Ariel Investments' John Rogers on How You Can Still Win With Value Investing

Joe Weisenthal (0:03)

Bloomberg Audio Studios.

Tracy Alloway (0:05)

Podcasts, radio, news.

Joe Weisenthal (0:21)

Hello, and welcome to another episode of the Odd Lots podcast. I'm Joe Weisenthal.

Tracy Alloway (0:26)

And I'm Tracy Alloway.

Joe Weisenthal (0:27)

Today, you're going to be listening to a special episode that we did recorded live on the beach in Huntington Beach, California.

Tracy Alloway (0:33)

That's right. We are back at the Future Proof festival. It is a very special event that gathers a lot of investment professionals to talk about markets and how they're actually investing through these very interesting times. And one of the most interesting investors out there, I think, has to be our guest for this episode.

Joe Weisenthal (0:54)

Totally. So, you know, these days, I feel like when you talk to investors, when you talk to people about the market, it's very binary. It's like, what do you think about the Mag 7? What's your view on AI? What's your view on Capex spending? What's your view on the Fed, et cetera? And you don't really hear many of those fashions, like good old fashioned stock picking, security selection. And I miss that. I think it was interesting back in the days when like, there's sort of like Buffett and Graham Dodd style of investing. We're like, here's an interesting company. A lot of people don't know about it, but I found it. I like this stock. I like this company. And I think it's going to grow bigger. You just don't really get much of that discourse these days.

Tracy Alloway (1:38)

This also dovetails with my favorite ever style of analysis, which is just when an investor or an analyst just goes to one of the companies or locations of the potential investment and just observes how everything is working and talks to potential customers and things like that. I love that style of investment. And we are actually speaking to one of the most famous stock pickers of all time.

Joe Weisenthal (2:01)

That's right. You're going to be hearing our interview with John Rogers. He's the founder and co-CEO of Ariel investment Management. And he's very different. He's truly old school. It's all mid cap and small cap stocks. He's been running this mutual fund for decades now. And he's like this old school classic style stock picker. And you're going to hear our conversation about how he goes out and finds companies and talks to management and tries to uncover these diamonds in the rough, so to speak.

Tracy Alloway (2:32)

So take a listen. As a reminder, this was recorded live on stage at Huntington Beach as part of the Future Proof conference. You might hear some background noise. It was very windy that day. There was also a drone, which was an interesting experience. But we hope you enjoy it. Here is our conversation with John Rogers.

John Rogers (2:50)

It's great to be here. Never been to an event like this before.

Joe Weisenthal (2:54)

I know. It's such an extraordinary event. I don't even know what would be like an equivalent thing that anyone could have been to before, but very excited to be here. So in investing right now, you know, there's a couple big themes that come up over and over again. There's the rise of passive investing in various flavors of that. There's just the incredible dominance over the last several years of the MAG-7 and Big Tech and their momentum and the sector-specific stuff. You are a stock picker, and you buy, you eschew that. You're not just one of these people riding the MAG-7 wave and you buy a lot of mid-cap and small-cap stocks that are in fields that maybe people don't think about. What's your pitch? When people look at the rise of the MAG-7 or indexing, what's your pitch for security selection in other realms of the market?

John Rogers (3:43)

Well, I think it starts with the fact that Ariel investments is almost 42 years old. So we've been through a lot of markets. Of course, we've studied market history and read about what happened in all the great bubbles that have happened throughout the world and all the great corrections and all the big booms that happen. And we have these massive ups and downs in the market.

But ultimately, it is very cyclical. So I was just reading Chuck Royce, who's been managing small cap stocks for over 50 years, the legendary investor, he's finally retiring. And he talks about how these waves come and go. And this one in particular reminds him of the nifty 50 When Polaroid and Xerox and Johnson and Johnson and IBM all sold as extraordinary multiples, people thought it was going to last forever. They were called one decision stocks. You'd buy them and you owned them. But of course, that changed. 77, 73, 74, the markets collapsed. And we've all seen the ups and downs. So for us, what we tell people is, when you get these extremes, and everyone's buying a stock because it's gone up a lot yesterday, it's part of an index, you're getting toward the top. And the multiples show that. The valuation differences between large cap growth and small cap value is one of the largest in history. So we feel highly confident it's going to be a better time for the smaller undervalued securities.