John Rogers

We're trying to find stocks that are selling a discount to what we think their private market value is. We want to make sure it's got a low p ratio, a strong balance sheet, and have the ability to really withstand the inevitable storms that happened in the stock market. Now, Warren Buffett, is he a value investor. He's the greatest value investor of all time. You know, sometimes people talk about whether Michael Jordan is better than Lebron James. There's

no question when it comes to investing. The warrant is the best of ever, the best ever. Okay, But value investing, as I understand it is easier done when the markets are down. When the markets are high, there aren't as many bargains. So what have you been doing the last ten years because the markets have been very high. Well,

it's been interesting. We were able to buy some terrific bargains, um, right around March of two thousand nine when the market was bottoming, and we got some great brands companies like CBS and Royal Caribbean CB Richard ellis a true bargains. But as the markets recovered, some some sectors have stayed really really cheap, in particular media. You know, we love companies like Viacom and Madison Square Garden Network. Those stocks

are still really cheap. Financial services companies something you know well come with, like Lazard or KKR. There's some sectors of the market that just seem to be totally neglected even as the markets recovered. I just talk about the economy. The United States economy was intercession that ended in June of two thousand nine, and so now for about ten years we've been in a gross cycle, and um it's one of the longest gross cycles in our country's history.

But therefore there haven't been a lot of depressed stock prices for this period of time. So are you kind of hoping that at some point there's a recession so we can get lower stock prices, you can buy more things at value prices. We we like to buy bargains. We like seeing sectors that are cheap. But we don't want to see a recession. You know, all the turmo turmoil that happens, you know, the impact on our society and our citizens. You know, recession is not great for America.

So let's suppose I say I watched you and you're a good value investor. I'll give you some money. What kind of rate of return can I expect from your products? Well, you know, over the thirty six years, we've been able to compound money and over uply eleven a year. Uh, and that's something we're really proud of. Our aerial fund has been around since so it's thirty three years old, and uh, it's actually number one in this category going

back to that period of time. But then neat thing is that we're one of those rare firms that has that thirty six year record with the same portfolio manager in charge, I've been fishing in the same fishing pond, not only value stocks, but small and midsized value stocks the entire timeframe. We have a great team of people that I work with have been with these some have been with the close to thirty years, some twenty years, some fifteen years. So we're a team of grizzle veterans.

We think we can replicate our performance in the future. What is your best single deal, and then you can talk about I think over time. One of our best companies we've ever bought was Royal Caribbean. We were able to buy that in the high of the financial crisis. We never one thought that people would never cruise again, and that stock has gone up close to fifteen times itself from the bottom. We still think it's an extraordinary

bargain here today. Um, A favorite of ours today is we we find that we think that, as I said earlier, some of the media stocks that are really really cheap, we're sort of optimistic that the Madison Square Garden Network will do really, really well when the Knicks only come back and start to win championships again, it's gonna be great for New York City and great for that stock. So let's talk about how you got started. So you grew up in Chicago. Both of your parents were fairly

prominent people. So I understand that your father was in the Tuskegee Air Corps. What is the Tuskegee Air Corps for those who may not know. That was the group of UH fighter pilots that were part of World War two, the first group of African American fighter pilots that had a chance to really participate fully in the war. Before then, people didn't think that African Americans were qualified to fly

aircraft in major wars. And so my dad was in the first group on the ninety nine fighter Pursuit Squadron to win overseas UH. And thought in World War two, when your father came back after World War Two, what did he do well? He um showed up at the University of Chicago law school. He wanted to go to the best law school, and he thought the University of

Chicago was the best. At first, they didn't accept him because he hadn't taken all the appropriate tests and there were not many African American students at the law school at the time. But he asked them he could take a test, and they allowed him to take the test. He showed up in his captain's uniform, and I think the two things together you know, showing what a patriot he was and how good he did on what a great result he had on those tests. He was able

to talk his way into the law school. Okay, and your mother, well, he met my mom the other first day. She was the first female African American at at the Chicago law school. She was. She graduated in ninety six and my dad in right. So he built a law practice and she built a law practice. They both had their own independent law practices because back then you couldn't work in a big, large, downtown law practice. My mom worked on divorces and my dad did mostly real estate

and bankruptcies. You were the only child. I was, like, like myself, an only child. So the advantage of being an only child as your parents put a lot of time and attention and you. Was that a good thing for you? It was? They focused everything on me. They got divorced when I was three years old. So I had two different lifestyles. You know. My dad lived in a studio apartment, uh, not far from downtown, and my mom lived in more of a large house in Hyde Park.

