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- [00:00]
Barry Ritholtz
Your customers are important to you, but they won't feel that way if they're messaging a clunky chatbot or waiting on hold. Please hold.
- [00:10]
Christine Philpotts
Estimated wait time is 25 minutes.
- [00:15]
Barry Ritholtz
Now you can deploy a Sierra AI agent to delight customers and solve tough problems in real time. Always friendly, always helpful, always ready. Visit Sierra AI to learn more. That's Sierra AI. This show is sponsored by BetterHelp.
- [00:33]
Christine Philpotts
BetterHelp has been revolutionary in connecting people to mental health services.
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Barry Ritholtz
Using BetterHelp can be as easy as opening your laptop or your phone and clicking a button and the session begins.
- [00:44]
Christine Philpotts
Clients are able to choose in what way they would like to communicate with me. Whether video or on the phone or.
- [00:51]
John Rogers
Chat texting, BetterHelp is there when you.
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Barry Ritholtz
Need it, and that's what makes all the difference. Visit betterhelp.com podbusiness to get 10% off your first month. Therapists were compensated Bloomberg Audio Studios Podcasts Radio News.
- [01:14]
John Rogers
This is Masters in Business with Barry Ritholtz on Bloomberg Radio.
- [01:20]
Christine Philpotts
This week on the podcast, I have another extra special guest. Christine Philpotts of Ariel Investments has specialized in emerging markets and frontier markets for most of her career. She has been around the world and if you name a hotspot investing place, she's been there South America, Asia, Africa, Sub Saharan Africa and Middle east as well as Southeast Asia and Asia. She's a boots on the ground type of investor who focuses and specializes in emerging market value. What makes that style of investing so interesting and different is simply market inefficiencies. You know, the US Markets are so efficient, large cap tech stocks, it's really hard to have an edge in that space. But when you look at emerging markets and when you look at value, the opportunity for alpha is much, much greater than it is in traditional large cap growth stocks in the US And a lot of managers in that space actually beat their benchmark. You can't say the same for US Large cap stock. I thought this conversation was really informative and fascinating and I think you will also. With no further ado, Ariel Investments Christine.
- [02:40]
John Rogers
Philpotts thank you for having me.
- [02:42]
Christine Philpotts
So that's a really fascinating background. I'm curious. I didn't even talk about the Grassroots Business Fund. We'll get to where you work at JP Morgan, but economics? Bachelor's from Columbia, MBA from Harvard. Was finance and investing always part of the plan?
- [02:59]
John Rogers
The quick answer is no. So I pretty much tripped into finance when I was in middle school and high school. I wanted to be a concert pianist. So actually.
- [03:09]
Christine Philpotts
Oh really?
- [03:10]
John Rogers
Yeah. So I spent probably 90% of my time outside of school on the piano, practicing and playing at concerts.
- [03:17]
Christine Philpotts
Wow.
- [03:17]
John Rogers
And essentially decided to pivot from that original plan because it became clear to me as I got older that to really make a living as a concert pianist, you need to be the top 1% in the world. And I was.
- [03:30]
Christine Philpotts
That might not be. It might be 0.1%.
- [03:32]
John Rogers
0.1, exactly. And so I was told that I was very good, but that's a pretty high bar.
- [03:38]
Christine Philpotts
Do you still play?
- [03:40]
John Rogers
I don't actually, but my kids are taking piano lessons, so I'm being inspired to kind of restart. So then I decided to explore other options, but finance was not one of them because I just had no exposure to finance whatsoever. And so the way I came across finance is when I was in high school, I was applying for scholarships for college, and I came across the Thomas G. Lebrecht Smart Start Scholarship program that was run by Chase Bank. So it's a program that selects New York City high school students who are going to university in New York City, and it offers a four year full tuition, paid scholarship to college, as well as a paid internship full time during the summer, part time during the school year.
- [04:23]
Christine Philpotts
Wow.
- [04:23]
John Rogers
So I came across that opportunity. I applied and was lucky enough to get it. And then I said, okay, now I need to figure out what finance is actually all about. And luckily, as I started my internship when I was 18, over the years throughout college, I learned more and more about the different areas of the bank and became really intrigued with investment management specifically. But if it was not for that program, I may not be in this industry.
- [04:47]
Christine Philpotts
Huh. Really interesting. And. And I noticed in your background, you spend some part of your undergraduate playing around in the psychology department. Tell us a little bit about the thinking there.
- [04:57]
John Rogers
Yeah, that's right. So I decided to become an economics major and a psychology minor. I always had this interest in just understanding how people think and what drives just people's reactions, emotions, behaviors. That was just always a side interest of mine. And in particular, as a psychology minor, I had an opportunity to work with a Columbia professor on an independent study specifically focused on cognitive psychology. And I found that subsegment really interesting because we did studies on kind of decision making biases, human biases like loss aversion, and other biases that impact otherwise what should be rational decisions and make them less than rational. And so doing that in college, that independent study really opened my mind up to what eventually I learned to be the behavioral, economics and finance area. But I didn't even know what it was called or that that was an area back then. So the interest of psychology and economics became really interesting.
- [05:57]
Christine Philpotts
Very much so. The fascinating thing is when I was in college, even when I was in grad school, there really wasn't any such thing as behavioral finance. But it was pretty clear economics had a fundamental flaw, like the base concept of humans as rational profit maximizing decision makers. Hey, that, that doesn't seem to be what happens in the real world. I think they've kind of squared that circle now. Do you get to use any of your, the work of behavioral economics in your day job?
- [06:27]
John Rogers
Absolutely. So as an investor we constantly need to be aware of our own human biases because we're human, so we are prone to the risk of making irrational decisions as well. But it's also really interesting to think about how these biases at the market level really creates interesting opportunities. Right. It's because of these biases that we have inefficiencies in the market that we can then exploit as active investors. So if the markets were perfectly rational, arguably there'd be no opportunities. So it's just interesting to think about again, as an investor, how do you handicap your own biases? And we do that through several ways. For example, we use some quantitative tools and approaches to help offset those natural biases. But also thinking about at the market level as a whole, as we think about the aggregate market participants, how we can exploit some of those biases to generate alpha.
- [07:22]
Christine Philpotts
Really, really interesting. And to round out your background, you spend time AT Alliance Bernstein, J.P. morgan Asset Management and Morgan Stanley. Were you at Morgan, Right. Heading into the financial crisis, is that right?
- [07:35]
John Rogers
I was.
- [07:35]
Christine Philpotts
What was?
- [07:36]
John Rogers
I was there. I was, yes. So that was very fascinating experience. So I participated in an MBA fellowship program at Morgan Stanley. So when I resigned from J.P. morgan to pursue my MBA at Harvard, I applied to and got accepted into Morgan Stanley's MBA fellowship within the investment bank. So that involved two years full tuition paid for business school as well as a summer internship within the investment bank. And so I, I'm an investor through and through, but I thought it was an interesting opportunity to look at the other side of the house and to join the sell side and kind of see how the other side operates, you know, from the inside. And so I decided to join the capital markets group and specifically I was part of the convertible debt group, which was interesting because I actually started my career at JP Morgan Asset Management in the high yield and investment grade credit research team and then I moved on to the equities team afterwards. So it's kind of an interesting way to combine my debt and my equities experience. And I did a lot of options math, which I thought was interesting, and I just learned a tremendous amount. But it's summer of 2008, as you can imagine, was a really interesting time, particularly for the convertible bond desk, because we were the busiest desk as other parts of the market were closed, literally shutting down. The convertible debt market was one of the last ones to remain open before September 2008. And so that summer, we ended up. I ended up working on about $1 billion worth of new issuance. So I actually got a chance to work on a lot of new convertible debt deals before that window closed. So it was just a really interesting timing and learning experience.
