(MONEY Magazine) – The view from Tom Marsico's 13th-floor office is ominous. On a muggy Thursday morning in the last days of summer, black clouds hang low over the Rocky Mountains in the distance and torrential rains threaten to stop nearby construction on Denver's newest hotel. It's a rare storm--the Colorado capital typically gets 300 days of sunshine a year. Later in the afternoon, a tornado will touch down just outside the city.

The stock market numbers flashing across Marsico's flat-panel computer screen are as volatile and gloomy as the weather. In the first few hours of trading, losses in the Dow Jones industrial average have hit triple digits, with General Electric and Hewlett-Packard leading the way down. It's yet another treacherous trading day for the kind of blue-chip, growth-oriented companies Marsico Capital Management favors. But Marsico, 47, is beaming. "We're doing great," he says.

They sure are. All three of the firm's domestic-stock funds will make money today. In fact, they've been the (relative) big winners throughout the past 12 months. As of mid-November, the Marsico Growth and Marsico Focus portfolios, both managed by Marsico himself, were each down about 10%. That's pretty terrific when compared with declines of 17% for the S&P 500 index and 23% for similar funds in Morningstar's large-cap growth category. Another fund, Marsico 21st Century, run by Jim Hillary a few doors down the hall, is actually in the black. Marsico's business is in even better shape: So far in 2002, investors have pumped a net $222 million into his retail funds. Other growth shops--including crosstown rival Janus, where Marsico first became a star--are bleeding cash.

Marsico is a survivor, one of the very few high-profile growth fund managers to come this far through a vicious bear market with his reputation as a stock picker intact. He's risen above the crowd thanks in part to his highly concentrated investing style, which means his Focus fund invests in just 20 to 30 companies that can pass the rigorous tests set by Marsico and his team of 11 analysts and managers. His other funds normally own no more than 50 stocks. (The average growth manager holds 86.) Yet there's no simple formula for what Marsico does: His old Janus Twenty fund followed much the same playbook after Marsico left in 1997 but lost investors a fortune after April 2000 by concentrating on the wrong stocks. (For more on Janus, see "Reviving Janus" on page 80.) "When it comes to investing, some people have it and some don't," says Marsico client Mark Yusco, CEO of the University of North Carolina endowment. "Julian Robertson has it. George Soros has it. Tom is one of those unique individuals."

WIRED Although Marsico isn't without an ego--he left Janus after a failed campaign to get himself appointed co-chief investment officer--he's a remarkably unassuming character. The Denver native married his college sweetheart (in fact, he's known Cydney since he was four years old) and takes his father along on most business trips. But this guy's brain is hardwired for investing. Yusco once sat with Marsico at a Tar Heels football game and listened to him talk stocks for two hours. Marsico was a premed bio major at the University of Colorado at Boulder, but even then he was spending much of his free time hanging around the local E.F. Hutton brokerage. His grandfather, an Italian immigrant who had dabbled in stocks since the 1930s, got Marsico started in investing with 100 shares of the local power utility. Down at the Hutton branch, the college kid would scour the Dow Jones wire, S&P tear sheets and Value Line reports. "I spent a lot of time trying to understand when new products were going to be launched and how that would impact the income statements," Marsico recalls.

And that's exactly what most grown-up, professional investors do, right? Maybe not as many as you'd think. By the tail end of the late 1990s bull market, it was hard to say for sure how much of this fundamental stock analysis many fund managers--especially growth fund managers--were really doing. Scoring double-digit returns had simply become a matter of loading up on megabillion-dollar tech companies with double-digit earnings and outsize P/E multiples. As long as the fund fit in the corner of the Morningstar style box labeled "large growth," the money would follow. Many fund companies enforced this orthodoxy, forbidding managers to trade outside their advertised style.

But Marsico is cast from a different mold. In 1998, at the height of the growth boom, one of his top stock picks (at 9% of Focus) was Ford Motor, an old-fashioned industrial that traded for between four and 11 times earnings. In Ford, Marsico saw a company with an underrated growth potential and a great brand name; it was the leader in the high-margin SUV and light truck segment, and its Associates First Capital finance unit was growing earnings at around 20% a year. That year, Ford returned 89%. So why should Marsico have ignored it, just because its low price made it a value play rather than a conventional growth stock? "Some of our clients ask us what the best index is to measure us by," says Marsico. "I tell them to pick whatever benchmark they want, because it isn't going to impact how I manage money."

