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The Long View
Mellody Hobson: ‘The Fire Was Lit by Scarcity’
00:52:54
Ariel Investment’s dynamic co-CEO talks about her upbringing, her career, and her new children’s book.
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- [00:01]
Jackson Financial Representative
At Jackson, we've created a digital retirement planning experience with you in mind. Visit Jackson.com to explore our easy to understand resources and user friendly tools that are designed to enable financial professionals and clients to plan a path to financial freedom. Jackson is short for Jackson Financial, Inc. Jackson National Life Insurance Company, Lansing, Michigan and Jackson National Life Insurance Company of New York, Purchase, New York.
- [00:27]
Disclosure Officer
Please stay tuned for important disclosure information at the conclusion of this episode.
- [00:33]
Christine Benz
Hi and welcome to the Longview. I'm Christine Benz, Director of Personal Finance and Retirement Planning for Morningstar.
- [00:39]
Amy Arnott
And I'm Amy Arnott, Portfolio Strategist with Morningstar.
- [00:43]
Christine Benz
Our guest on the podcast today is Melody Hobson. She's the author of a new book for children called Priceless Facts About Money. In addition, she's co CEO of Ariel Investments where she is responsible for management, strategic planning and growth for all areas of Ariel outside of research and portfolio management. Additionally, she serves as Chairman of the Board of Trustees of Ariel Investment Trust, the company's publicly traded mutual funds. Prior to being named co CEO, Melody spent nearly two decades as the firm's president. Outside of Ariel, Melody has been active on corporate boards including Starbucks, JPMorgan Chase, Estee Lauder, and DreamWorks Animation. Melody Hobson, welcome to the Longview.
- [01:28]
Melody Hobson
Thank you so much for having me.
- [01:30]
Christine Benz
Well, thanks for being here. You have been on our wish list of guests since we launched this podcast, so it's really fun to finally have you here. We want to talk about your book. We'll start out by talking about your children's book, Priceless Facts about Money. First, we just want to talk about your passion for financial education and teaching kids about money and investing. Can you talk about what lit the fire in you to care about this issue and want to work on this issue?
- [01:56]
Melody Hobson
Well, the way I think about it is I think the fire was lit by scarcity and I was born with the fire. I don't think it was lit. It really is a function of how I grew up. I was the youngest of six kids in my family. I was born to a single mom. I'm really young relative to my siblings, a couple decades younger. And as I was growing up, my mom really worked extraordinarily hard, but oftentimes had a hard time making ends meet. And as a result of that, we had difficult circumstances. We would get evicted or our phone would get disconnected, our lights would be turned off. Sometimes we didn't have places to live. And so as a result of that, I had this desperation in me to understand money. I mean, really desperate. I wanted to know at a very young age how money worked so that I could not repeat the circumstances that I was in, I found myself in. And so I think this desire to be financially literate was born out of me trying to create a better life for myself.
- [02:57]
Amy Arnott
So there's a bunch of other books out there about kids and money. What teachings did you want your book to impart that you hadn't seen in other books geared towards teaching kids about money?
- [03:10]
Melody Hobson
It's interesting because I looked at everything that was out there and I couldn't find things that resonated with me. I also was reading from the perspective of my daughter, who at the time was seven when I started writing the book and in the middle of the pandemic. And I just didn't think it would appeal to her. So I'm not in any way diminishing what's out there, but I was trying to find the age appropriate learnings that were fun, that would be something you'd want to read and really engage in. And so I wanted to err on the side of entertaining while informing. And what I did was I got all of the most famous children's books, everything from what the Wild Things Are to Goodnight Moon to the Giving Tree, and I sent them to a bunch of kids during the pandemic. And I said, tell me what you like about these books. I did a zoom with all these middle schoolers, basically, and it was interesting. It was one child, Austin Robinson, who said to me, I like facts. And I started to think about it. He said, I like facts. Like nonfiction. At the time, Everest, my daughter had a book called Amazing Facts about Animals that she was fascinated with. And as adults we were too, because all the facts were so outrageous, like a moose can feel a fly on its antlers. And so as a result of that, I started to marry his comment that I like facts with Everest's love of this book. And I said, what if we could make money factually correct, but really give people the history of it and they can see how amazing it is? And so I hadn't seen that anywhere. And my idea was that you could read any section at any time. You didn't have to read it sequentially. And then my joke was, I wanted it to be like, I used to be the chairman of the board of Dreamworks Animation and we used to talk about our animated movies like Shrek, that they would have jokes that would play to two age groups at once. One joke would go to the parent and one joke would go to the child, but they'd Both be laughing. So I said, I want the book to be where a parent is at a cocktail party, repeating my facts because they're so amazing and so that I would be teaching a child and an adult at the same time.
- [05:32]
Christine Benz
Well, you succeeded. I found the book very engaging. I loved the illustrations. They're just beautiful. So illustrations of you and John Rogers. Can you talk about that? The person who did the illustrations for the book and how that came about?