- [09:17]
Christine Philpotts
I have a vivid recollection of the summer of 08, and I remember saying to one of the traders I was working with, I just kind of channeled Robert Duvall from Apocalypse now, where he turns to Martin Sheen and says, you know, son, someday this war is gonna be over. And because you were in the middle of just the craziest market experience you can have, and I wanted people to just remember what's going on now, because this ain't ever happening again in your lifetime.
- [09:47]
John Rogers
Absolutely.
- [09:48]
Christine Philpotts
And, like, I assume you had a very similar experience at Morgan Stanley. It had to be just bonkers.
- [09:55]
John Rogers
Yeah, it was just literally, there were headlines coming out on a daily basis, tick by tick.
- [10:00]
Christine Philpotts
Every minute. It seemed like every. Every time you turn around, there was some other insane news, and it just built and built and snowballed.
- [10:08]
John Rogers
Absolutely. And so by the time I got back to Harvard in September of 08. Right. I mean, obviously, the Lehman collapse occurred, and really just the bottom fell out, and we're all kind of looking at each other saying, well, on the one hand, I guess it's good that we're in school as opposed to, you know, being on the street and having just been laid off. But I vividly remember later that year the dean of Harvard Business School indicating to us that, comparing us the class that graduated during the Great Depression, and his message was basically like, they turned out just fine eventually, over time. And we were like, okay, well, this puts it into perspective.
- [10:51]
Christine Philpotts
Well, thanks for the cheerful, you know, halftime speech to get everybody enthusiastic. Hey, just think about it. The folks in the Great Depression, they turned out just fine.
- [11:03]
John Rogers
Yeah.
- [11:04]
Christine Philpotts
Oh, my God. Let's talk a little bit about International Finance Corporation. Tell us about the fund that you helped them establish.
- [11:13]
John Rogers
Yeah. So I graduated from HBS in summer of 2009, and I was fortunate enough to join the Grassroots Business Fund, which had been a division of the International Finance Corporation and literally spun out first half of 2008. So what was really unique about that is it was one of the few funds that actually had a fresh pool of capital to deploy.
- [11:35]
Christine Philpotts
Ah, so they weren't dealing with legacy things that were upside down.
- [11:39]
John Rogers
No, they were able to enter a pretty compelling time in terms of having fresh capital to deploy. And so that fund's focused is on businesses, small and medium sized, privately held companies that not only have good growth prospects and could generate healthy financial returns, but that are also providing economic opportunities to the base of the economic pyramid. So providing affordable goods and services to customers, incorporating individuals in supply chains in productive manner. So it was an impact oriented private equity, private credit fund.
- [12:14]
Christine Philpotts
And where was that focus? What geography did they focus in?
- [12:17]
John Rogers
So the focus was on emerging markets, more specifically Sub Saharan Africa, Latin America, India and Southeast Asia.
- [12:25]
Christine Philpotts
So are you traveling all over the world to kick tires of these private companies or.
- [12:29]
John Rogers
Yeah.
- [12:30]
Christine Philpotts
What's that like?
- [12:30]
John Rogers
Yeah, absolutely. So during my time there, I was probably employee number four or five. So I joined soon after the spin out to help really establish our investment processes as an independent entity, provide the game plan for where we're going to invest and ultimately help recruit other investment professionals as we're building out the team and ultimately investigate deals and structure deals and invest in portfolio companies. So my original focus was Sub Saharan Africa. I did spend a summer between J.P. morgan and HBS in Kenya working with a microfinance organization. So I had some experience in Africa that I was able to leverage for this role. And so to answer your question, I spent probably three to four months out of the year on the ground. So I was based in D.C. as a member of the management team. But I would go for a month at a time really working with the entrepreneurs that we had invested in, looking at diligent, working with partners, kicking the tires, as you said, which really provided a great experience to understand emerging markets on the ground and a lot of the nuances, particularly for smaller and medium sized companies.
- [13:39]
Christine Philpotts
And give us the timeframe. What years were you doing this? Because I want to put into context of what was going on in the US at the time.
- [13:46]
John Rogers
Yeah. So I joined in August 2009 and I left to join Alliance Bernstein in late 2012.
- [13:53]
Christine Philpotts
So what were emerging markets like in that post financial crisis period?
- [13:58]
John Rogers
Well, what was interesting is particularly for the segments of the markets the fund was focused on, which is really smaller, mid cap, private equity and private credit. They were pretty unaffected by the global financial crisis because these are companies and in some cases countries that were never really fully integrated into the global financial system. And so as the global financial markets were in a tailspin, they were actually very resilient and so we had really attractive opportunities. For example, that was a time period where mobile banking and mobile pay was starting to emerge. So we had a couple of investments in that arena. We had off grid clean energy investments. We had really interesting agribusiness and agroprocessing companies, consumer product companies. So companies that really were targeting the local markets and customer bases and supply chains that just were not at all impacted by the global financial crisis. So to me that was the definition of uncorrelated asset.
- [15:02]
Christine Philpotts
Yeah. To say. To say the very least. So it's interesting the theme across all of your work or most of your work is, is emerging markets and frontier markets what led you to that particular focus?
- [15:15]
John Rogers
Yeah, so when I was at J.P. morgan I was covering U.S. tech stocks. I was a research associate on the buy side working with senior analysts looking at software.
- [15:26]
Christine Philpotts
Mid 2000.
- [15:28]
John Rogers
Yeah, from basically 04 up until I went to business school, which was oh 7.
- [15:33]
Christine Philpotts
So the recovery following the dot com implosion had already begun.
- [15:37]
John Rogers
It already started. Yeah.
- [15:38]
Christine Philpotts
Right. But we hadn't quite run into the bus of 0809.
- [15:41]
John Rogers
Exactly. So basically by the time, I mean looking back, I left at the peak of the market of obviously I didn't perfectly time it but when I was leaving close, I remember my colleagues telling me, well why are you going to business school? That's going to be a waste of time. I mean the markets are doing very well. Why, why are you doing this to your career and let alone you're going to Africa to do microfinance, like what's going on? They thought, I think they thought I had a quarter life crisis sort of life crisis.
- [16:10]
Christine Philpotts
I love that.
- [16:10]
John Rogers
But hindsight's 20 20. But. But what's interesting is to answer your question about the pivot to emerging markets, what really drew me was a couple of things. So one is the idea of being focus on less efficient part of the capital markets was very compelling. I tend to be the type of person that if everyone's going in, you know, Route 1, I want to go into Route 2, 3 and 4 just to kind of not be with the herd and to see what else is happening that people may be overlooking. And you know, with large cap tech stocks, if the CEOs caught a cold, there'd be 20 sell side notes about the fact that the CEO caught a cold. It's very well covered markets, whereas in emerging markets and particularly markets like Africa, they were just not really being talked about. And so I was very interested to look behind the hood, see what was happening and be in an arena where I thought I could add more value and have more of an edge by doing research in areas that other people ignored. From a personal standpoint, my parents are originally from Haiti, so I was born and raised in New York. But I'm first generation. And so there was a lot of conversations around the dinner table around why are poor countries poor? What could be done about it talks about economic development and the intersection with, you know, political reform and just how that affects developing countries more broadly. And so that was also, from a personal standpoint, a really strong interest of mine that led me to want to pursue emerging markets.
