- The $1.8 billion Ariel Fund emerged as No. 1 in Lipper's mid-cap core universe of funds in the period from the stock market's bottom on March 9, 2009 through Dec. 31, 2018.
- John Rogers, the CEO of Ariel Investments and lead portfolio manager of the firm's flagship fund, attributes his success to critical decisions that were made during the depths of the financial crisis.
- At a recent press briefing, he also shared some of the companies he viewed as bargains back in 2009 that he's still betting on to this day.
John Rogers knows a cheap stock when he sees one.
As CEO of Ariel Investments and lead portfolio manager of the flagship Ariel Fund, it's a challenge he's undertaken for 36 years. In fact, his investing days go all the way back to his early teens, thanks to his father, who bought stocks for him as Christmas and birthday gifts.
When the global financial system was crumbling ten years ago, he looked around and concluded it didn't make sense for investors to be selling so many great companies at such low prices. And so instead of listening to the doomsayers, he was looking for places to invest clients' money.
"You never want to go through it again, but I can just remember thinking 'these stocks are way way too cheap,'" Rogers said during a press briefing on Tuesday.
As we near the 10-year anniversary of the S&P 500's closing bottom on March 9, 2009, it's clear that his hunch was right. The longest bull market in history lifted his flagship Ariel Fund to the No. 1 spot in Lipper's mid-cap core universe through December 31, 2018.
Nearly a decade after the crisis, Rogers is not done hunting for bargains.
"The overall market is not expensive, especially with interest rates continuing to be near historic lows," Rogers said.
He continued: "There are sectors that are extraordinarily cheap. There are sectors that are truly hated today where there are real bargains out there."
Before diving into where he sees opportunities now, it's worth breaking down some of the practices he says helped his performance after the crisis.
During the financial meltdown, he followed a basic yet difficult principle: a down market is the perfect time to be hunting for bargains and buying.
He also turned to the wisdom of Warren Buffett, the Berkshire Hathaway CEO who's arguably the most successful value investor of the modern era. In many letters to shareholders, Buffett has said his greatest luck was being born in America, the "mother lode of opportunities" that has outlived crises as severe as the Great Depression.
Rogers' takeaway from Buffett's writing was that many of the goods and services consumers loved - from cruises to peanut butter and yes, real estate - would still exist after the crisis.
But Buffett wasn't his only source of inspiration.
Whenever Rogers opened a copy of Barron's, the first thing he checked was how his fund did for the week versus its peers. He said he would also study the portfolios of peers at T. Rowe Price, Weiss, and other firms for ideas on where to find bargains.
"If you can understand what smart investors are investing in that is not performing well, that can be a source of new ideas," Rogers said.
And in making his own decisions, Rogers' firm assigned a "devil's advocate" to every stock to pushback on the portfolio manager's views.
These guidelines informed the decisions to invest in the companies and sectors below, and to refuse to sell even when analysts had thrown in the towel:
- Media stocks: Rogers said companies in this space, especially in television, continue to be "extraordinarily cheap," as many trade at 10x earnings or less. His favorite picks include MSG Networks, Tegna, and Meredith, which completed its purchase of Time Inc. last year. With the 2020 elections fast approaching, Rogers says many TV networks are poised to generate lots of cash from political advertising.
- Financial services: In this sector, KKR, and Lazard are the picks he has stuck with over the years.
- Real estate services companies like CBRE and JLL.
- Royal Caribbean: Rogers said frequent conversations and relationship building with Chairman Richard Fain over the past 10 years have underscored his conviction in the cruise-line company.
- Stericycle: The company helps dispose of medical waste like needles. To Rogers, it's the kind of franchise that even Amazon would struggle to disrupt.