- [05:48]
Melody Hobson
Well, one thing I just wanna say is just to tag along to that comment. I always wanted the book to be the gateway to the parent. So I wrote the book for children with the goal of having parents read it and shifting society from that perspective. Because where we need to affect meaningful change certainly, is to teach our children about money and make sure they're financially literate. But we have to also get at the top of the food chain here and educate parents who don't have the knowledge themselves. The illustrations is such a great story because my daughter, I told you, she was 7 years old, we're locked in for Covid and I'm interviewing illustrators on the phone. And she walks into the room and she says, Ms. Stevens would be great at this. Ms. Stevens is her art teacher from elementary school. So I kind of pooh, pooh it. I'm like, oh, yeah. And she's like, no, mom, really, Ms. Stevens is great. And I literally don't respond. I'm like, yeah. Mm. So she comes back later and literally, like, you know, my kid grabbing me by the lapels. She's like, mom, you have to look at Ms. Stevens website. She's great. So I go and look at this website. Now, remember, she's seven, saying this to me. I go and look at the website and I literally. I'm stunned. I say, she's great. So. Because I didn't want the. The publisher had suggested a character and I didn't want it to be too sweet, and I wanted to represent my personality, which was. There's a realism to him, but hopefully, I mean, I don't see this casually, that it's charming. And so when I went to Ms. Stevens, I gave her a picture of myself as a child and a picture of John Rodgers, who's the founder of Ariel, my firm and my co CEO. And she came back with the two pictures in the front of the book. And I literally said. When she sent the pictures back to me, you have the job. The one of me holding the preve case and John holding the basketball, I said, this is. You're absolutely the right person. For this. And so we went with her. Everest elementary grade art teacher, is the illustrator for the book. It was her first book. It was my first book.
- [08:11]
Amy Arnott
You mentioned earlier how hard your mom worked when you were growing up. And you also write about how your mom worked to impart financial knowledge when you were growing up. What were some of the lessons that were most meaningful to you? And is there anything that you wish she had taught you that she didn't?
- [08:32]
Melody Hobson
Well, I'll give you the good and the bad, because I've spent 55 years thinking about this. The good was my mom exposed me to everyday costs every day. And so what I mean by that is, starting when I was very little, if we went to McDonald's, if we went to a restaurant, she would have me pay the check. Literally. I remember going to diners and standing at the counter, giving the check, reaching up to the counter at a McDonald's, handing the money at a grocery store. She always had me pay. And her way of having me pay was to learn what things cost. So I knew that McDonald's was cheaper than a restaurant with a tablecloth as an example. I was very clear on that. And then she had me grow in my contribution to paying with my age and my sophistication. So what I mean by that is, in the beginning, I literally just put the money on the counter. Then it was me counting the change when I could count. Then it was me calculating a tip when I could do percentages and the like. So it became an escalating math problem. At the same time, it became an escalating point of knowledge. I remember going to the bank with my mother for her to deposit a check in the bank, and she stopped and she deposited it. We were at the teller and she said, before you leave this counter, Melody. And I remember being like, 11. You look at the receipt that they gave you, and you look at your account number and you make sure they match and that this actually went into your account. I mean, who tells that to a child? My mom and I could give you more and more things. She always had me look at the light bill, the phone bill, when my mom wasn't home. I mean, this is totally not right. I'm on the board of a bank, so I can tell you. But if she wasn't home and we needed food, she'd say, take a check out of the checkbook and write a check. And so I knew how to write a check when I was, like, 12. I mean, I'm telling you, these things that, you know, they were just so unbelievable. Now, I also knew if the bill was late, I knew what the light bill was supposed to be. I saw all the disconnection notices. I knew where our rent was. So that was the good part was I was exposed. The bad part was I was exposed. And part of that exposure that created great anxiety for me was the fact that I had a mom who had great gifts. So many, unbelievable, incredibly hardworking, all of those things. But my mom would buy Easter dresses instead of pay the light bill. And as a result of that, you know, we looked great at church, but we didn't have any lights. And that was very upsetting to me.
- [11:17]
Christine Benz
Of course it would be. I wanted to follow up on all that great learning that you got from your mom and get your thought on what is the right age to start teaching kids this stuff. It sounds like yours came at a very young age. But how would you suggest that parents or other adult influencers of children, when should they start teaching financial concepts and how should they do it?