And um, they were different political persuasions. My mom was Republican, my dad was a Democrat. So I learned to sort of navigate two different worlds each and every week. And you went to the Chicago's famous Lab School, which is a school that is well known for I guess it's K to twelve. It's a CAD to twelve school. I I got their ninth grade. Okay. It's a terrific place. And in addition to your academic pursuits, you were a basketball player. I was. And you went to Princeton and

you played basketball at Princeton. I was very fortunate to play basketball Princeton for the Hall of Fame coach Pete Kill. He was a legend and someone who really transformed my life. So you're the captain your senior year. I did get to be a captain. Odds. Did you think you were going to be an NBA player? You know, Coach Currol made it very clear that I had no hope to

be an NBA player. Uh. He told me when I was a sophomore and I made the team, I was the last person on the team, the fifteen person on the team. He said, Johnny, you're legally blind and I can't teach vision, you can't dribble, and uh, but you work so hard. We'll keep you around for a few more days. So you graduated in in nineteen eight. What did you want to do? I had two role models, um that were stockbrokers. One across the street from a campus on Nassau Street, a guy named Mike Perkins that

laidlaw Adams in pack. He helped me, showed showed me at Firestone Library where to go and research companies, how to find newsletters on the stock market. And then I had a broker home at home in Chicago named Stacey Adams who was the first African American stockbroker Onlsalle Street. And I would go and sick sit with him and watch the ticker tape go by. So I thought, if you loved the stock market like I did, you would become a stockbroker. And I was forced to be hired

by William Blair and Company in Chicago. The managing partner of the time, Nedjanada, was a Princeton grad. It played football at Princeton and very close to Don Rumsfeld, and Ned helped recruit me there and gave me a great opportunity to start my career at a great firm. Okay, so you stayed there ten years or so, before you were ready to do something else. No, I stayed, Uh, about two and a half years. That's enough time to

learn the business, I thought. So I had confidence in my strategy of investing in small and mid sized undervalued securities. And as I said earlier, there were not many people doing that, so we felt we were kind of pioneers in the small value place. There were a few firms like Chuck Royce's firm, Ralph Wanger at Acorn Funds, a couple of others, but not many people like to focus in that area of the market. So you started your own company? What age I was twenty four and where

did you get the money to capitalize it? Well? I went to Uh, of course, friends and family, you know. I I tell people my my my mom gave me everything she had that was liquid. My dad gave me what he thought he could afford to lose. And after that I went to some of my former clients, my high school buddies from the lab school, anyone that could give me ten thousand dollars to help me start the company.

How much capital did it take to start it? Roughly a little over two hundred thousand dollars, okay, and that was what year that was? And where'd you get the name Ariel from? You know, I love the way the name sounded. It was a character on a favorite TV show of mine, and I always said, if I have a daughter, I'm gonna name my daughter Ariel. Okay, But I had the company first. How much are you managing now? About thirteen and a half billion dollars? And you managed

more at one point before the Great Recession? So it came down as with these as was the case with many companies, and in fact, how much money did you actually go down to? What? How low did you go? We got under three billion dollars? So do you think you maybe should fold up shop when you're under three billion after you're having twenty or so billion? No, not

at all. You know, we m had learned. I think one of the lessons I learned from my father and Melodie Hopson, our president, agree completely was we should always keep money saved for a rainy day. And sure enough we had a hurricane with the financial crisis, but we had saved enough capital in our company so that we can continue to pay our salaries and keep our key

people in place during that tough, tough period. And so that was really, really an important part of our approach, and then we bought our best stocks UH at really bargain prices during that period. And I think people like that that we stuck to our guns and believe in what we're doing. Now, some people say that it's impossible to beat the markets, and so therefore one should just buy index funds. Uh. In your case, you don't have

index funds. Necessarily, you pick stocks. Why should somebody give money to a stock picker rather than just somebody who's just gonna reflect whatever the sp or whatever the index might be. Well, I think that the reason to do that is there are talented money managers out there who can add value. And it's been proven over time that there are people who have that gift and that creativity and that vision to buy securities and outperform the markets.

