SMARTMONEY.COM: Jim Stowers: The
Billionaire Next Door
By HAYLEY GREEN
(This report was originally published late Wednesday.)
NEW YORK -- These days James E. Stowers Jr. - known to mutual-fund associates as
"the eternal bull" - is putting much of his money in bond funds.
Stowers, 77 years old, is the founder of American Century Funds, the Kansas City, Mo.based firm with more than $100 billion under management. Stowers first told
SmartMoney.com back in early December that he and wife Virginia, whose net worth
tops $1 billion, were putting new investments in U.S. government bond funds. (Stowers
has never owned individual, publicly traded stocks and keeps his money exclusively in
American Century funds.)
"I am extremely optimistic long term," Stowers said then. "But when things are
overpriced, they just have to come down, and there is no sense in taking that risk."
Sure, the market had already come down considerably, but not far enough, Stowers
insisted. "The Standard & Poor's index usually sells at about 13 times P/E. Now it is at 23
or 24. It has been up in the 30s." He'll keep investing in bonds, he told us, until the
market returns to its historical norm.
When we checked in with Stowers last week - on March 13, as the market took a breather
during its recent heart-thudding descent - his viewpoint was unchanged. But even though
he's putting most new money into bond funds, he emphasized, the bulk of his fortune
remains in equity funds - and that's where he would leave it even if moving it wouldn't
trigger enormous tax costs. "In spite of the current market volatility," he told us in an email message, "I still believe that the best place to have assets over time is in common
stock funds invested in the most successful companies."
Few people are in a better position to appreciate that. Back in 1958, Stowers planted the
seeds of American Century by putting up just $2,500 to launch the Twentieth Century
fund (which lives on as the American Century Growth fund (TWCGX)). The balance of
the $10,000 used to establish the fund was borrowed from a bank, the loan secured by
allowing the bank to hold fund shares. "They still hold the same stock today" Stowers
reports, " - and I still owe them $7,500." The bank's initial investment, he adds, is now
worth more than $4.3 million. (The American Century Growth fund's annualized return
over 42 years is 14.05%.)
Although Stowers ceded the fund company's presidency to his son, James Stowers III, in
1993, he remains chairman of the board and is "involved in all major decisions that
impact the company." Moreover, his founding investment strategy - seeking companies
whose earnings and revenues are both accelerating - remains the company's cornerstone.
Stowers has long disregarded price-to-earnings ratios in favor of picking up stocks on the
move. But he turns aside the suggestion that he's a pioneer of momentum investing. "I
never used momentum," he says. "Momentum is a constant speed. We are looking for
acceleration. My feeling is, the best place to put money is into successful companies
where earnings and revenue are accelerating."
After serving as a fighter pilot in World War II, Stowers spent time at medical school
before finding his calling. He dropped out, he chuckles, because Virginia "was a nurse
and said she didn't want to marry a doctor," then adds, "I always knew I could be more
successful outside of medical school."
He launched Twentieth Century Investors after working as a mutual-fund salesman for
Waddell & Reed. In his company's early days, he recalls, "I wore out two HewlettPackard calculators" analyzing stocks through a laborious process that involved filling
out forms and questionnaires by hand. "Finding companies that demonstrated the growth
characteristics we wanted took a great deal of research," says Stowers. "Working at full
speed, we could only look at about 35 stocks each day." During the early '70s, "as the
need for more stock information grew" - and information technology developed - "I
realized that what took so much time and effort for me to do, a computer could do easily
and quickly." So he leased an IBM computer, took an IBM self-help course and taught
himself the Cobol programming language by reading books and manuals.
His eureka moment came in 1973: While he was attending a conference for money
managers in Quebec, "a light bulb went off. I jumped from my hotel-room bed and snuck
off to the bathroom so as not to disturb my wife. I huddled in the bathtub and wrote the
program myself." That program was able to perform rate-of-change calculations on
earnings and revenues for 400 stocks a day. Companies where both were accelerating
were red-flagged to be considered for the funds. The program is the foundation of the
present-day database that picks stocks for American Century.
Stowers brought to the management of his company the same savvy he brought to
dissecting financial reports. In June of 1995, Twentieth Century Investors merged with
The Benham Group, a well-known fixed-income investment management firm in
Mountain View, Calif. Subsequently, the name was changed to American Century
Investments. In 1997, J.P. Morgan acquired 45% of American Century for about $900
million. Stowers says Morgan was willing to buy the whole company, but he wanted to
maintain control. "People have invested their money in American Century, and now I feel
obligated to assure these people that they will continue to have the same type of
management in the future as they have now," he explains.
To that end, Stowers says, "Through estate-planning provisions, I've ensured that the
shares with voting control will stay with members of our family until 30 years after my
wife and I have passed away." His expects his son to go on managing the company.
Stowers attributes his company's success to lessons he learned as a young financialservices salesman. "It is very difficult to sell the very best and impossible to sell an
inferior product," says Stowers, and that realization has driven his efforts to deliver topnotch fund performance, product range and managers.
A similar striving guides his philanthropy. After he and Virginia both successfully battled
cancer, Stowers decided to put some of his money to work outside finances. In 1994 he
donated $50 million in American Century stock to start the Stowers Institute for Medical
Research, in Kansas City. In 1998, after the sale to J.P. Morgan, Stowers gave an
additional $300 million. The institute's mission: to study how genes determine our
biological fate and how they can be altered to prevent or slow disease.
Stowers hopes scientists "from all over the world" will be lured to Kansas City by the
promise of the new facility. But he aims to build it slowly and steadily. Under Internal
Revenue Service regulations, a foundation must spend at least 3.5% of its endowment
annually. "I said that is exactly what we are going to spend. And not a penny more," he
says, sounding feisty. By holding down the endowment's spending and keeping the rest of
the money invested, Stowers expects to make his gift a lot more valuable. As of early
March, the combined donations were worth $550 million. Stowers figures that over 30
years, the endowment should grow to $60 billion.
A $215 million municipal-bond offering financed the remodeling of the 550,000-squarefoot former hospital that serves as the Institute's physical plant. Eventually, the Institute
should be home to between 50 and 60 independent research programs run by some 600
scientists, research associates and technicians. If everything goes as planned, a decade
from now, Kansas City-area institutions - including not just the Stowers Institute but also
the Kansas City Area Life Sciences Institute - are expected to conduct $500 million worth
of medical research annually, about six times the current level. In addition to pursuing
medical discoveries, then, the new industry could invigorate the city's economy.
Today Stowers's life is "busier than busy," he laughs. He rises at 5:00 a.m. every morning
to tackle his business and charitable endeavors. But "this is my leisure," he insists. "If I
didn't enjoy it, I wouldn't be doing it."
He and Virginia own a vacation home in La Jolla, Calif., which they use for a couple
months every summer. But going there isn't much of a break, Stowers says: "I have my
computer that's tied to the office." In both homes, he also has a Yamaha ELX1 organ,
purchased six years ago. "I don't have enough time to play," he laments. "I really want to,
but I just don't have the time."
While Stowers is passing the reins of his business to his son, he says he won't pass his
vast fortune to his children (he and Virginia also have three daughters, ages 40 to 45,
none of whom participate in the business). Rather, his money will go to the Institute. The
way Stowers sees it, if the research center accomplishes its goal, his children, and their
children, will benefit far more than they would from any monetary inheritance