- [17:37]
Christine Philpotts
So I'm hinting at a question that's going to come a little later, but my general sense is, you know, developed mature economies have fairly efficient markets. Very hard to generate alpha because markets are so efficient. I'm going to assume the same is not true in either EM and especially in frontier markets. What are your thoughts?
- [18:00]
John Rogers
That's absolutely the case and the data proves it out. So for example, if you look at the last 10 years of returns, the median active EM manager across style, so value growth and core has outperformed the benchmark or passive strategies over the last decade. That is not the case. When you look at US large cap 100%.
- [18:23]
Christine Philpotts
In fact, I think the number is net of fees 10 years out, it's like 93% underperform the benchmark in US not even big cap, just US, period. It's pretty amazing.
- [18:35]
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- [19:26]
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- [19:46]
Christine Philpotts
Estimated wait time is 25 minutes.
- [19:54]
Barry Ritholtz
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- [20:36]
Christine Philpotts
So let's talk a little bit about what you did before you joined Ariel. You were at Alliance Bernstein, a very well regarded firm for about 10 years and you managed a couple of different projects and funds. Tell us a little bit about your experiences at Alliance.
- [20:53]
John Rogers
Yeah, absolutely. So essentially decided to leave Grassroots Business Fund, really to be able to go back into the listed equity space and to join a larger investment platform. And so at the time that I was considering potential opportunities, I came across the team that I joined and the fact that they were interested in launching a frontier and small emerging markets equity fund, which really paired well with my experience in small and frontier funds. And so I joined in early 2013 and specifically joined initially to cover sub Saharan African stocks and also to help launch this new fund which was called the Next 50 Emerging Markets Equity Strategy. And the idea was to have a fund that specifically focused on frontier and small emerging markets that were even less efficient. So one of the least efficient markets in an already inefficient part of the capital markets, which is emerging markets.
- [21:51]
Christine Philpotts
So let's just define some terms a little bit. I think the listeners know what developed markets are. A developed ex us, which would be things like Europe and Japan. What's the difference between frontier funds and emerging markets? Like, how do you define those two geographies?
- [22:10]
John Rogers
Yeah, that's a great question. A lot of times the lines can be blurred and countries could go from one to the other and back. So we use the MSCI benchmark definition. So they have specific criteria on differentiating between what's in the emerging markets benchmark and what's in the dedicated frontier benchmark. So parameters around, for example, liquidity, market mechanisms and other criteria. Depth of the markets that will determine what's emerging, which frontier. But I think the broader sense that we focus on is really again around this notion of efficiency or lack thereof, and opportunities and markets in which we can get an edge through active management. And I would say the benefits of the inefficiencies in emerging markets are that much more magnified for frontier markets. But there are review cycles in which countries get upgraded to emerging markets or downgraded to frontier markets, depending on how some of those market characteristics evolve.
- [23:12]
Christine Philpotts
So let's put some specific geographies to test. Where does China fall into this? Is it still considered emerging? Not quite developed. What about South Korea?
- [23:23]
John Rogers
That's a great question. So South Korea for the MSCI definition is emerging, isn't that others would argue it should be developed.
- [23:30]
Christine Philpotts
I mean, South Korea, if Japan is obviously a developed nation, is South Korea all that far behind Japan in terms of their maturity of their markets?
- [23:40]
John Rogers
So there's, I guess there's two parameters there. So one is, you know, from the economic standpoint, if you look at economic characteristics and criteria, that's one layer within which to categorize countries between developed and emerging. The other is really around just how the equity markets function, the depth of depth, liquidity, market rules and other criteria that will then cause another layer of differentiation between emerging and developed and frontier.
- [24:13]
Christine Philpotts
So when I think about, let's say the Middle east, you have Egypt, you have Saudi Arabia, you have Dubai and Qatar and the Emirates. Are these all still considered emerging?
- [24:25]
John Rogers
Yes, they are. So they're. Except Egypt, for example, would be categorized as frontier.
- [24:30]
Christine Philpotts
Oh, really?
- [24:31]
John Rogers
Yes. But Saudi is emerging.
- [24:33]
Christine Philpotts
Right? Because you think, again, you think the Saudi is like a fairly. I mean, granted it's a kingdom and a lot of. There's a lot of poverty as well as a lot of wealth there.
- [24:42]
John Rogers
Yep. Yeah. So I think for us, the way we think about it for our emerging market strategy is we have the ability to invest across emerging and frontier markets.
- [24:53]
Christine Philpotts
So it doesn't matter what we label them exactly.
- [24:56]
John Rogers
We do have a limit on what percentage of the portfolio could be in what's classified as frontier. But ultimately we're looking across all of these markets. I mean, there's 50 plus countries in the emerging markets world that have listed equity markets. So that's a big pool to draw upon. And ultimately we're looking for the 60 stocks that we think have the best upside potential. Take into account liquidity and other parameters of risk.
- [25:23]
Christine Philpotts
So I was going to ask about the structural differences between emerging markets and frontier markets, but it Sounds like it's. That's a pretty technical definition. So let me go to what you just referenced in terms of selecting stocks. Do you approach that process from a top down, country by country basis? Is it a bottom up analysis, company by company or a little bit of both?
- [25:48]
John Rogers
So we're bottoms up investors. At the end of the day, we're picking stocks. If you look at our sources of active risk, about 50 to 60% of that consistently is from idiosyncratic or stock specific drivers. That being said, and just to put that in context, country would contribute about 10 to 15%. That being said, neighborhood matters, particularly in emerging markets. And so we cannot disentangle top down considerations from our bottoms up analysis because as we determine what discount rate to discount the free cash flows of specific company, we need to think about the risk premium of that country, how the sovereign yields are likely to unfold, what are the currency risk. As we think about the growth potential of a specific stock, we need to put that in the context of the growth potential of that country. And so these top down considerations are ultimately really critical to consider as we look at specific individual stock opportunities. So like real estate, neighborhood matters. And it also helps determine where we lean into or out of in terms of where we place our focus. We want to make sure that we have an alignment of interest, particularly as minority shareholders. That alignment is not just relevant to the specific stocks in terms of the management teams and the equity holders or the majority shareholders of the companies we invest in. We also think about alignment at the country level. What is the government looking to achieve? How is that evolving? How is that changing? And our very simplistic criteria is to not get in the way. If there's a country where we think the economic direction is moving in the wrong direction and where there's not that alignment with what the government's looking to achieve, we don't need to be invested in that country. There's other places for us to fish.
- [27:38]
Christine Philpotts
So I look around the world and I think about the various hotspots. I mean, hold aside Russia, which is essentially become uninvestable, but Argentina and Venezuela went through their issues and Turkey obviously had some problems, and to say nothing of what's going on in the Middle East. Do you have to have boots on the ground? Do you have to actually go visit these countries and get a sense of hey, the headlines are overblown, or hey, this could be potentially worse than we realize. How often are you traveling to different places to get a feel for risk factors there?
