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While the majority of Americans own stocks and retirement accounts, only thirty four percent of those surveyed by the FED said their plans were on track. And famously, nearly four and ten Americans have enough cash saved up to cover a surprise four hundred dollars expense.
Don't have enough cash, and we.
Don't learn nearly enough about saving money and investment in this country. But Melody Hobson hopes to change that. Melody Hobson is the co CEO of investment firm Aerial Investments, out with the New York Times best selling book for children, Priceless Facts About Money. Hobson is also on the board of Bloomberg Philanthropies, the philanthropic organization of Michael Bloomberg, the founder and majority owner of Bloomberg LP, which owns Bloomberg News.
And thank you for joining us here, Melody. You know this book in particular, you start with your own experience growing up in Chicago with a single mother who sometimes was looking to make ends meet. Now you stand on the board of multiple boards of fortune five hundred companies. In a lot of ways, is this book very personal to you? Is it a memoir of some sort.
It's not a memoir.
I thought my story was very important in the beginning to grounding the book, but I also shared John Rogers's story who found it Aeriel, just as a beginning, setting the stage of why the book makes sense and inviting the reader into our lives as we were children, you know,
explaining what was like with when we were children. For me, money was such a big deal when I was a child, because we had such a hard time making ends meet that I felt that letting the reader know why money became so important to me as a subject matter was something that they would then appreciate my passion for the subject.
You know.
Something we were talking about was this idea that only about half the states in the United States really teach financial literacy require it when you go to school. How might that change over the next couple of years. Do you think that there could be a bigger push here to get financial literacy taught in schools.
I'm hopeful.
I don't know that there's any trigger that will lead to that. I was really happy to hear that the state of Maine actually bought my book for every elementary school student in the state. I was astounded by that, and I thought, that's great, because we want children to have this knowledge, and honestly, I want the children to
be the gateway to the parent. I'm hoping a lot of parents will pick up the book and be astounded by the facts that they read and think, I need to do more and learn more because most of our money habits are learned from our parents.
Right, And most parents don't talk to their kids, don't feel comfortable talking to their kids about this stuff.
I know mine didn't, So.
That's a piece.
The book is a piece.
Hopefully getting it into schools is another piece of it.
Is there a holistic a healthy model.
Can you look to another country, another civilization and say they've done that right, and we need to sort of adopt those practices.
I wish I could.
The world is pretty financially illiterate the subjects of money and investing other than counting. We don't go very far in schools in most places. And I know there are things home mech and classes like that, but I think we need to go a lot deeper really understand the
fundamentals of the stock market and investing. When you think about the fact, when you get your first job, you look at that four one K plan and you have to make decisions that ultimately affect your family's financial security over the long term in terms of your retirement, and no one's really trained you to think about how to make those decisions.
And hopefully you're doing that when you get your first job, because it took me over a decade before I finally started to invest my earnings here.
Well, so many companies now are automatically enrolling there are employees, so that helps a lot that inertia. Once you get into that plan, you keep investing. That's a great thing. We have to make sure when people change jobs. The average American has thirteen jobs in their lifetime that they don't change jobs and cash out every time that they move.
And there's such interesting data about that. The Wall Street Journal did a great story yesterday about the fact that the smaller the amount you have in your four one K plan, the more likely you are to sell it. The bigger the amount you have, the more likely you are to roll over.
Yeah, it's fascinating and the experience of switching jobs and seamlessly getting your four oh one K across still a clunky process. But with this book, what I think is interesting is that, of course, you go into the history of money thousands of years back. But I'm curious if you thought about future proofing this at all, because you walk through a sample bank transaction.
Do you think things could look.
Different in twenty thirty years when the children who are reading this book are actually applying these lessons.
Well, we hinted at some of it. First of all.
I don't think knowing the history changes anything. I think that's actually great and really important.
And it's fascinating.
I mean just explaining things like, you know, precious metals are the results of meteors, meteors hitting the Earth's surface. I mean most people don't think about that, are fossil fuels or dinosaurs. You know, there are lots of things there that I think, no matter who you are, whatever time we're in today or thirty years from now, but will be great. I hinted some of the things to come, and I talk about, for example, paying with your phone, and hint at some of these other things, and I
think that that we will see. However, it doesn't change some of the fundamental ideas that I think are important. For example, I'm encouraging parents to use cash around young children,
because these concepts are incredibly hard to understand. They're mystical when you see money spewed out of a machine like an ATM, or you see your parents only paying with plastic and so a lot of parents will tell me their children will say to them when they say, we can't afford this, put it on a credit card, which suggests they don't understand the fact that the credit credit card is something you have to pay or that money is finite.