Now it's hard to find them. Um, there are few and far between, But I think it's worth the effort, and I think it's often and I say, it's like sports. You know, you you root for your local teams, even though you know that half the teams are gonna lose and half the teams are gonna win. Everyone can't be the world champion. Every year, but you still like to be engaged and involved in the competitive pursuit of trying to find a championship or support a champion. I think

it's the same with money managers. To keep up with what's going on in the world. Do you use computers? I actually don't use the computer. Do you ever go on the internet? I do have the Internet on my phone, but I'm one of these folks that I've never actually had a computer. I've never turned a computer on. Use emails? I don't email. So how do you people get messages to you today? Send a pigeon with a messenger? How do they How do they get a message to you?

They can just call me. So you're on a number of corps boards, and you are legendarily very um loyal to your corporate boards. One of the boards you're on is McDonald's, and it is said, I don't know if it's possibly true that you eat McDonald's every day somewhere in the world, wherever you are, you eat one meal a day at some McDonald's. Is that true? It's just about every day. I mean there's exceptional times when you're

traveling where I can't actually get that done. But I love being a McDonald's sort of my home away from home. And you do that before you're on the McDonald's board. I've been doing that since I got home from college. I just love it there. Um, and you think it's very healthy for you. It seems like it's worked out okay so far for me far. So when you were interviewing to be on the board, I presumed the interview to be on the board. Did you mention this and

did they think this was unusual? I still remember having a breakfast with Any McKenna, who became the non executive chairman of McDonald's, and Jim Countal Loopo, the CEO, and it went marvelously well because they could tell how much I loved brand. So you used to play a lot of three on three basketball? Yes, so in Chicago. Did you ever play basketball with Barack Obama? Yes, several times. And is he that good a player? He's a very good player. He knows what he's doing. He's a little

bit of a in between size. Uh. You know, he's sort of six two and a half or so, and he can't dunk the ball, right, I don't know about that. You think he could dunk? I think he probably could. He's a little left handed, you know, but he's a He's a very good player and makes clutch shots all the time under pressure. There was another player in Chicago, maybe better than even Barack Obama named Michael Jordan's. H did you ever play against Michael Jordan's. I did get

to play Michael against Michael around Chicago a lot. You know, he would be at different clubs and you get to be on the fourt with him. I think he was overrated. No, he is, I think the greatest player of all time. So one time, I understand you played against him and you beat him. The only person who ever beat him on a a was a one on one game. Yes,

it was a very fortunate circumstance. I used to go to his Senior Flights School, which is a fantasy camp for people thirty five years and older, and so every summer at the camp, he would challenge any camper to a short game of one on one, first of three wins and m since no one had beat him in the first seven years of the camp, I think he was kind of a little overconfident. He would let people make a basket or two before he sort of clamped down and shut people down. Also, I had the advantage

when I played him. I think he played about fifteen campers before he got to me, so he's kind of tired, and so I was snuck up on him. And UH, coach Curl always said that even though I wasn't a good passer, I was a good one on one player, and so I had a couple of tricky shots and the last tricky shot right as it was about to go in. You can hear Michael say on the video,

oh no, and that was really fun. And one when one of the people you were playing basketball against, Barack Obama, I told you he was going to run for president United States? What did you say? I told him. I thought it was a terrific idea. I remember he came over to the office to tell me his plans. And I know, I you know, I know sometimes that people wait a little bit more to get a little more seasoned.

But I felt that he was really ready. I was totally confident in his ability to be the commander in chief, and so I encouraged him strongly to run. Hey, and did you get involved in the campaign. I did. I got to be co chairman of the Illinois Finance Committee with a friend of yours, Jim Crown. We worked for Penny Pritzker and that was a magical thing to be

able to be involved on the ground floor. And then once he was elected president, UM, I got to be co chairman of the inauguration and that was special, and it was really special. When he first got elected, we were the temporary transition headquarters at Ariel so for three days. Um, he was there helping to form the government. And right, so we'll never forget. Now you helped him in his campaign. He's using your offices for the transition. Did he offer you a job and if so, why didn't you not

take it? But we never we never really had that conversation. UM. I love investing and I love our business and I have a great team, as I mentioned earlier at arials, so there was never a thought that I would go to Washington right now. In the philanthropic area, you obviously are a philanthropic leader in Chicago. What are the areas