- [11:43]
Melody Hobson
As early as possible? I'd say that it's like a language. The best way to learn a language is from birth. That's just a fact. Where your brain gets wired to think in two languages and you're actually not learning and translating you actually it's intuitive. I want money to be intuitive and the language of money to be intuitive for kids. So I want them to start early. So people just say to me, what is reasonable? Well, first of all, I gave you my example of literally my mom just handing me the money. I think it's very helpful for kids to see parents use cash because I think the idea of credit cards and phones for payment, et cetera, while extremely convenient, sometimes much safer, clearly and useful. So I'm not in any way saying it's a bad idea. It's just hard for a child to understand. It's very hard for a child to understand money spitting out of a machine or a card because there's no finality to it, versus when you have cash in your wallet, it runs out. And that's something. Again, just when you think about advanced reasoning, that's very hard for a child to do. So using cash is helpful. Doing what my mom did while letting me handle that cash is helpful. The other thing is you could teach very simple concepts. We get at one in the book that I like a lot that you could do with a four year old, which is barter. Barter forces a child to assign value to something. And so you could say to a child, you have a choice between Barbie and A cupcake. And the child then decides within the book, it's John and me with the airplane versus the cupcake. And John says to me, we're deciding if we're gonna train. I have the cupcake, he has the airplane that he's drawn. And he says, but if I give you the airplane that I've drawn, you get to have it forever. And if you give me the cupcake, I'm gonna eat it and it's gonna be gone. Well, he's starting to put value on that experience versus that item. And that's exactly, you know, valuing things is, I think, something that's extremely important for children because oftentimes there is a disconnect between price and value. There are things that are very, very valuable to you that don't cost a lot. There are things that are very, very expensive that maybe you don't value. And so these are things that are important to learn and you can do it so early.
- [13:59]
Amy Arnott
So your daughter, having two very successful parents, is growing up with a lot more privilege than you had as a child. What are some of the other concepts you're trying to teach her about money?
- [14:16]
Melody Hobson
I've been very direct with her about her circumstance and how it's different from mine without her having to relive my history. She's aware of it, so she's, you know, I don't want to saddle her with my money anxiety, but at the same time, because of the resources in her life, I certainly don't want her to grow up to be frivolous. And it's interesting. I have a child, they come out a certain way. It's not explainable. It really isn't. You know, there's nature and nurture, but part of her nature is I have a child who's not frivolous. I don't know, you know, maybe it's the me part of her, I don't know. But my husband isn't either about certain things. So she doesn't ask for things. It's just a very interesting experience. If you go to a store with her or anything like that, she'll look at something and she'll look at you, but she'll never ask. She's been like this since she was very, very little. She doesn't like to have a lot of things and so we don't have to do as much work now. This could change, but right now she's been very, very good about being very measured when it comes to money. She loves Sephora. Like all 11 year olds. I'm Told globally. It's like, I don't know where this came from, but this kid likes her skincare. And she. Because people know she loves Sephora. A lot of our friends for Christmas or things like that give her Sephora gift cards. So she's got a stack of them. And I remember recently she was like, well, I don't need any more Sephora gift cards. You know, she was just very. I don't need anything more, you know, just very, very. Now, I'm not trying to make her into some kind of saint. She's a normal kid, so please don't get me wrong. But that part of her I think we have kind of buttoned down. So now she asks a lot of questions and I explained them and I love that. We were at McDonald's, we're at the drive through window and we're getting It's French fry Friday, which she then canceled because she decided it wasn't healthy. I was the one who missed French fry Friday. French fry Friday. We're at the window and they said, $5.40. It was a large fry with tax. And she says to me, what is tax? I thought, I mean, brilliant, right? Just asking questions. And so the brilliance was that I got to explain taxes to her. She was nine years old. And I explained taxes from beginning to end, how much we pay at work, what the taxes are used for in our commun, you know, all these things, you know, why we pay for taxes on goods. And it just led me to realize, like the whole world through her eyes, everything about money is new and must be explained. And she welcomes that explanation. So I think one of the things that I'm trying to do is put everything in context for her. And some of that context is you've grown up a certain way. It doesn't mean that you will have these things. One day she said to me, one day she said, where will I live? I said, well, you'll have a house. And she said, well, how will I get it? I said, you'll have a job. And I said, and you'll have resources. And she said, where will my resources come from? She was, you know, like 10 years old. This was a great conversation. And I said a little bit for mas, but I said, you'll take care of yourself.
- [17:43]
Christine Benz
I love that. I want to follow up about financial education writ large. We've had several guests in the past on this podcast where we've talked about the efficacy of financial education. And one criticism that we've heard is that when you teach kids financial concepts in school or wherever early in life that sometimes if you're teaching them about investing, it decays because the child doesn't have the opportunity to, to invest in many cases. So I know that you with Ariel Community Academy have attempted to address that disconnect from like imparting knowledge to actually applying it. Can you talk about that, how that's such a big part of what you're trying to do with financial education there?