Marsico's flexibility isn't the only thing that's set him apart. He's also drawn wisdom from hard experience. In 1983, after cutting his teeth at a regional brokerage in Denver, Marsico moved his family to New York to work for Fred Alger Management, an aggressive downtown investment firm. He was 27 and admits he was scared. "I was used to big, wide-open spaces, and I came to an area where there are skyscrapers and you can hardly see the sky," says Marsico. As the newest (and youngest) analyst on the team, he got stuck researching the leftovers, mostly mid- and small-cap technology companies. Marsico recommended high-priced, dazzling growth stories such as Priam and Hogan Systems.

Unfortunately, it was the peak of the early '80s tech boomlet, and Marsico learned a pricey lesson. Robert Lyon, a former Alger colleague, recalls that just days after Marsico talked the management team into buying Hogan, the software manufacturer warned of a major earnings shortfall, and its stock was decimated. "Today that happens every day," says Lyon, whom Marsico describes as one of his mentors. "But back then it was rare." That splash of cold water made a longstanding impression on Marsico. "I learned that technology franchises, while they have high growth rates, are not very sustainable because the technology can be very easily knocked off," he says. The experience wouldn't scare Marsico away from tech when he saw a real opportunity--he's put more than 40% of the Focus fund's assets into tech at times. But his sober realism about tech would hold him in good stead down the road.

A FEW GREAT IDEAS In 1986, Marsico decided that he preferred his hometown to life in the manic big city. He took an 80% pay cut for a job running private accounts at Janus, which back then was a fairly sleepy mid-size firm. Just two years later, Janus CEO Tom Bailey tapped him to run the fledgling Janus Value fund. Almost immediately, Marsico abandoned the fund's conservative strategy and began building a concentrated growth portfolio with as few as 20 names. The fund also got a new name: Janus Twenty.

It was a bold move; usually the less diversified a portfolio is, the riskier it is too. But to Marsico the approach made perfect sense. To help control volatility, he would put most of his money into companies with steady if less than explosive growth, and with strong franchises and dominant market share to protect future earnings. Around the edges, Marsico spiced things up with a handful of more speculative picks or companies going through what he calls "life-cycle changes." (Marsico is particularly keen on firms poised to take advantage of emerging macroeconomic and social trends.) Among the advantages of focusing on so few names was that it allowed him to eschew boilerplate Wall Street research and instead look in depth at a few companies' business models and managers. (Investors with big positions also tend to command the attention of those managers.) And besides, Marsico says, "in my view, there are very few great ideas."

Among Marsico's greatest ideas at Janus: financial services. Banks and the like are typically the domain of conservative value investors. They offer low P/Es and high dividends that help even out returns, but usually tepid growth as well. Marsico saw the sector's potential. Besides benefiting from a wave of consolidation, big banks, including Chase Manhattan, Citicorp and Wells Fargo, were also pushing more profitable products such as loan syndication, as well as pursuing opportunities abroad. In 1996, Marsico put 23% of Janus Twenty's assets into those three stocks alone. On the strength of such bets--as well as winners like Amgen, Microsoft and Pfizer--Janus Twenty returned 530% from mid-1988 to 1997 vs. 344% for the S&P 500. That record made Janus Twenty one of the hottest funds of the '90s and Marsico a hero of the bull market.

And then he quit. As Marsico tells it, Janus was losing focus as its assets and lineup of funds grew. "New managers had less time to mentor young analysts," he claims. "And I did not see people traveling as much to visit companies." By 1997, Marsico was the third-largest individual owner of Kansas City Southern Industries, then the parent company of Janus. He took his complaints about Janus to Bailey and later, provocatively, to the chairman of the board at KCSI. He proposed that Janus appoint fellow manager Jim Craig and himself as co-chief investment officers. But the top executives declined to back this employee-shareholder. The coup failed and that August, Marsico left to start his own firm. (A Janus spokesman says Marsico's departure was amicable.)