- [28:15]
John Rogers
Absolutely. So we travel quite Often. So our team, just to talk about our team structure, six of us have been working together, have moved from Alliance Bernstein to Ariel, and our team has been working together for over a decade. So no less than 12 years specifically. And throughout that time, even though we're based in New York, we understand the importance of visiting all the different countries were actively invested in. And so to that point, for example, last year I spent in aggregate four weeks in China to really not only meet with the management teams of listed companies, but to meet with their competitors, privately held and publicly held, to meet with local contacts, to meet with domestic investors, to meet with other key contacts and players where you can get more insight by having a face to face conversation oftentimes than you may be able to get on Zoom or even via text and even doing site visits. Going to the malls, visiting real estate sites, going to the auto manufacturing plants, visiting battery plants really gives you a more concrete sense of what is occurring and to your point, what is beneath the headlines and what the market could be missing.
- [29:33]
Christine Philpotts
Really, really interesting. You know, I haven't brought up China partly because it feels like China has become sort of uninvestable to outside companies because of their A shares and their foreign B shares. I'm curious, as a professional EM investor, how do you look at the opportunity and risks in China? Can we have a legitimate fair investment in China given the way things are structured or how do you think about China?
- [30:04]
John Rogers
So we think the opportunity in China today is meaningful. Largest country weight in our portfolio, it's about 30% of our portfolio today. And we think that the opportunities are very attractive. I think there's a couple of reasons for that. And by the way, we didn't always have such a large weight in China. For many years we were underweight China, but we moved to an overweight position last year in large part because from a bottoms up standpoint, we were seeing companies that started trading at single digit multiples, so six to eight times forward PE that can generate double digit earnings growth and that are returning more capital to shareholders that are actually improving their capital allocation for the first time in decades that is not being reflected in valuations. From a top down standpoint, even though the macroeconomic situation in China is challenged, we're not debating that. For us, we're less interested in the absolute level and more in the second derivative. So for example, for the real estate sector, what is the directionality of inventories? There's still too much inventory, but is it going up or is it going down? And we're seeing evidence of inventories declining. Just as an example, new starts have declined over 65% from the peak. So even though demand has declined, new starts has declined even further. In the latest data we're seeing for secondary prices and primary prices, they're still in decline, but the level of decline is lower than it had been. So we think the evidence indicates that when looking at cycles, looking at that second derivative tends to be more correlated with how equity prices perform as opposed to focusing just on the absolute levels.
- [31:53]
Christine Philpotts
Really, really interesting. You know you mentioned you were underweight China for a while. When we look at the returns dating back to, I don't know, I want to say the early 90s hasn't really distinguished itself despite incredibly rapid economic growth. Which really raises an interesting question. Do we invest in emerging market countries because their economies are growing, or do we invest in those countries because their companies are generating growth in profits at a rapid clip?
- [32:25]
John Rogers
I think that's a really critical point, specifically with China. So as you pointed out, if you look at the history over decades, despite very strong GDP growth, EPS growth lagged that GDP growth partly because of management decision making, equity issuance and capital allocation decisions. We're starting to see the reverse now happen where GDP growth is slowing and it's never going to match what the GDP growth has been like for the last decade. But EPS growth is going to actually exceed that GDP growth because of some of the behaviors I mentioned of a steep acceleration in share repurchases, more judicious use of capital, exiting non core businesses, redeploying that in higher incremental returns generating ventures. And so the relationship between EPS growth and GDP growth, in many cases there's a strong correlation, but in other cases you really need to pay attention to the company's specific drivers for that EPS growth and free cash flow generation, because that's ultimately what determines share price moves, not overall GDP growth.
- [33:33]
Christine Philpotts
Really fascinating. What about the risk? I have a vivid recollection of a couple of years ago when some of the senior executives at big tech companies fell into disfavor from the, let's be blunt, the Central Communist Planning Group and folks disappeared for a while. The head of Tencent, the head of Alibaba, the head of a couple of other companies just suddenly disappeared, or at least temporarily. How much of a risk is there when you're investing in China that you don't know what the Chinese government is going to do? And, and to be fair, hey, I have no idea what the American government's going to do either, but it seems to be A very specific risk that's foreign to American investors.
- [34:19]
John Rogers
Yeah. And I think that goes back to this idea of trying to understand the incentive structures of the government, having a view on what they're looking to achieve and not getting in the way. So to use the example of the tech crackdown, and I'll extend that to also the education sector crackdown that preceded it, Xi Jinping had been, I would argue, pretty clear on some of the issues he had with private sector, with private education, with how tech companies had evolved and the role, the disproportionate role they were playing in the economy and the relationship with merchants and ultimately some of the concerns around common prosperity or that going against the common prosperity agenda. And so I think there was that tension already in place. It was a surprise about how the government decided to go about resolving that tension, but the tension was there. And so I would argue, based on our framework of really trying to understand what are the problems the government's looking to solve and lean into the companies that could be solutions to those problems, as opposed to the companies that are viewed as obstacles to solving those problems, is a way to reduce the risk from regulatory intervention.
- [35:45]
Christine Philpotts
You want to align your investments with things that the central planners are in favor with. And so when you're investing with a company that also has the backing of the government, you're much less likely to have those sort of kind of surprising one off risks that we saw a few years ago. Fair.
- [36:02]
John Rogers
Yeah, yeah. And I think just going to the big tech companies today, they are now proactively managing how they engage with merchants and making sure, for example, that the split of value is, I would argue, more favorable to merchants today than it was during the period of the crackdowns. There's also an element of making sure that the entrepreneurs are not outshining party officials. And so there's a lot of different elements that are being explicitly taken into account that one needs to be aware of. As we think about, again, what are those potential risk and pressure points? How do we mitigate them? And ultimately, we're looking to build a 60 stock portfolio across 20 plus different markets. So we don't have to be in all countries and we certainly don't have to be in all sectors if we think that that misalignment exists.
- [36:58]
Christine Philpotts
So final question about this topic now, you know, pretty much the past decade, everybody lagged what the US did. And I've been hearing lots of people throwing the towels and saying, hey, if you can't beat them, join them. Is now the wrong time to capitulate Is now the wrong time to give up on emerging markets and frontiers? Tell us what what opportunities are out there looking forward?
- [37:22]
John Rogers
Absolutely. So if you look at the history of EM equity performance relative to US equities performance, there is a clear pattern over the last couple of decades of very long cycles of outperformance and underperformance. And clearly we're in a very long cycle of over a decade of EM and quite frankly anything outside the US underperforming the us. The reason why I think now is the wrong time to capitulate is for a couple of reasons. One is if you think about EM equity valuations versus the S& P, the EM index is trading at 10 to 11 times forward PE. The S&P is above 20 times. So the discounts from a price to book standpoint is over 60% price to earnings about 40% discount. That's the widest discount we've seen ever. But cheap valuations are necessary but not sufficient condition for an opportunity to be attractive. Right? You also want to see what is the catalyst to that valuation discount closing. And we see several of those catalysts in emerging markets. One is emerging markets earnings this year and for the next few years are expected to accelerate. EPS growth, for some of the reasons I mentioned earlier, is expected to accelerate and be higher than the arguably lofty EPS growth expectations out of the us and that's driven by not only economic drivers but also fundamental company specific drivers. I think the other standpoint you can think about is in terms of flows. The US dollar is at close to 20 year highs in a period where the US deficit, running at 6% arguably is going to widen at a period where rate policy is tbd. Our thesis is not premised on the US dollar massively weakening, but we think that there's increasing probabilities of dollar weakness given the starting point that we're in and that from a flow standpoint should be an additional upside driver to flows into emerging markets.