- [18:28]
Melody Hobson
Yes, I think that, you know, I'm a big believer in project based learning. I think you learn more through direct experience. Just like the french fries and the tax. Right. I think that would be more memorable to her than if it were in a textbook. And so as a result of that, at the Ariel Community Academy, which is a small public school that we started, wow. 25, almost 30 years ago, that school, we have a saving investment curriculum and it's based upon the experience that John Rogers had growing up. Our aerial founder, where I always joke that John Rogers childhood hobby of picking stocks became an obsession that became our company. And many times I attribute the founding of our company to his father who's no longer with us, Judge John Rogers, who gave John stocks every birthday and every Christmas starting when he was 12 years old instead of toys. That had a profound effect on John as a person and it obviously ended up being his career. And we said, hmm, what if we could repeat that with kids? So at our school we have a saving investment curriculum and every first grade class receives now 40,000 real dollars. And that money follows them through their grade school career with them taking increasing responsibility for managing it. And ultimately when they graduate, giving $40,000 back to the incoming first grade class to make the program self perpetuating and then sharing the profits, they make a class gift and then they share the profits amongst themselves. And so for every child that puts their money in a 529 plan, we match their contribution another $500 to help them learn about not walking away from the free money that they likely will have an opportunity to receive in a 401 plan one day. So we're training them by doing and they learn financial concepts starting in first grade like barter. And then they take on the concepts, get increasingly sophisticated as they grow up. By sixth grade they're picking stocks themselves, which we think is very important, building their own class portfolio and really engaging in the day to day activity of the stock market. Not in a six week experiment but in a multi year project which we think is so important for them, seeing the ups and downs and learning to be Patient and learning how the market works over time. Time in the. Not timing the market as the best way to outperform over the long term. So, you know, we've had years of having tested this experiment, and one of the things that we believe is that it ultimately stays with a child in a very different way, like my mom showing me those light bills, than just the conceptual idea because they're using real life money now for parents, I recognize, you know, people will say to me, well, you know, you have to have money to do that, et cetera. It's super interesting. I'm pushing back now on that. There are so many parents at all socioeconomic levels, they do indulge their children. And it might be, you know, the gym shoes that they're wearing, it might be the toy as they're given, the outfits, whatever. And I say, wow, if you would just take a little bit of that and invest it in something your child loves. And now because of the ability to buy partial shares, you can do this in such an affordable way that ultimately, again, in real life teaches your child about investing over time and just their ability to watch the account. I say it's the equivalent of kids who love baseball stats. Or I can give you all sorts of examples of things that kids will follow where they're following their account value. So going back to my daughter who loves Sephora, she got LVMH shares. The owner of Sephora, she got Estee Lauder shares. Because she literally, as I'm not, you know, joking, she's, you know, sort of really into her skincare. She's a child, so there's no makeup. And so it's something that she can tie back to her own spending. And I keep saying, you're an owner, you're part beneficiary of the money that you're putting across the counter on these gift cards at Sephora.
- [22:51]
Amy Arnott
That's great. I mean, I think that the fact that you're using real money with your daughter and with Ariel Community Academy and making investments over a period of multiple years is very different from the stock market game that people often use in financial education, where the kids are making a hypothetical investment over a very short time, time frame. And it involves a big element of luck because whoever took on the most risk often ends up winning. What's your take on games like that? Do you think that there's any value there?
- [23:33]
Melody Hobson
What I tell you is that I think they're better than nothing, that's for sure. I don't like the short term nature of them. In my perfect world, it's not a six week endeavor because if you have a very bad market in that six week period, you could turn someone off to the market forever and that worries me. But at the same time I'd rather, I'd rather some knowledge exist than none. So if that's all I've got, I'll take it.
- [24:00]
Jackson Financial Representative
At Jackson, we've created a digital retirement planning experience with you in mind. Visit Jackson.com to explore our easy to understand resources and user friendly tools that are designed designed to enable financial professionals and clients to plan a path to financial freedom. Jackson is short for Jackson Financial Incorporated, Jackson National Life Insurance Co. Lansing, Michigan and Jackson National Life Insurance Co. Of New York, Purchase, New York.
- [24:26]
Christine Benz
So Melody, we wanted to shift over to discuss your career at Ariel. You are co CEO, so I'm wondering if you can talk about your partnership with John Rogers who you referenced how you work as co CEOs and what has been the secret to that partnership working so well for you two for so many years?