of interest you have in philanthropy. Well, we've been working really hard on David is the sort of the idea of how to solve for the wealth gap in our country between sort of the minority communities and the majority communities. And you know, there's all this data that shows how the wealth gap has gotten larger, particularly between African Americans

and white Americans. So we started a small public school over twenty two years ago to teach financial literacy in a public school to get young people prepared, uh, to be able to pick their own stocks and be able to navigate their foe own K plan and all the things they need to do. Most recently, we created a program at the University of Chicago for minority students to work during the summer um in in the investment offices

of major endowments. Now, your parents were prominent leaders in the African American community in Chicago and prominent leaders in the Chicago community. So, uh, when you were growing up or now that you live in Chicago, do you feel discrimination or have you've been able to bypass that. I have to say that when people think about supporting minority business, it's typically around what they call supplier diversity, construction, catering

things that are you know, bought through procurement. And my mom had this challenge when she was building her law practice, and my dad too too, that people just didn't think about hiring a minority lawyer to do their transactions, and the same thing when it comes to money management. We were the first African American money management and mutual fund

company to start in the country's history. So when we went to see people, they had never thought about hiring someone that was African American to manage their money or to have our mutual funds in their four O n K plan. You've mentioned a few times Melody Hobson for those who may not know. She's the president of your company or the CEO. And she's the president and she's somebody who also went to Princeton. Do you hire people

that didn't go to Princeton? We do. And Melodie came from a challenge background, I think you would say, but she's now become a very well known tell us about her a little bit. I met Melody when she was

a prospective Princeton student. She was seventeen years old, and UH, we were trying to make sure that all the local alumni were interviewing all the prospective students, and uh we had a special event for all the admitted students, and Melody came and I sat her at the head table because we could tell throughout the process that she was something really, really special. And so she sat next to a person who Richard Missner, who convinced her not to

go to Harvard and to go to Princeton instead. She then became a summer intern with us at Ariel and then she's been a summer tiro Price in Baltimore. She had a great time, and she joined us when she graduated. So she says, she's the only person from her Princeton class that has the same phone number twenty nine years later, and she is taking on more and more leadership at the company every year. She'll be my successor. And uh, it's so wonderful have a partner who's as tough and

smart as she is. Okay, now you have your finger on the pulse of the economy since you're looking at stocks all the time that are reflective of the U. S economy? Are you worried about a recession in the near future. I'm not worried about the recession. You know, we think long term at Ariel. As you know, our logos a turtle. We believe that patients wins. And I always remind myself Warren Buffett, you know, always says that

last century. The Dallas started at sixty six and ended it over eleven thousand, and we had two world wars, a great depression, press and it's assassinated. It was an extraordinary hundred years. But the market always marches back. Are you not worried that the US government, for example, has twenty two trillion dollars of indebtedness and we're adding at one point three trillion a year or is that a

concern or not so much? Not so much? You know right now, as you know, inflation is staying very much under control. Um interest rates are staying low, which means the stocks I think, still are undervalued in this environment. So we think that we always have a way of adapting to whatever the challenge in this country faces, and my confidence is really high that we will get through the problems that are always in front of us. On recent years, the income and equality in United States has

become very evident. Is there anything that you think government policymakers can do to diminish the very large income and equality we now have. I think that one government needs to do a better job of making sure that we have financial literacy in public schools, in particular urban public schools where we can get people exposed to the markets and get people coming out relatively ready to make the right investment choices, be more effective entrepreneurs because they've been

exposed to the markets at an early age. I think that's critical. So what do you think your legacy will

be and what would you like it to be. I think our legacy will be that we were able to build the most diverse money management firm in the country's history, with an extraordinarily talent diverse board of directors and deliver excellence and performance at the same time, and be role models for others to get into the financial services sector, because, as you know, this is such a lucrative part of our economy and hasn't been a verse very diverse part

of our economy. So we want to show people that it can be done, and hopefully it will inspire others who'll want to follow in our footsteps and Melody's footsteps and be successful in the financial services industry. No regrets about not going into private equity, you know, it's it never came up, and so we we think about it from time to time, but really, a uh, we love picking stocks. Hey, Well, thank you very very much for

an interesting conversation. Thank you John, Thank you very that's John Rogers, the chairman and co CEO of Aerial Investments, speaking with Carlisle Group co chairman David rubin Stein