So, no matter where we are with how.
Money and exchange and all of these things work, decades from now, hundreds of years from now, I think this foundational information is still very important and probably very evergreen.
Well, the concept of a twenty five percent interest rate right for the credit card.
You know, it's interesting.
Goldman came out with a note in the last couple of days saying that the next ten years for the S and P five hundred might not be as good as the last couple of decades. If you are a young person investing a dollar today, if you are worried about the next ten years, how do you think about investing?
So, first of all, I think that that's a nuanced argument that Goldman is making. I saw the report, and I think top line, they're right. However, the driver of the SMP over the last decade, as we all know, has been a very narrow group of stocks. We know the MAG seven has had an outsized effect on the returns that we've seen there, and so I often think we have the s and P five hundred, it's really the SMP four ninety three and then the.
MAG seven that is turbo charged those results.
So I would say I'd like to be a bit more nuanced in thinking about that return in the future. And I think there are areas in market that are very undervalued where we have the opportunity for for real
appreciation over the next decade. If you look at how smaller company stocks have done versus large gap the Russell two thousand, or where we live at aeral the Russell two thousand value versus the SMP five hundred, there is a gaping hole in valuations right now, and we think therefore there's a tremendous opportunity for smaller cap stocks to have returns that are more like what we've seen historically. If you look back to nineteen twenty six, before we get.
To the small caps, I.
Knowe I'm itching over Katie.
Champions the small caps for us on this Programay, I just want to know what your take on that report, because I feel like if we're kicking off this decade with Nvidia, you know, in Facebook and Microsoft and Amazon and Alphabet in the SMP, that's a great start for this decade. And then if you get open Ai and
SpaceX and start adding these innovative companies. I mean, it seems so pessimistic for Goldman Sachs to forecast only a three percent annualized rate, as we showed on the chart that I created from data Trek, that has only happened like in the Great Depression or the Financial Crisis. I mean, only when horrible catastrophes happen do.
We get returns that low for a ten year period.
And that's why I say I'm not necessarily convinced. However, the stocks that you mentioned, I think their price for perfection. I think you can be a great company, and I mean great and not necessarily a great stock.
And I think it.
Presumes that everything goes perfectly, and I think that is very hard to accomplish over long periods of time.
I was very humbled when.
I read stories in the last few weeks about Boeing and Intel, where you see what is happening there. When I came out of college, Intel was the Microsoft, Nvidia, the Indie Grove was, you know, superstar legend. So the idea that that company has one hundred billion dollar market cap, I never would have anticipated that, And yet that is where we are because life has along the way.
So again, you.
Can be a great company and have things happen. I'm not suggesting any ill will on these businesses or these companies.
I'm just saying from here.
If I'm as we are at Aerial looking for value, I would look elsewhere because the risk of owning the names does go up with these valuations, right.
So the margin for error super narrow if you're one of these huge magnificence.
I mean, I read the story about you know, Tesla having a six trillion dollar market cap. At some point you have individual stocks that represent the market cap one stock of the entire Rustle two thousand.
I can't even wrap my brain around that.
And in terms of what that means, the kind of stocks that have been orphaned along the way, and therefore the opportunity that exists and the concentration takes the risk up. The S and P five hundred to me is a large cap growth index.
Now, well, let's build on what you were saying about small caps, because we were having conversations yesterday about one of our guests said that small caps are in a secular bear market, and part of the reason why is that you have high interest rates. You have these companies with big debt burdens, and many of them in the Russell two thousand, just a normal one for example, are unprofitable. So talk us through your base case there.
How are you able to square that circle?
So I don't think that has changed from what we've seen in the Wrestle two thousand. Historically, many, not all. There are great companies in the Rustle two thousand Russell two thousand Value Index that are not unprofitable businesses. There are wonderful businesses that have great potential over time, but the market has basically ignored those stocks and therefore there's been no action in them. But it doesn't mean they don't have great futures. There are companies that do things
that are very specific. Just because you aren't a T these days, a one T at two a three D doesn't mean you don't have a wonderful niche business that can grow, and we have many of those in our portfolios, from cruise ships to all sorts of consumer products companies that are the best at what they do.