- [39:34]
Christine Philpotts
Really, really interesting.
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- [40:35]
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- [41:09]
Christine Philpotts
Oh boy.
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- [41:44]
Christine Philpotts
Licensed by NYDFS so after a decade at Alliance Bernstein, you landed Ariel about a year ago. Tell us what that transition was like from what's a giant investment house to something that's a little more of a boutique.
- [41:59]
John Rogers
Yeah, absolutely. So Ariel was seeking to launch a dedicated emerging market equity strategy. ARIEL has a 40 plus year history of value investing in equity markets starting in the small and mid cap segments in the U.S. the firm launched in international and global strategies about 12 years ago. And so emerging markets was actually a natural extension as Ariel focuses on investing in the less efficient parts of global capital markets. Because as you can imagine, US small cap is also relatively less efficient compared in the context of the US equity markets. Our team had an opportunity to join to help build the emerging markets business at Ariel and it's a really extremely exciting opportunity. As I mentioned, our team has been working together for no less than a decade. We've had an investment process, an investment style that has been deployed for decades and to me personally it was really exciting to have the opportunity to be an intrapreneur and to really launch a new business with the backing of such an established and well respected platform like Ariel. And I had been following Ariel and John Rogers and Melody Hobson since my analyst days at J.P. morgan. So I was particularly excited excited to join a firm just given the really Strong track record and reputation.
- [43:30]
Christine Philpotts
One of the things I find interesting about Ariel is the insignia of the firm, which is a turtle holding a trophy. And like the sash says, slow and steady wins the race. What does that say about their philosophy of investing and their emphasis on long term goals?
- [43:49]
John Rogers
Well, that's one of the many elements that made joining Ariel so incredibly attractive. First of all, in terms of their investment philosophy, it really is across all of the investment strategies at Ariel having a fundamental bottoms up, value oriented style that really thinks about the long term. So we're not looking to call quarters, we're really thinking about the longer term trajectory of a business and owning businesses that are trading at meaningful discounts to their intrinsic value. We're able to look at that longer term horizon and take advantage of market dislocations that often focus too much on short term noise as opposed to long term trajectory. And we take advantage of that discrepancy. But it not only reflects how they invest, it also reflects how Ariel thinks about building the business and growing the business. So we were strategy number four at Ariel. This firm started in the early 80s, so you could say that Ariel is adding a new strategy once a decade that's very different than other firms, particularly larger asset management firms where there's often pressure to add more and more new strategies in a much more diversified fashion. And so I think the focus on value investing, the discipline to really just focus on expanding and adding strategies where it's a fit with the culture and the investment philosophy of the firm is really attractive. And for us as a new team, their longer term horizon is also attractive because they're thinking about emerging markets in the long haul. They're not saying, okay, we need this to work. After six months. They're thinking about building this business from a longer term horizon, which again as a team was extremely attractive for us.
- [45:39]
Christine Philpotts
If you go to the website today, it specifically says active patients.
- [45:44]
John Rogers
Yes.
- [45:45]
Christine Philpotts
So a new strategy once a decade that seems fairly patient approach to investing. What was it like rolling out their fourth strategy?
- [45:56]
John Rogers
It's been incredible. I think going in we, we clearly had high expectations going in or else we wouldn't have made the move. But our experience, there's been a lot of upside, surprise, to use the term of an investor, relative to the already higher general expectations. So it's been incredible. I think the support we've received from the organization has been phenomenal. And again, I'm talking about from the, you know, from the leadership on, you know, on throughout the organization because ultimately we are the fourth strategy we're not one of 200 strategies. And so what also makes it a very exciting opportunity and it really scratches my entrepreneurial itch is that we are really able to have a meaningful impact on the firm. We're not a drop in the bucket. So if we succeed, which I know we will, we can really move the needle and that has a lot of impact and that does an incredible amount to increase level of motivation.
- [46:58]
Christine Philpotts
One of the strategies that you guys manage is emerging markets Value x China. Tell us a little bit about that strategy.
- [47:07]
John Rogers
Yes. What's interesting is the impetus for launching that strategy, which we launched a month after emerging markets value strategy strategy was because several allocators indicated that they had an interest in an ex China strategy, not because they don't want to invest in China, but because they already have dedicated China allocations. China is a very large and inefficient market where some allocators decide to invest in local managers and have dedicated China allocations. So for those managers, some of them have decided, you know what, I want my global emerging markets equities manager to focus on everything else outside of China to not necessarily double up my China exposure. But it is not, to date, has not been a reflection of a desire to not invest in China.
- [48:00]
Christine Philpotts
So we've talked about lots of different parts of the world. The one area we haven't spoken about is India, which has had some pretty good, pretty robust performance over the past few years. Give us an update. What's going on in India? How attractive is that? Has that gotten ahead of itself? Share your thoughts on the subcontinent of India.
- [48:19]
John Rogers
Yeah, absolutely. So India has been the standout outperformer within emerging markets. And I think that it's a market that will continue to have a strong economic growth outlook. That started with the rise to power of Modi, who implemented a number of reforms that really helped unlock economic growth. We see the growth being powered by infrastructure investments which will unleash some productivity improvement by consumer, by credit growth. So there's a lot to like with the India economic story. The challenge is that we think that's already priced in to the equity markets. So the market trades above 20 times.
- [48:59]
Christine Philpotts
Forward PE it's not cheap at all.
- [49:01]
John Rogers
We think it's priced to perfection. And so for us as value investors, we prefer to invest in a market like Southeast Asia which has similarly attractive economic growth. 6 to 7% real GDP growth over the next few years at a fraction of the multiple markets like Vietnam and Philippines are trading at 10 to 11 times.
- [49:23]
Christine Philpotts
That's what I was going to specifically ask, so it's Vietnam, it's Philippines, any other Indonesia?
- [49:29]
John Rogers
Yeah. And we think it's a really interesting time in the emerging markets universe because we think it's one of the few opportunities I've seen in the last few decades where you don't have to choose between value and growth. You can get growth at extremely compelling valuations. India is not one of those markets, in our opinion, but there are plenty of markets that fit that criteria.
- [49:50]
Christine Philpotts
So help me understand how you guys come up with a way of weighting the various geographies you're exposed to. We've talked about the Middle East, South America, various parts of Asia. Is it a function of the specific companies that you find in each region or do you approach it, hey, I think we should have some Southeast Asia and try and ramp that up to X percent. How does that balance out?
