Bruce E. Behrens, the flexible value manager, is telling clients "this is an environment to be doubly safe about avoiding what you don't do well.  Where we have been hurt in the past is accepting too much financial leverage and misjudging management."  After getting burned by Countrywide's Angelo Mozilo, he's avoiding debt-saddled companies and using new clues to analyze executives' actions.

"We'll be looking at whether behavior changes as the business environment changes," Behrens says. "Maybe you see a certain aggressiveness come forward, or quarterly results differing from management's guidance.  We will be more skeptical of management and less accepting."

Behrens, however, says the firm is also preaching consistency. "I'm telling clients that it's important to consistently apply the principles which have been successful for you in the past, yet also adapt and not be stuck in what you do," he says.

Delivering such words of wisdom to its high-net-worth circle has helped bring Brown Advisory a record year.  Consider the wealthy Pennsylvania woman with a small relationship at Brown who had primarily been utilizing a large brokerage firm.  She didn't hear a peep from the broker when its troubles made ugly headlines in the fall, according to Dumais.  "She decided we offered very good service and that she liked the close communication," he says. "She is moving $25 million to us, and that's just one example."


A 'Flexible' View On Value
Boasting average annual returns in the rarefied neighborhood of 200 basis points above the S&P 500 for the last 20 years, flexible value investing is a proprietary style developed at Alex. Brown Investment Management, which recently merged into Brown Advisory. Bruce E. Behrens, former Alex. Brown co-president and current investment manager at Brown Advisory, was an architect of the methodology. In a recent chat, Behrens, 64, fondly quoted cultural and industry icons as he revealed himself to be a student of the investment game.

PW:  What exactly is flexible value?
Behrens:  We are flexible in how we view value.  What is a really attractive value in the market changes over time.  The Russell indexes have a lot of stocks that fit both growth as well as value, and so do we. United Technologies. Disney. Wal-Mart.
Ben Graham was really the epitome of the value investor. [He advocated that you] look at asset values as well as earnings, and buy things cheap for a margin of safety. Warren Buffett has made most of his money in growth companies, but he bought them when they were at bargain prices-like we hope he's doing in today's market.
That progression of thought from Graham to Buffett is something we incorporate in looking for value.  We believe growth is part of the value equation.

PW: We're told your shop is a big fan of the 'Oracle of Omaha.'
Behrens:  Our chief investment officer, Hutch Vernon, has been to the Berkshire annual meeting for 22 years now.  Many of us have been there five or six times.  We study Buffett and try to learn from him all the time, although I don't think we're as good as Warren [laughs].

PW: What is your portfolios' market capitalization?
Behrens:  We're typically two-thirds to three-quarters in large-cap, the rest in mid-cap.

PW: Historically your portfolios have tended to be somewhat concentrated.  Why?
Behrens:  Part of it is a residual of success. If you look at our Top 10 holdings, they typically have been between 40% and 45% of the portfolio by market value, but probably 30% by cost. In line with what Peter Lynch said-that it's important to let the flowers grow and cut the weeds-we will hold something we bought really cheap that is now fairly valued if it is an excellent business, as long as it doesn't get excessively overvalued.

PW: How have you fared with the financial sector?
Behrens:  At the outset we got burned.  We owned Countrywide Credit, which we had had for a long time and made a lot of money on.  We also owned some financials that were exposed to the drying up of the securitization market in student lending.  That hurt us in the last half of '07.  But we were not in the celebrated names that have had trouble recently and our finance stocks actually helped us in the third quarter relative to the market, even though we were slightly more than market-weighted in the industry.