So, you know, another thing on the New York term. I know we're talking about long term investments here as well, but we are just really days away from the US election. The elections are on the top of minds of many investors at this juncture.
How weeks from today, two weeks.
From today, My gosh, it's a heavy reminder. And so how do you think about the election and the impact it would have on the markets.
It's interesting.
I think that it weighs on a lot of people's spirits and their psychologies. But at the end of the day, I've bought into our idol at ariel is Warren Buffett, and Warren Buffett has been known to say markets are stronger than governments, and so I think that we've seen
that time and time again. If you look back over the last couple of decades and seen the different leaders that we've had run the United States, the market has not been felled by any one person, and I think that's a testament to the fundamentals of the US economy and that ultimately which will that is what will drive returns. So while there's a lot of talk about markets and what will happen as a result of who wins, I think I'm more confident and I'm a long term investor.
We have a turtle as a logo. I always have my turtle.
I'm more confident in the long term that the US economy will do what it always has done in the American capitalist system will work.
So I also want to ask you, abou Kamala Harris from many here, because I know that you've personally signed a number of letters that have come out in support of her.
What is it about her.
That you think that the business community may not be understanding. There are a lot of Republicans who will come out and say that she is not the best for business.
What would you say to that.
I think she's probably more moderate than people think. I think there are a lot of assumptions that are made by association. I think one of the things I've been very confused by is this idea that you be a clone of another person that you work for or with. I was president of Ariel when John Rodgers was CEO for many many years.
We are now co.
We are very different leaders, but we are aligned in our core beliefs around values. We make different decisions all the time, and that doesn't make one of us better than the other.
We're different, and.
So I think that when she's in the top seat, when you are the boss, it's very different than working for someone, And technically when you're vice president, you work for someone, so it'll be I think the assumptions that are made about who she is, those are yet to be fully revealed. But I am encouraged by what I've heard so far.
You know, we talk a lot about the things that are wrong with this country, and Harris and Trump talk about that too, and we really focus on the risks. I wonder, you know, with a book like this looking forward hopefully with hope, what does the US do right? I mean, you've had such success in your career, and the companies that you foster have had such success, I imagine in large part because of the US environment. So what does this country do right?
Oh?
My gosh, we do so many things right. I love America. I think we are the best country in the world, and that's not based upon some manifest destiny point of view.
It's just the.
Facts that if you look at just at the market level, people want to be invested in the US.
That's where they see the opportunity.
If you look at some of the quintessential American things, hope, Americans are always very hopeful. I think that's a wonderful way to be. If you look at things like charity, we are the most generous nation in the world. Literally, there no nation comes close to us in terms of looking after each other and giving back to our society.
If you look at opportunity, despite the fact that people do not yet have the full opportunity that I believe they should have, especially those who are black, black and brown, and those who are women, we are not yet fully at the table in any way.
Despite that fact, we.
Are still a better positioned than a lot of other places in the world.
And you can be me.
You could be someone who grew up the youngest of six kids, whose mom was struggling all the time, who got evicted and cars got repossessed and phones got turned off, And you can go to Princeton and you can be on the Bloomberg Philanthropies and on the board of other companies and you can run an investment firm. Now, there was tremendous hard work that made that happen, But there were some unique aspects of America and what makes America great that allowed luck to come together there as well
and for me to happen. I think there's the idea that we could have more melodies. Is what this book is about and what our country is about.
Is there a warning kind of under the surface here too, about as we kind of get into this recovery era? Do you worry at all, Melody about a K shape recovery?
I mean, again, we're bottom up stock pickers at Ariel. You could spend a lot of time worrying about a lot of things. I have this quote that says we're worrying is like sitting in a rocking chair. It gives you something to do, but it doesn't take you anywhere. I try to just think about what I can control, what I can do, and we try to have at least at aerial in terms of our portfolios, portfolios that are resistant to different types of economies.
All right, Melody, that's a good place to leave it. Really appreciate you taking the time with us today. That, of course, is Melody Hobson, and her book Priceless Facts About Money is available now