- [24:48]
Melody Hobson
Well, I'm laughing. John and I have worked together for so long. This is my 34th year at Ariel which is just like I'm 55, more than half my life has been at this company. It's so crazy. It's the only job I've ever had since I've graduated from college and if you count even before then I was a summer intern at Ariel when I was 19 years old. So it's been a long time that we have been together and what I would say works extremely well is certainly that time and understanding each other over all this period. I can tell John's mood with hello. Like he says hello. I know if it was a good day in the market, a bad day in the market, I can tell if he has time to talk or doesn't have time to talk, literally hello. The intonation, the urgency of it, what have you. I can all these years, I just know, I know when to rush it along and I know when I can engage. I would say that what makes it work is fundamentally we share the same values. We are anchored critically in things that mean a lot to both of us, which is, you know, our ethics very similar. You know, we are do everything in our power to be honest, forthright, transparent, deal with people on the level. You know, all of that is so important to us and we deal with each other that way. I think the other thing that works very well for us is that we both have the same work ethic. We are workhorses. I mean we are just Like I joked with John the other day, I was like, I feel like we're working like when I was 25, you know, there's still all nighters and all sorts. I'm like, this is insane. But we work the same way and we are never phoning it in. You know, we care too much about our clients, our reputation, the people that work at Ariel, and we care equally about it. I think the other thing that works really well, we had a. I don't want to call it a run in, but we had a rough moment maybe about five years ago. And it was the first time John and I were like really challenging each other. And I remember we disagreed on something in terms of a strategy and we were dug in, both of us. And I remember being in a room with John and he looked at me and he said, listen, this is what I know. We both love Ariel, we love this company. He said, I have no doubts that you love Ariel and I don't think you have any doubts that I do. He said, we also would put Ariel before ourselves. He said, I've never for a minute thought you would ever put yourself before this company or our clients ever. And I don't think you think that of me. That being the case, we both love Ariel. In this moment, we have two different ideas on how to act with this point. But if we anchor to the fact that we both love the company, that deescalates whatever emotion we are feeling. We just have two ideas of what to do. And I thought that that was a really great way at that moment of thinking about how we always work together, even when we disagree. I always remember John loves Ariel and I think he always remembers I love Ariel. And so it helps us to then de escalate anything that might lead to, you know, a conflict or a break. I just don't worry about that with the two of us. And yet we can disagree pretty strongly with each other. So I don't wanna make you think that we're both milquetoasty kind of passive people, because we're not. The other thing that I would say lastly is that we clearly defined our roles and responsibilities when we became co CEO. So John runs everything related to investing. It's his purview, all the people, everything there. And I run everything else related to running the firm. Strategy, new products, et cetera. And so as a result of that, we are dividing and conquering. And I always wonder why more companies don't do this. I'm like, you can get a lot more done when there are two of you instead of one. Not to mention you have company and you have company, which is particularly great in difficult moments. You have someone to go and lean on. And our big joke that we have. The final part of why I think this partnership has been so successful, I had one person said, you guys are one for the record books because it's been going on for so long, is we have a joke. One of us can be hysterical at a time, we cannot be hysterical at the same time. So if one is hysterical, the other one has to take the very calm demeanor and then vice versa. And we just kind of read the each other in the situation. And so far that has worked. But if we're both hysterical, I think we would like. You know, it's like flying too close to the sun.
- [29:41]
Amy Arnott
So going back to the idea of disagreement and being able to disagree with your co, CEO or other executives in a productive way, it seems like in the best corporate cultures, people are comfortable disagreeing with one another. Not just at the same level, but. But if you're a newer employee in more of an entry level role, being able to speak up to someone at a higher level, if you have a strong opinion about something or in an idea. Are there things that you try to do at Ariel to kind of create the type of environment where you can foster open communication and an environment where it's okay to disagree about things?
- [30:28]
Melody Hobson
Yes. We've actually had to work on this because one of the things that I struggled with, and I think John did too, is that disagreement comes naturally to me. I don't know how to say this in a way, but I'm not disagreeable. So I don't know if I don't agree with you. I have no problem telling you that, None. And I don't expect you to get mad at me. And I'm not, I'm not. And if you disagree with me, I'm not angry. I just. It's something. It just. I don't know, maybe cause I grew up in a family of a lot of kids or how my mom was just so direct. I say my mom was brutally pragmatic. You know, she just like I had the mom who when I was 5 years old and I asked, I wonder what Santa is giving me for Christmas. She looked at me and she was like, there is no Santa. Mommy is Santa and the Tooth Fairy and the Easter Bunny. Like she took them all in one conversation. And it was like abrupt. And I even knew, I was like, she shouldn't be telling me this and I'm not gonna tell the other kids at school. So maybe it's like growing up like that, but it's just like my mom did not believe in any fantasies and wanted me to be very practical, that when confronted with conflict, I just don't. It doesn't bother me. But the one thing I will tell you is that John grew up as an only child. So he just didn't even have people around him to like the normal siblings who just, like, badger you to the ground. John did not have that. So maybe he was just sort of living in his, you know, his head in the clouds of not having that tension. But what I would say is that it's comfortable for both of us, and we recognize it isn't for everyone. And especially as your titles change in organizations, et cetera, the disagreement can create a sense of fear. And so we had to create the circumstance for disagreement on the research side, which was to add the Devil's Advocate into our process in 2008, because we found during that period of the great financial crisis when our analysts were being challenged by other analysts, that was leading to hurt feelings and people were feeling attacked. And of course, the stocks were doing very badly. The market was down a lot. And we were like, but they're just doing their job. And we recognized everyone couldn't handle it. And so as a result of that, by putting the Devil's advocate as a formal role, we said, your colleague's job is to argue the other side of this. That is their job. And that meant that putting that dissension in was something that was again, somewhat manufactured, but very, very critical to us having the best outcome. On my desk, if you were to come to Chicago, I have a little post it note stuck to my computer which says I never worked there, but it's their quote at McKinsey. Observe your obligation to dissent. I heard that and wrote it down. Observe your obligation to dissent. Dissension in the investment business and in life is very, very important if you want to get to the best outcome. But I recognize, again, it is not comfortable for people. So one thing, one more thing we try to do, because you can tell I thought a lot about this. And I also recognize, which I was told by one of my mentors, you know, my voice and my opinion can stifle conversation because I can express my opinions very strongly. So then people don't want to disagree with me because either my confidence or my demeanor just shuts them down. And so I have to work extremely hard. And I mean, I still work at this every day. To speak last I Try to wait so long before I say anything so that I don't stifle the discussion. I cannot tell you that I'm always successful at it. And sometimes I have to literally tell myself in my head, do not open your mouth. Like, literally, I'm sitting and I'm like, keep your mouth shut. I just finished being chair of the board of Starbucks, and I'm the lead director. And in the Starbucks boardroom, I would work so hard at not being the chair that speaks first. And I would literally try to work really hard to have everyone else go first and go last so that I didn't sway the room with my opinion, with them thinking, well, the chair is saying this, especially in a boardroom like that, where around the table, everyone is an equal.