- [50:18]
John Rogers
Yes, it's really a bottoms up approach. So ultimately we're looking for stocks that we think can deliver meaningful upside. So today, for example, we're not going to invest in a new opportunity that doesn't give us at least 30% absolute upside in dollar terms. We think there's just a lot of really great opportunities in the markets. And so we start with that bottoms up approach where we're looking for those opportunities that can deliver that. And our investment philosophy is really anchored around value with a catalyst. So we're value investors. Valuations and price matter, but it's not the only criteria. We also want to make sure that we're focused on companies where there's a stabilization and an inflection point at hand in the underlying business momentum. And we think that discipline focusing on value with a catalyst helps make sure we're focused on the value opportunities as opposed to the value traps. And so with that lens in mind, we're picking stocks that meet that criteria. And ultimately, as I mentioned, we can lean into or maybe put higher focus on countries where we think the top down environment is fruitful and lean out of countries that are, we think, heading in the wrong direction. But ultimately the country overweights and underweights are really driven by that stock selection approach.
- [51:42]
Christine Philpotts
Huh? Really interesting. You know, I read this data point on Ariel that I had to ask about because it's so interesting. Employees and board members own almost 95% of the firm. What does this mean to you as an employee and what does it mean to your clients?
- [51:58]
John Rogers
So just as I as an investor focus on alignment of interest with the companies I'm investing in and with the countries we're investing In I think our clients are equally asking similar questions of what is the alignment of interest with the investment managers I do business with with that statistic. It's very clear that at Ariel there is that strong level of alignment. Not only do the aerial employees, a majority of Ariel employees compensation is tied to stock, it's also tied to the performance of the strategies you're responsible for managing. So we're eating our cooking. And at a firm level, because it's such a focused firm, when I own shares in Ariel as a portfolio manager in the emerging markets division, I can move the needle of that broader Ariel share price in a way that is hard to do when you're at a 600 billion or $1 trillion asset management firm where if you get equity in that company, your contribution just mathematically is a lot lower.
- [53:17]
Christine Philpotts
And historically you were at Alliance Bernstein, you were at J.P. morgan, you were at Morgan Stanley, you could shoot the lights out. It's not going to impact the bottom line all that much because they're just such behemoths.
- [53:28]
John Rogers
Exactly. So it's just a different structure and a different model. But I think with this model, and I see it with our team, it's clear we've always been an extremely hardworking, diligent, motivated team. But it got kicked up a thousand notches when joining Ariel. And so it's just incredible case study in what strong alignment of interests can do in terms of just shaping your day to day behavior and how you interact at work and ultimately how aligned you are with the clients you're investing money for.
- [54:03]
Christine Philpotts
I think I have an interview coming up at Future Proof Citywide Miami with Melody Hobson, who you work with. She's a legend in the industry. What's it like to work with Melody?
- [54:14]
John Rogers
She's incredible. As I mentioned, I've been following her since I was a junior analyst at JPMorgan Asset Management. Getting to work with her and John Rogers has been just unbelievable and incredible. And one thing I think about Melody is that she is really funny, very down to earth. I mean, I was surprised how down to earth she is and just very passionate and diligent about her work. And so, you know, the fact that she is out there actively advocating for and fundraising for our emerging market strategy, I'm just so incredibly grateful for. But it just shows that level of focus and dedication and the fact that Melody can do that because we are a firm that is focused and not trying to be all things to all people. So that's just been a really incredible and inspiring experience.
- [55:13]
Christine Philpotts
And let Me throw you a little bit of a curveball before we get to our favorite questions. You serve on the board of directors of the Small Enterprise Assistance Fund.
- [55:22]
John Rogers
Yes.
- [55:23]
Christine Philpotts
Tell us a little bit about what that impact fund does.
- [55:26]
John Rogers
Yeah, absolutely. So I recently stepped off of the board, but I had been on the board for a number of years and the CEEF Fund is an impact investing fund that actually I had a chance to co invest with and work alongside when I was at Grassroots Business Fund. So it's a fund I'm very familiar with that really focuses on private equity investing among small and mid sized companies as a tool of grassroots, bottoms up economic development.
- [55:54]
Christine Philpotts
So impact not merely looking to generate a return solely, you want to actually looking at both.
- [56:01]
John Rogers
Yes. So what I guess we would call a double bottom line fund. Exactly. So the fund has experience from China to Tanzania to Peru to Ukraine. I mean, they've worked not only in emerging and frontier markets, but I would call Horizon markets, which are kind of the level, I guess below frontier markets. They've worked in really challenging but interesting places. And so it's a fund that, even though I recently stepped off the board after a number of years, I have a tremendous amount of respect for the work that they do.
- [56:38]
Christine Philpotts
Huh. Really, really interesting. All right, let's jump to our favorite questions that we ask all of our guests, starting with what's keeping you entertained these days? What are you watching or listening to?
- [56:49]
John Rogers
So it's interesting. I tend to, in terms of streaming and tv, I tend to lean towards dystopian scripted dramas. So think Squid game, Black Mirror 3 body problem. I love those shows.
- [57:04]
Christine Philpotts
I love 3 body problems.
- [57:05]
John Rogers
It's incredible.
- [57:06]
Christine Philpotts
Did you start the new season?
- [57:08]
John Rogers
I did not because now I'm on Squid Game. Oh, yeah, I did start squid game version 2.
- [57:12]
Christine Philpotts
I just saw the preview for it.
- [57:14]
John Rogers
It's incredible. I love it. I love it. It has mixed reviews. The second season has mixed reviews, but I'm really enjoying it so far. So that I would say is my core. But I also really enjoy Below Deck. So.
- [57:28]
Christine Philpotts
Below Deck? What is Below Deck? Oh, you mean the Star Trek animated.
- [57:31]
John Rogers
No, no. Below Deck is literally a reality show on Bravo. It's the only reality show that I watch, but it's basically about crew that work on yachts.
- [57:43]
Christine Philpotts
Okay.
- [57:44]
John Rogers
And what I love about the show, I mean, it's the typical reality show where there's drama and all this other stuff. But what I love about it is because they're actually working, there's a lot of kind of managerial lessons of leadership, the relationship between the captain and the bosun, the relationship between different departments, like the interior versus the exterior of the boat, hiring and firing decisions. There's a lot there that I find to be absolutely fascinating. And beyond that, they're in mega yachts in incredible locations around the world. So it looks great.
- [58:20]
Christine Philpotts
I bet.
- [58:20]
John Rogers
I think Harvard should do a case study on it at some point, but it's a fun show.
- [58:25]
Christine Philpotts
I'm gonna. I'm going to drop a footnote with you on Squid Games. Do you know the background of the guy who wrote Squid Games?
- [58:34]
John Rogers
No.
- [58:34]
Christine Philpotts
So there was a Wall Street Journal article, like, right in the early part of the pandemic when Squid Games had blown up. It turns out that this guy had been trying to sell the script for Squid Games for a decade. And could everybody. This is crazy. Competition for money, where people die. This is. Nobody would believe this. This is too crazy. And Netflix, as they tend to do, they just buy stuff in mass and then go through the process of seeing what they can develop. Like, they. They don't just buy something from Fred over there. It's like, let's just scoop up all this and see what we can find. And at one point in time, the guy who wrote it, who developed it, had to sell his laptop because he was that broke. And it just goes to show you, like, nobody wanted anything to do with this. And it's the single most successful show in the history of Netflix. It's just wild.
- [59:32]
John Rogers
And it's fascinating to me, too, because it's also just part of this surge of Korean. The globalization of Korean culture, right? Whether it's K Pop in movies, television, even food, cosmetics. So it's really interesting to think, to put Squid Games in the context of this huge resurgence in Korean culture globalization, which, quite frankly, I think people wouldn't have predicted, you know, a decade ago. So it's really interesting.
