The Logic Behind the Formulas
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Here is one way to start and build one of the country’s most successful investment firms: Earn your doctorate in philosophy from the University of Minnesota, find a job as a tenured faculty member, and cultivate side interests in evolutionary biology and economics.
If that’s not a typical path for an investment-firm CEO, it’s exactly how Don Brownstein became one. His success is not only built on financial savvy but also on multidisciplinary thinking.
Minnesota, in the College of
Liberal Arts, was to experience
so many things,” Janumpalli
says. “Instead of being at a loss
for what I wanted to do, it was a
matter of narrowing it down.”
“The fact that I had not been trained in finance meant that I thought about things differently,” he says. “I’m an instinctual contrarian who questions authority and I didn’t follow a prescribed path because I didn’t even know what that was. I had to think things through from a naïve perspective, which meant I didn’t have to adopt things because that was the standard view.”
Brownstein did not expect it to turn out this way. Born in the Bronx and raised there and in Queens, he earned an undergraduate degree from Queens College, and his doctorate in philosophy from the University of Minnesota in 1969. He then went on to get what most PhDs would aspire to: a tenure-track faculty position. For 20 years, he taught philosophy and metaphysics at the University of Kansas, immersing himself in his innate love for logic and publishing papers on Platonic nominalism and Plantinga’s actualism.
And then things changed. Brownstein wanted to move to the East Coast to be near his son, but there weren’t any positions for senior philosophy professors in the mid-80’s. A friend suggested that he consider changing his career. “I thought about what I could do,” he says. “I knew I had certain abilities and lacked others. I also knew I didn’t want to sit in an office in a large corporation and try to climb some ladder.”
So his inner logician began to construct a new career. Because of the strong growth in the financial services industry in the 1980s, Brownstein began to think about his interest in economics and markets.
The risky decision point, he says, was when he “had taken a leave of absence from U-Kansas and was working at a bank. I had to make a calculated decision about how much risk I could handle and, at age 46, decided to resign my tenure.”
A couple of years later, he took a job in New York City with a French financial company, and eventually started his own business. The company, Structured Portfolio Management, (SPM), specializes in residential mortgage securities. Headquartered in Connecticut, SPM has become an astounding success, earning a spot as one of the country’s best-performing hedge funds, and securing Brownstein a consistent place among the top hedge-fund CEOs.
Brownstein’s success is rooted in his broad-based interdisciplinary background and interest in the interplay of ideas among thinkers like Charles Darwin, Adam Smith, and the philosopher David Hume.
“You can find a lot of Darwin in Adam Smith’s Wealth of Nations,” he says.
“Evolutionary biology and modern economic theory are similar. Evolutionary biology says that natural selection and random
mutations generate inhabitants who have adapted to a certain biological niche. Financial systems evolve through a similar
type of ‘economic selection,’ in which markets, institutions, investors, and random events evolve and adapt for greater
“Once you understand these kinds of connections,” he says, “the question becomes, ‘How do you address investing in terms of that understanding?’ Then we can create a model.”
No wonder he has been called a master of “the logic behind the formulas,” a logic that was shaped and furthered by his academic background.
“What I got from my education at Minnesota,” he says, “was that you have to think things through. You have to go back and reevaluate some assumptions. You challenge the train of argument that follows from those assumptions. So this background of understanding in the humanities, in which I was trained, was important in terms of what I’ve done.” Brownstein is quick to acknowledge this has not been a one-person effort.
“I am fortunate to have colleagues who are terrific,” he says. “Early on, I was surrounded by very, very smart people. I have learned a lot from them.” Indeed, he is a lifelong learner who doesn’t believe that a college education should be all about focusing on a particular career.
“There is a movement toward thinking of college as job training,” he says. “I don’t know that the best preparation for a job is necessarily preparation for the particulars of that job. The work world changes. How one adapts to that world depends on a background of understanding. It’s important for students to have exposure to wide array of areas that can enable them to think broadly.”
In other words, don’t just learn the formulas. Explore the logic behind them.
“Try not to get captured by the idea that your vocation should determine who you are. When you enter
college you can’t know what your life is going to be like or what vocation you’ll enjoy. Just try your best
to learn as much as you can about as many things as you can. Then you can sort out the things that matter to you.”