- [34:59]
Christine Benz
I wanted to follow up on this devil's advocate role at Ariel, how it works in practice. How many are there? And also, I'm curious, when you're hiring for these people, what kinds of qualities are you looking for in them?
- [35:13]
Melody Hobson
So every single analyst is also a devil's advocate. So every stock has a devil's advocate. Senior people are devil's advocate on names. So a stock gets assigned to an analyst. A devil's advocate gets assigned. At the same time, it builds redundancies into our system. So you've got two people basically following the stock at the same time, which is great. The devil's advocate's job is to argue the other side. It's like debate club. And it's interesting because it could be one of those things like you actually agree with the analysts, but you have to lay out the bear case, or if the analyst is bearish, you have to lay out the bull case. You are forced to take the other side of the argument. And, you know, that is something that we, in our interviews with people, we're trying to assess independence. That is a very big part of our interviewing process. We want independent thinkers. We don't want me too thinkers. And we don't want people who are comfortable in groups or in crowds. I mean, I joke all the time about it. I think John is a natural independent thinker because he's an only child. There was no one else, as I said, to sort of squash him down. I think my independent thinking comes from the fact that I was born so late in my family, and believe it or not, I'm the youngest of six siblings. But I'm considered an only child because when you have more than five years between you and another sibling, you are technically an only child. And my next sibling is nine years Older than me. So these are the kind of things where it's like, I think I had a lot of time in my own head to come to my own opinions and to exert my will and self in a way that led to a lot of independent thinking. And you know it when you see it. You know, I can give you small examples of, you know, this is. I'll use myself in this situation because I don't want to talk about a colleague in this way. But with me, for example, I'm sort of quirky with how I dress. You know, it's like I dress differently than other people. That's a form of independence. I'm very comfortable with it. I'm not inappropriate, but I don't look like other people. That independent thinking. Even at Aerial, I constantly. Even on our marketing team and our client service team, our marketing team, I tell them, I say, I want you with a turtle as a logo. As, you know, slow and steady wins the race, is what we say. Aerial materials must be distinctly aerial, which means that if you put your hand over our name and you can insert any other investment company's name and it reads completely fine, you could swap out a page for Ariel and put in Fidelity Investments constantly. And it reads fine. It is not original. So another example I'll give when you walk into our office, if you've been there, there is discreet etchings of turtles in the glass on the floor in our offices. And so people always see me that we have these turtles in the glass as a form of our. They're not on every panel. They're intermittent. And I say, if we move out of this office one day and someone moves in here, our turtles are graffiti. And I want them to say, why do you have turtles on your glass? And I want them to say, like, graffiti. Ariel was here.
- [38:30]
Amy Arnott
Yeah. And I think that mindset is very rare, especially in the financial services world, where there does tend to be a lot of conformity. And, you know, even in shareholder communications, you could read 10 shareholder letters, and nine of them sound almost exactly the same.
