(FORTUNE Magazine) – Twenty years ago this July, Chip Mason, CEO of Legg Mason, took his Baltimore investment-banking firm public. It has been an impressive two decades for Mason and the company. Sure, this period coincided with one of the greatest bull runs in our nation's history; however, plenty of other shops managed to crater in that time (see Hutton, E.F., and Burnham Lambert, Drexel), while others sold out along the way (see Boston, First, and Webber, Paine). Legg Mason also hasn't grown up to become Merrill Lynch or Goldman Sachs, but is that something to aim for anyway? Mason doesn't think so. "In most cases, you don't need to be big for bigness' sake," he says. "I don't think size matters at all." You just need to be good. And Mason and his firm know a thing or two about that.

You see, Mason had a plan, a pointed, sharply honed calculus that belies his laid-back Tidewater demeanor. "Back in the 1980s, I came to realize that the asset-management business was much less volatile than the brokerage business." That's why he bought Western Asset Management in 1986. (Western, along with Pimco and BlackRock, is one of the three big bond houses that dominate the institutional fixed-income business.)

But moving into asset management was only the first step of Mason's master plan. "As good a business as Western is, we knew that we had to diversify to thrive in different parts of the cycle." So Mason set out to build up the firm's equity and consumer business. Here Mason's job numero uno was to nurture his homegrown superstar (a la Cal Ripken), Bill Miller, portfolio manager of the Legg Mason Value Trust. Unless you've been glued in front of MTV for the past decade, you probably know that Miller is the last of the great mutual fund managers. A superstar in the mold of Peter Lynch, he runs the only fund to have beaten the market 12 years in a row. Though Value Trust lacks the name recognition of Fidelity Magellan, it now has $6.5 billion under management and has given Legg Mason a strong consumer presence. To balance Miller's iconoclastic value approach, Mason also bought other fund groups, including Brandywine and Royce.

In addition to asset management and mutual funds, Mason added a third leg to the Legg Mason stool by managing money for what's known in the business as "high-net-worth individuals." (Here in Street Life we call them rich people.) Mason likes that biz because it's "sticky," to use his term. Meaning that, as long as they are being well served (phoned and golfed), rich folks tend to stay with a money manager through good markets and bad.

Today Legg Mason has about $185 billion in total assets under management--big but not unwieldy. While the growth line has been impressive, it has also been prudent and thoughtful. "We never went out on the edges," says Mason. "What we did was to calculate, to constantly balance our business."

The markets have rewarded Mason's arithmetic. Since LM's IPO, its shares have risen 1,100%, more than 2 1/2 times the overall market's climb. Along the way Legg Mason's stock has also outstripped just about every other investment bank, commercial bank, and asset manager, big and small. As for Mason, well, he's now 66 and has no plans to retire anytime soon. He also owns some 3% of the company's stock, or two million shares, which trade at about $50. This time I'll let you, not Mason, do the math.

Enrolling in dough

In my online column I challenged readers for names of companies growing like gangbusters despite everything. Well, Peter Cohan, head of his eponymous consulting firm, supplied me with one that looks pretty interesting: Apollo Group (APOL, $42). APOL runs higher-education programs for working adults through institutions like the University of Phoenix and Western International University.

In the company's most recent quarter, revenues were up 35%, to $309 million. Why the crazy growth? "In a recession, a lot of laid-off workers decide to upgrade their skills so they can get higher-paying jobs in their field or find different jobs in a new field," Cohan explains. As for downsides, well, there's been some insider selling, and Apollo was rated poorly for corporate governance by S&P. Also, the stock isn't cheap. (Figures!) Apollo's stock has quadrupled this decade.

Maybe Apollo can teach a few things to Chris Whittle, whose company, Edison Schools, continues to struggle (see chart). Of course, there are those who say you shouldn't make money on education. But we'll leave that for another column.

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