount of at least 30%. Brown tends to buy companies that have had credit problems, or suffered higher than expected losses, and are starting to recover. He says, "Once a company recognizes its problems and starts down a path to recovery, I've found that it's fairly hard for it to get thrown off that path."