- [38:53]
Melody Hobson
We'll tell you two things about that. 1. When I was coming up at Ariel, I used to travel with John everywhere. He went everywhere. And we'd be on flights at 6 in the morning, and he'd be going through Morningstar pages, looking at the portfolios of our competitors, where you list the top holdings. And he would show me the page and he'd say, let me show you why this is an original portfolio. And then he'd show me other pages and he'd say, let me show you why. This is a Me Too portfolio. And over time, he started to test me. And he said, look at this page. What is it? And I remember to this day, I promise you, like it were yesterday. Sitting in one of the pages was Longleaf. And I looked at it and I said, it's original. And he said, why? And I said, well, I've never seen these kind of stocks together, et cetera. Then he gave me another one. I won't say what it is. And he said, what is it? And I said, it's me too. And he said, why? And I said, because these are the most popular stocks, you know, in the market, and their top 20 are all of the obvious names. And so, you know, that was literally taught to me as a badge of honor. Like, being an artist, how is your painting going to be different from someone else's? And, you know, how do you view the world? Independently? And that was something, I think, that was invaluable to me, having that permission to be different, but understanding the only way that you would outperform is to be different. You know, Warren Buffett has said this so clearly. If you buy the same stocks as everyone else, you get the same result. On shareholder communications, I wanna tell you, we bleed for our shareholder letters. It's like I write a term paper every quarter, and it's like being at Princeton. I wear sweats, I don't shower, I'm grumpy, I pull all nighters. I worry about every single word. I research for weeks. I swear, my whole office knows. They're like, oh, even my husband, he's like, the damn letter. You've got the shareholder letter. We just finished ours on the roaring twenties, which I didn't write this last one, but we pour ourselves into these letters. And the one thing about it that I'm so sad about is the changes in fund governance, where now the letters are now very specifically prescribed of what you can write. So we can't get that personality to come out anymore. And those differences. And they can go to our website and see it, but we don't get it in just the shareholder communications because they've been put into a format where you could control form in a very specific way now, which I think is sad.
- [41:27]
Christine Benz
You've just alluded to the fact that Ariel is a truly active shop. But active management has been out of vogue among investors. We've seen these steady flows to index funds and ETFs and away from active funds over the past, gosh, decade plus. So why do you think investors should keep the faith in active management relative to the very cheap, broad market index funds that seem to be grabbing all of the investor assets recently?
- [41:57]
Melody Hobson
First of all, let's start off with just a basic truism, which is that if the whole world goes passive, the market doesn't work. It just doesn't. So you have to have active and passive working against each other in order for the market to actually function properly. And what has happened of late, which we take as a great opportunity, albeit a painful experience. So please don't think I'm just casual about any kind of underperformance. The benchmarks, the indices, have been crushing active managers, particularly on the large cap side. Large cap growth has run away with the market over the past dozen or so years at the same time. What has happened as a result of that is so many stocks have been orphaned underneath, literally orphaned. Some are not even in the index. You've got profound differences in the performance of the hot stocks versus the rest of the market. You have profound differences between large cap stocks and small cap stocks where we spend our time and make cap stocks. And so as a result of that, the actual math looks miserable in terms of the dichotomy of that magnificent seven, those seven technology stocks that have just been beyond and everything else. And that difference, that dichotomy is what tells us normal market forces it will correct. At some point there will be a moment of truth. It doesn't mean that those stocks have to be destroyed, but it does mean that the valuation gap will close because stocks trade on fundamentals. If the fundamentals are there, the stock prices will reflect it. And so right now I think that we've gotten so lost in the celebrity names that we've forgotten the whole market and the possibility that exists there. And I think it's just only a matter of time. So managers like us, we call ourselves actively patient, we have to stay the course. And it's not like digging in as a I'm right and you're wrong because we're constantly reevaluating everything we do and how we do it. But the fact pattern is so convincing when you just look at pure data. And I love the line math has no opinion. The math is just so compelling that we just see a great opportunity here.
- [44:36]
Amy Arnott
So I almost hesitate to ask our next question because you've probably already been asked it a million times. But if you were giving advice to young women just starting in their careers, what's some of the best advice you would give to them?
- [44:52]
Melody Hobson
I've Been asked this question a lot. I'm gonna give you a couple of things that I think are really important. So John Rogers gave me one, which I think is really important. He always told me, don't make any important decision based upon money. And that sounds crazy coming from someone who manages money, but he said, I've seen so many people make life decisions based upon nickels and dimes. And he's like, you make decisions. You know, I've seen them leave jobs based upon a $10,000 raise somewhere in a place that they won't like as much with people who don't care about them. And, you know, if you've got a good thing, don't nickel and dime yourself. Try to make decisions that are based upon bigger life goals as opposed to, you know, the gives and takes. My mom said something similar. I was buying my first apartment. I was 25 years old. It was in Chicago. It was $135,000. And this was like a million to me. I made $35,000 a year working at Ariel when I graduated from college. And I just remember, like, I kept calling my mom, and I was like, I'm trying to get her down to 120. And, you know, and I was, you know, really, you know, I'm on my leg. I'm gonna negotiate the hell out of this thing, right? And my mom, who didn't go to college, who, you know, made the financial decisions I told you about, she was super practical. And she said to me, she's like, Melody, you're 25 years old. If you lose $10,000 on your first home, it won't matter what are you doing? And, like, in a practical application of what she said at 25, and I was hopefully gonna live to maybe 95. Hopefully. I don't know. She wasn't wrong, right? You know, on the margin, the absolute dollars were de minimis with the lifetime of earnings that I hopefully could expect. You know, that was just very practical. Not nickel diving yourself and not, you know, walking away from something over, you know, five grand. It just didn't make sense when I was 25. So that one was one that I just give you. Don't make big, important decisions over money. I know that sounds weird, but I really do believe that John is right about that. The second piece came from my mother, and she just said, make yourself indispensable. Make yourself a person. Every single person wants you on their team, and they cannot live without you. And I want those people working with me. And I absolutely. She's like, if you're indispensable. You'll never lose a job. And for John, the sun rose and sat around him. Whatever he needed or want, I was available and ready to go. And I kept saying, in my 20s, he owns my time. If I'm successful in my 30s and 40s, I'm gonna control my own time. And I said, with my 20s, I have no responsibilities. I have no children, I have no spouse. I can actually live like this. And I'm going to do it so that later I have the ability to control. And that was something that was very, very, very useful to me. So I told this story about John coming to the office one day and asking me to write a thank you note for a birthday party his daughter went to. And I said, I need to talk to her. And he was like, what? She was like eight. And I said, well, I need to know about the party because I'm gonna write the best thank you note they've ever seen. And that's. And I was enthusiastic about it. I wasn't like, why is he asking me to write this personal thank you note? But I really. I wanted him. I said, if John looks good, Ariel looks good, and if he looks good and I made him look good, then I'm gonna look good to him.