- [60:00]
Christine Philpotts
I think Netflix just spent another billion dollars over the past three years since Squid Game buying more South Korean product, which is. Which is pretty, pretty amazing. Next question. Tell us about your mentors who helped shape your career.
- [60:15]
John Rogers
So I've been tremendously lucky that over the course of my career, I've had incredible mentors and also sponsors. And I like to put the point on the sponsors piece because I like to think that mentors get you into the building, but sponsors put you on the express elevator to the top. And so they're the ones who are pounding the table for you when you're not there. And so I've been lucky to have incredible relationships in both dimensions. People I'D call out specifically. I mean, there's a lot. There are a lot of people have been very helpful. But I would say if I think about my J.P. morgan days, you know, particularly, you know, earlier on at JP Morgan, individuals like Kay her, who was an equities analyst, now she's actually in fixed income at J.P. morgan Asset Management. She really, when I was just a college student that didn't know anything about emerging, about investment management, really took me under her wing and. And really encouraged me to actually pursue credit research before equity research, because there was no opening in equity research. And she said, you know what? Credit research, I know that's not what you want to do right now, but this will help you build the skill set that you will need in equity research in terms of assessing companies, et cetera. And I'm so glad you gave me that advice, because that really was the starting point of my career in securities analysis. Other individuals include Professor Andre Parold, who was my finance professor at hbs, who I'm still in touch with. He's been a really great advisor and mentor to me and really has helped counsel me through different stages of my career. And again, I feel bad because there's a lot of people I'm not naming, but there's just been. I've been.
- [61:59]
Christine Philpotts
It's like the Golden Globe speech.
- [62:01]
John Rogers
I know. I want to thank everyone, but I've just been very fortunate to have incredible mentors still in my life. And I just hope that I can pay it forward for that next generation. And in the process of mentoring kind of more junior talent to again try to pay it forward.
- [62:16]
Christine Philpotts
Let's talk about books. What are some of your favorites? What are you reading right now?
- [62:20]
John Rogers
So I just finished the Obstacle Is the Way.
- [62:23]
Christine Philpotts
Ryan Holiday.
- [62:24]
John Rogers
Ryan Holiday, Yeah. That really I found to be an incredible book because it essentially talks about how obstacles, challenges, problems are not things to be avoided, but embraced and sought after, which seems very counterintuitive because we're constantly trying to optimize our professional and personal lives to, you know, avoid stumbling blocks. And this is saying, no, embrace the stumbling blocks, because that's ultimately how you learn. And for me, in particular, as a recovering perfectionist, it really resonated with me to kind of hear that message. And I actually find myself referring back to it in my personal and professional life that, you know, what, the obstacles are a good thing, and you learn from them, and that's how you become stronger. And he just points to so many different examples from history, philosophy, current events, that really ties and brings to Life, that concept. So it's a book I really, really enjoyed. And what I'm reading right now, I'm kind of 25% of the way in is Aung Zhihiping, written by Kevin Rudd, who's a former Australian ambassador who has decades of experience living and working with China, with politicians in China. I read the Avoidable War, which was an incredible book that talked about US China relations and the outlook for that on Xi Jinping specifically focuses on Xi Jinping thought and what the basis for that thought. What's the basis for the thinking? What are the incentives and how those could evolve? And my friends who work and are based in China, different, different individuals separately have told me that he's probably the top Westerner who has the best understanding of Chinese politics today and of China. And so I take their word for it that he has a lot of good insights.
- [64:15]
Christine Philpotts
Huh. Really, really. Kind of interesting. As a side note, I am not a perfectionist, but I have noticed we've all heard the expression don't let the perfect be the enemy of the good.
- [64:27]
John Rogers
Yes.
- [64:28]
Christine Philpotts
I could tell you from my personal experience it doesn't matter if you're shopping for a house or anytime you're making a consumer choice. I have a tendency to go down a rabbit hole and let the perfect be the enemy of the good. And it's been a process to kind of learn how to get around that.
- [64:49]
John Rogers
Yes.
- [64:49]
Christine Philpotts
How did you learn how to manage? And by the way, I am not a perfectionist. I'm just get it done.
- [64:56]
John Rogers
Yeah.
- [64:56]
Christine Philpotts
Doesn't matter.
- [64:57]
John Rogers
Yeah.
- [64:57]
Christine Philpotts
If it's not perfect, we'll. We'll fix it later.
- [65:00]
John Rogers
Yeah.
- [65:00]
Christine Philpotts
In most things but in like that sort of big consumer choice, the perfect has always been the enemy of the good for me. And I look back at choices I made were like, gee, you know, I should have done that house. Which has appreciated more than. Because you don't end up in a perfect house and what you sometimes give up. So I'm curious, how did you manage that?
- [65:23]
John Rogers
Personally, I am still managing it. So I'm still.
- [65:26]
Christine Philpotts
Well, you're always going to be.
- [65:28]
John Rogers
I'm always working on it. And so I mean it's actually interesting talking about real estate. I mean as a side note, my husband and I have been talking, we live in Brooklyn now. We've been talking about moving closer to our kids school which is on the Upper east side to optimize the commute, etc. Etc. We've been talking about this for maybe.
- [65:46]
Christine Philpotts
Six years now, watching prices just go.
- [65:49]
John Rogers
Up and up and up to your point? Well, I want this and we want that. And this is like our perfect dream home and it needs to be two blocks away from the school. And so this is literally an active conversation as we enter 2025. Like at some point we just need to. To do it. It's not going to be perfect. And so for me, I think in terms of opportunity cost. Right. So what are we giving up by not doing this now?
- [66:13]
Christine Philpotts
Right.
- [66:14]
John Rogers
And which is what you alluded to as well, in terms of pricing, appreciation, etc. And also just understanding that there is no perfect anything. It's trade offs.
- [66:26]
Christine Philpotts
You're 100% right. I have a quick, funny story to share. A couple of years ago, I'm trying to remember if it was pre or post pandemic. No, I think it was right after the pandemic, I gave a presentation to the International Luxury Real Estate alliance, and it was in Aspen, Colorado. So it's beautiful there. And, you know, and it's a few hundred real estate agents and each of them represent the highest performing realtor in their town. And it's not, you know, podunk. It's. It's Vail and it's Nashville and it's New York and it's Seattle and it's London. It's just crazy. The sort of, sort of like top real estate producers all around the world. And we're having, you know, there's a bunch. The dinner that night are a bunch of separate tables of six or eight. And there's an older woman from Palm Beach, Florida, ritzy part of Florida. And she, she takes a phone call and she's like, I apologize, I have to take this. She's gone for 30 seconds. She comes back and she goes, oh, deal is done. Oh, would you sell Palm beach on the, on the water? $110 million.
- [67:40]
John Rogers
What?
- [67:41]
Christine Philpotts
And I say, $110 million. That house has to be perfect. And I'll never forget her response. She's like, meh. I'm like, wait a second, $110 million? What are you talking about? And she goes, well, it's a part of Palm Beach I like, but I don't love three blocks in either direction I like better. It's a bulkhead, not a sandy beach. Go two doors over and it's sandy beach. They have a dock, but it's not a deep water. Like, she starts clicking stuff off and I'm like, do you mean to tell me that not that I have $110 million, but if I did the house, I'm buying is really a series of compromises. And she said, every house at every price point is a compromise.