MARGIN OF VICTORY At first, it seemed that Marsico's highly publicized departure barely dented Janus. The whole firm had by now embraced the theory of "a few great ideas." Few Janus funds were as undiversified as Twenty, but most made big bets on the same tiny group of high-flying growth stocks, such as Cisco Systems, Sun Microsystems and Time Warner. In 1999 all but one of Janus' 14 equity funds ranked in the top quartile of their respective categories. Meanwhile, Marsico's start-up did well too, with Focus posting annualized gains of 53% in its first two years, outpacing other large-cap growth funds by 17 percentage points. But after the bubble burst in 2000, Janus was devastated. Marsico, on the other hand, preserved far more of his shareholders' capital than most other blue-chip growth managers. So what's made the difference?

For a start, there is Marsico's good (albeit not exactly perfect) timing. Among the tech names that passed his test on the way up was Qualcomm, which owns the patents to CDMA technology, then one of the two major platforms for wireless phone networks in the U.S. By late 1999, Qualcomm was up 2,200% in 12 months and traded at 309 times earnings. That made Marsico nervous--he knew from his days at Alger that this couldn't last--so he began paring back near the stock's peak of $200. He didn't miss all of its sharp decline, but he sold the bulk of his stake in January 2000 and had entirely vacated by October. That said, the nasdaq crash made 2000 a rocky year: Focus lost 18%, putting it in the bottom half of large growth funds. But Marsico responded quickly, reducing the fund's tech exposure from 40% to just 7%. Too few growth managers were as quick to see the writing on the wall.

Marsico can also boast of having taken a pass on some of the most popular--and ultimately disastrous--growth plays of the past few years. He looked only briefly at Enron because, he says, "it all sounded like it was too easy." But nearly one out of four large-cap growth managers owned that stock in 2000. And more than half of them owned Tyco International by the end of 2001. With its aggressive acquisition strategy, Tyco was heralded as the next General Electric. But Marsico was unimpressed by the quality of Tyco's acquisitions, among them the financial group CIT. "Finance companies are only successful if they have the highest credit ratings, which allows you the lowest cost of capital," says Marsico. "CIT did not."

A FIRE IN THE BELLY The market hasn't been getting any easier for growth investors such as Marsico to navigate. In late October one of his holdings, Tenet Healthcare, was ravaged when questions were raised about its Medicare "outlier" payments (additional reimbursement for especially expensive hospital visits or treatments), which were far above the industry norm. The stock spiraled from a high of $50 to a low of $14 by November. As Tenet's fourth-largest institutional shareholder as of the end of September, Marsico Capital took a serious hit, though the fund got out an average of $37 a share.

Still, Marsico is feeling ever more optimistic, and he's positioning his portfolios for an economic rebound. He's encouraged by the recent Republican victories in congressional elections, which could mean tax cuts as well as more favorable capital gains and dividend taxation rules. Marsico is also impressed by strong moves from Fed chairman Alan Greenspan to keep the money supply growing, and he expects consumer spending to remain strong. So he's paring back a bit on some of his more defensive plays, such as in the aerospace and defense sector, which earlier this year represented 11% of his holdings. (He says he still really likes General Dynamics and Lockheed Martin.) On his recent buy list are media giant Viacom, the volatile tech giant Cisco and wireless operator Nextel Communications. "As we become more comfortable with geopolitical risk, maybe you'll see us shift even more of the portfolio to those stocks that will benefit from a stronger economic recovery," says Marsico.

Whatever he does, the stakes will be high. Remember: With Marsico's concentrated portfolios, one or two mistakes could really hurt. Even more than most managers, Marsico has to be at the top of his game day in and day out. And he is, at least according to fans like Chris Claus of USAA Investment Management, which has hired Marsico to run several funds. Claus recalls asking him, "You've got the name and you've got the track record, so why do you still get out of bed in the morning?" Marsico told Claus that he was passionate about the businesses he owned and, naturally, that he liked to win. It's that fire in the belly that has made Marsico one of the best growth managers of the past decade. It's also what gives him a fighting chance of surviving into the next one.