- [48:34]
Christine Benz
For our last question, I'd love to hear about your thoughts on legacy. Melody, when you reflect on what you've accomplished so far, what you'd like to accomplish in the future, what do you want your legacy to be?
- [48:48]
Melody Hobson
I heard someone say that the only people are going to remember you at best are your great grandchildren. Like, after that, even in your own family, you will be forgotten. And I started to think about that, like, I don't know anything about my great grandfather or great grandmother or. And I was like, wow, that is profound. Like, you know, we're all talking about legacy and all these things, but it's very rare that you sort of break through even in your own family. So I think about, for me, it's not about what I remember it for, but what I do while I'm on this earth. And what I want to do while I'm on this earth is do my very, very best to do two things. Have my daughter turn out okay, which I think is my number one job. She is obviously my legacy, but okay, meaning she's a solid citizen who's happy and, as, you know, pursues happiness. I can't make her happy and is, you know, hasn't been hopefully harmed by me in terms of, you know, psychologically or otherwise. And has the world put in some context for her, because it's a scary world, right? Yeah. And not to live in fear of this world. So that's number one. Her number two is doing what I can to help the other hers. And what I mean by that is, you know, I do believe Everest will be fine, but I think a lot of people won't. And I have a job to do to help them, and I take that very seriously. They are in my firm making sure that I work for them. I tell people I work for my clients and I work for the people who work at Ariel equally. And they're counting on me, and I'm counting on them, and our clients are counting on all of us. But then also that in the broader society, I have left nothing on the field that I had given everything I have to making good on all that life gave me, which is more than I ever could have imagined.
- [50:58]
Christine Benz
Well, Melody, we have loved talking with you today. Congratulations on the book. Congratulations on your fabulous career so far. Thank you so much for taking time out of your schedule to be with us today.
- [51:08]
Melody Hobson
Thank you for having me. I'm so grateful.
- [51:11]
Amy Arnott
Thanks, Melody. This has been great.
- [51:18]
Christine Benz
Thank you for joining us on the long view. If you could please take a moment to subscribe to and rate the podcast on Apple, Spotify or wherever you get your podcasts, you can follow me on social media, hristinebenz on X oristinebenz on.
- [51:36]
Amy Arnott
LinkedIn and amyarnot on LinkedIn.
- [51:40]
Christine Benz
George Cassidy is our engineer for the podcast and Carrie Gretchik produces the show Notes each week. Finally, we'd love to get your feedback. If you have a comment or a guest idea, please email us@thelongviewningstar.com until next time. Thanks for joining us.
- [52:00]
Disclosure Officer
This recording is for informational purposes only and should not be considered investment advice. Opinions expressed are as of the date of recording and are subject to change without notice. The views and opinions of guests on this program are not necessarily those of Morningstar, Inc. And its affiliates, which together we refer to as Morningstar. Morningstar is not affiliated with guests or their business affiliates unless otherwise stated. Morningstar does not guarantee the accuracy or the completeness of the data presented herein. This recording is for informational purposes only and the information, data analysis or opinion it includes or the use should not be considered investment or tax advice and therefore is not an offer to buy or sell a security. Morningstar shall not be responsible for any trading decisions, damages, or other losses resulting from or related to the information, data analyses or opinions for their use. Past performance is not a guarantee of future results. All investments are subject to investment risk, including positive loss of principal. Individuals should seriously consider if an investment is suitable for them by referencing their own financial position, investment objectives, and risk profile. Before making any investment decision, please consult a tax and or financial professional for advice specific to your individual circumstances.
- [53:48]
Jackson Financial Representative
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