(FORTUNE Magazine) – The dizzying records of Omaha-based Warren Buffett, chairman of Berkshire- Hathaway, and John Templeton, the mutual fund manager who resides in the Bahamas, prove that you needn't hobnob on Wall Street to make a killing in stocks. But Little Rock, Arkansas? That's the home of Stephens Inc., an old- line investment banker, and its money management arm, Stephens Capital Management, which runs $175 million for institutional investors and wealthy individuals. Over the four quarters ended in March, Stephens Capital Management's stock portfolios rose a stunning 51.7%. That was the second-best performance among 227 money managers tracked by Maryland-based Computer Directions Advisers. In excerpts from a recent interview, Stephens's portfolio manager, Sanford Besser, 49, tells how he tries to turn up investment gems before Wall Street catches on: What's your investment philosophy? Depending on the desires of the client, we have two groups of equities that we invest in: growth and aggressive growth stocks. The growth stocks in our portfolio are big-capitalization, household-name companies such as IBM, American Home Products, Abbott Laboratories, Burlington Northern, ITT, and International Harvester. The aggressive growth portfolio consists mainly of small- to medium- capitalization companies. Our approach is to invest when we know more about the operation than any other money manager. Quite often these are companies in which our parent, Stephens Inc., has an interest, such as an investment banking relationship. Stephens Inc. functioned as a merchant bank long before the term became popular in the U.S., and we sometimes own 80% to 100% of a company. This does not imply that we'd ever use inside information; we have the traditional ''Chinese wall'' between the corporate finance people and ourselves. But our philosophy is that we don't want to be surprised about companies. So which industries does Stephens Inc. know better than others? It has been an investor in the financial service industries, data- processing, energy, health care, and several others. What are some of the stocks? Beverly Enterprises, the largest operator of nursing homes, is one of our holdings. Stephens Inc. has been an investor in the nursing home industry since the mid-Sixties, and we became interested in Beverly Enterprises in the mid-Seventies, when it nearly went bankrupt. Where has your expertise led you in the financial services area? The Stephens brothers, who founded this firm, personally owned a company called Union Life Insurance for over 20 years. So we got to know the life insurance industry, and this led us a couple of years ago to a company called ICH Corp., a holding company based in Louisville, Kentucky. ICH buys insurance < companies with high expenses and cuts out a lot of fat. It has been a very good performer for us and remains one of our largest holdings. Any other insurance finds? In the past six months we hired a fellow from Peat Marwick Mitchell in New York who is a guru on the life insurance industry. He likes Torchmark, one of the best-managed companies in the country. We took a position when the stock was in the mid-30s, and it's now $51 a share. That's a pretty good run. Have you unloaded any of that? No. Stephens Inc. has made its money in very, very long-term holdings. A good example of that, I guess, is Wal-Mart Stores, which may be one of the greatest stocks of the last 15 years. We have been the investment banker for Wal-Mart throughout that period. Except when we think the stock is overpriced relative to the market, we continue to buy it. Is Wal-Mart overpriced now? We're not buying, but would on a dip. What are some other service industries that you understand well? Data processing is one. In the late Sixties, Stephens put the seed capital into a small company called Systematics, which had its beginnings and still is in Little Rock. Systematics provides data-processing services to banks and is, to the best of my knowledge, the largest factor in the industry. Today we own a little less than half the company. We are also investors in CCX Network, a small company that services direct-mail marketers. It has a tremendous database of names that can be massaged in different ways. Stephens Inc., the investment banker for CCX, brought it public in 1983. Any recent finds? We have become involved in the last year in a company called Institute for Clinical Pharmacology, based in Ireland, which has a phenomenal record. They do tests for a number of the major drug companies in this country, and in recent months have moved part of their operations to New York City. Profits are growing by 30% to 40% a year, and we are accumulating the stock. Have you found anything lately outside your favorite industries? One is a company called United Tote, based in Montana, which manufactures totalizator boards for race tracks. A client of ours in Alabama said he'd met some of the damnedest smartest people sitting out in the middle of nowhere, making totalizator boards. It's a rapidly growing business. More and more states are legalizing parimutuel racing by horse and dog. What's the track record on United Tote? A 25% to 30% annual growth rate in earnings per share, which are expected to hit about $1.15 this year. The stock is selling at less than ten times that figure.