- [68:26]
John Rogers
That's very true.
- [68:28]
Christine Philpotts
How insane. But you would think at a certain point, right?
- [68:31]
John Rogers
Like, it needs to nail most of.
- [68:33]
Christine Philpotts
And it's like. But she'd like, clicked off like, wait, 110 and you don't love it. She's like, it's all right. I'm like, come on, you got to be. I'm sure there are lots of houses that most listeners would say, you know, for $5 million, I would love that.
- [68:48]
John Rogers
Yeah. Yeah.
- [68:49]
Christine Philpotts
And at 20 times that amount, it's like she was just so. Now, granted, she's been doing real estate in Palm beach for 40 years. She's seen everything.
- [68:58]
John Rogers
Right?
- [68:59]
Christine Philpotts
But still, to just kind of shrug and say, you know, it's all right, that's mind blowing.
- [69:04]
John Rogers
So that puts in perspective.
- [69:06]
Christine Philpotts
And that's kind of what, you know, whenever I'm like, I like this place, but it doesn't have this and this and this. It's like, well, it's $107 million than the Met place, cheaper than the Met place in Palm Beach.
- [69:19]
John Rogers
Right.
- [69:20]
Christine Philpotts
So deal with some trade offs. Like.
- [69:22]
John Rogers
Trade offs. Exactly. And like, what do you prioritize? Because you're not going to get everything right?
- [69:25]
Christine Philpotts
That's.
- [69:26]
John Rogers
What are we trying to solve for?
- [69:28]
Christine Philpotts
So once you adapt the attitude that, right. I'm never gonna get everything, what's the bigger pro? Hey, I don't really love this kitchen. And I, you know, the. Where the driveway comes in, I don't love that. But you could always change if it bothers you that much. You can eventually change it. But it's shocking that even at that price point, there's some trade offs that has stayed with me for forever. That, I mean, it's only been a couple of years. But it stayed with me because when the perfect is the enemy of the good.
- [70:02]
John Rogers
Yeah.
- [70:03]
Christine Philpotts
Like, at what point? What? At what point is it perfect?
- [70:07]
John Rogers
Yes.
- [70:07]
Christine Philpotts
If it's not perfect at $100 million, well, I think you have to give up the idea.
- [70:11]
John Rogers
Exactly.
- [70:12]
Christine Philpotts
But that. That's been an issue that I've always kind of wrestled with. And the sooner you accept it's always a series of trade offs. You are. But that's an absolutely true story. And I. It stayed with me to this day. All right, our last two questions. What sort of advice would you give to a recent college grad who is interested in a career in either investing or emerging markets and value?
- [70:36]
John Rogers
Yeah. So I think it relates to what we were Just talking about, about not being a perfectionist because as an investor, you are knocking it out of the park. If you're right 60% of the time, even that's a high level right. You're going to be wrong a lot, and particularly in listed equities, unlike when I was doing private equity, private credit, where there wasn't a mark to market every single minute, you know, whether you're adding or detracting value on a real time basis. And so letting go of the idea that. And I think sometimes young people feel this pressure when they start in this business that, you know, I need to get it right 100% of the time. And that leads to a lot of risk aversion as a result, because they're afraid of making a mistake, they're afraid of making the wrong call. And that could help stymie decision making and decisiveness. I try to tell people who are starting this business, you need to let go of that and just kind of understand you will be wrong. Ideally, you want to be right slightly more times than you're wrong. And when you're right, ideally the upside is greater than the downside when you're wrong. But that's the game we're trying to play. We're not shooting for 100%. So I would say that's the biggest piece of advice. I would say the other broader advice is to, as someone put it earlier in my career, you know, lead with a yes. And so if there's projects that come up, if there's new opportunities, not overanalyzing or overthinking, well, am I 100% ready to do this? Just say yes and then you'll figure it out. And I think that's where you grow, that's where you learn, that's where you can really stretch yourself and kind of step out of your comfort zone, particularly in emerging markets, where there's a lot required to kind of step out of comfort zones in terms of cultural differences, in terms of, you know, other dynamics, just being comfortable or embracing that.
- [72:36]
Christine Philpotts
And yeah, really, really interesting. And our final question. What do you know about the world of investing today? You wish you knew 20 or so years ago when you were first starting out.
- [72:47]
John Rogers
I would say that the concept of it goes back to the importance of the Mosaic theory. And particularly in less efficient markets like emerging markets, all the data is not going to come in a neat package. And so needing to be creative with how you get information, it's almost like being a detective in some ways. How do you get information? How do you piece? How do you put the pieces of the puzzle together? How do you think outside of the box? Because oftentimes I think when, you know, when I was in school, you have an agenda, a textbook, you're learning things, you're doing the test, you get an A plus and then you kind of move on, right? In the world of investing, it's just so much more nebulous and so it just requires you to stretch and have more creativity than just expecting things to come at you in a cleaner fashion. Which to be honest was my experience in US large cap tech investing where data was abundant and widely available and much more efficient. But even with that type of investing, I think thinking more along this, being creative and putting the mosaic together more proactively is probably a lesson that I would want to tell myself, you know, my 20 year old self.
- [74:16]
Christine Philpotts
Really interesting. Thank you Christine for being so generous with your time. We have been speaking with Christine Philpotts of Ariel Investments where she is a portfolio manager for Emerging Market Value Strategies. If you enjoy this conversation, well, be sure and check out any of our more than 500 previous discussions we've had over the past decade. You can find those at iTunes, Spotify, Bloomberg, YouTube, wherever you find your favorite podcast. And be sure and check out my new book, how not to Invest the Bad Ideas, Numbers and Behaviors that Destroys wealth, publishing on March 18. I would be remiss if I did not thank the crack team that helps put these conversations together each week. Sarah Livesey is my audio engineer. Anna Luke is my producer. Sean Russo is my head of research. Sage Bauman is the head of podcasts at Bloomberg. I'm Barry Ritholtz. You've been listening to Masters in Business on Bloomberg British Radio.
- [75:30]
Akshat Rati
There are two kinds of people in the world. People who think about climate change and people who are doing something about it. On the Zero podcast, we talk to both kinds of people. People you've heard of, like Bill Gates.
- [75:41]
Christine Philpotts
I'm looking at what the world has to do to get to zero, not using climate as a moral crusade.
- [75:47]
Akshat Rati
And Justin Trudeau.
- [75:48]
Christine Philpotts
There are still people who are hell bent on reversing our approach on fighting climate change.
- [75:55]
Akshat Rati
And the creative minds you haven't heard.
- [75:57]
John Rogers
Of yet really don't need to have.
- [75:59]
Barry Ritholtz
A tomato in December. It's going to taste like nothing anyway. Just don't do it.
- [76:03]
Akshat Rati
What we've made here is inspired by sharkskin.
- [76:06]
John Rogers
It is much more simplified than actual sharkskin.
- [76:08]
Christine Philpotts
Drilling into has come up with some of the most creative job titles. Yeah, you could imagine. Tool pusher no driller, motorman, mud logger.
- [76:20]
Akshat Rati
It is serious stuff, but never doom and gloom. I am Akshat Rati. Listen to Zero every Thursday from Bloomberg Podcasts on Apple, Spotify or anywhere else you get your podcasts.