CFA Conference: Mellody Hobson

Mellody Hobson is the president of Ariel Investments, the first minority-owned mutual fund firm. Her presentation was Leading an Investment Firm in Times of Economic Turbulence. The session was moderated by Mary Thompson of CNBC.

My session notes follow.  As always, these are at-the-time notes.  I make no guaranty as to their accuracy or completeness.

  • Current situation — unlike what she has seen before, but that happens to every generation.
  • Focusing on good diversification — e.g., added micro-cap, global and international (after cutting teeth on small and mid-cap).
  • Due to diversification of accounts, they are now focusing on new things that augment what they do (e.g., now paying attention to sovereign debt).
  • Re portfolios — market very responsive to the current news; she is trying to focus on the longer term and to avoid the near-term noise.
  • Making sports and sports-related investments — where lots of business types come together (e.g., International Speedway; MSG); stadia full even during financial crisis.
  • The trust problem — she’s trying not to be reactive but to “put stakes in the ground” about what they believe and try to bring clients along — staying clear about core beliefs but cognizant of how clients feel.
  • Clients most concerned with risk management — tough to be contrarian due to client fears, but that’s where the opportunity is.
  • She sees current lack of volume as bullish — retail still needs to come in.
  • Thompson — the industry has lost a generation of investors; Hobson doesn’t agree — she thinks they will be back when the markets are seen as being on more stable footing.
  • Re mutual fund industry and Boomers (who don’t have enough for retirement) — 401(k) plans are 28 years old so Boomers are the first to see them “all the way through,” so they are the “test case”; Boomers don’t have enough; but industry has done a good job — good opportunities and they are cheap to investors; people need to stay the course.
  • Mutual fund industry still needs to get better — more understandable; better product that serves the investor rather than offering what’s popular.
  • Alan Abelson (Barron’s) and Warren Buffett investor letters are must-reads.
  • Financial literacy among the young is a hot button for her; the idea that one can take wood or auto shop in high school but not investing makes no sense (we don’t likely change our own oil but we all need to invest); without investing acumen, people will become a burden to their families and society.
  • Big problem: Social Security (average check $1,100 per month) is not enough to retire, but many people think it is.
  • On narrowing the gap re investing among Blacks and Hispanics — it starts with income disparity; minorities more likely to take early 401(k) withdrawal or a 401(k) loan; target date funds are an opportunity — “set and forget” approaches help people stay the course; she thinks people should be able to rollover 401(k) loans and people should have a grace period re 401(k) loans after leaving a job.
  • Growing use of ETFs reduces opportunities for active managers; she is concerned about the particularly aggressive ones; does the consumer know what is being bought?
  • After 2008 debacle (underperformance), they re-examined everything they did at Ariel; bought more of their best names and have recovered well.; when staff sees it’s working, morale recovers.
  • She looks for investment “fanatics.”
  • Since 2008, they examine credit like never before even though they ae stock-pickers; they have designated internal skeptics to challenge ever potential purchase.
  • Style/strategy demand — lots of interest in small cap (those who do well tend to close); they have a fabulous 29-year track record with one manager.
  • Buffett lost more than 50% four times in 46 years.
  • They work to stay true to their core competencies and culture.
  • “Culture is everything” because “the culture will spit out what [who] doesn’t fit”; they have a culture committee at Ariel, to keep true to what they want to be.
  • Culture can be inhibiting; e.g., lost a great candidate for not being flexible about someone working remotely); she learned from that lesson.
  • They retain 30% of their earnings inside the company which allows them to seed opportunities.
  • Long only/buy and hold management remains relevant despite the current environment; history doesn’t repeat but it rhymes.
  • Wants to increase roles for women and minorities in our business; we need diverse opinions coming together — aids problem-solving tremendously; like-minded people prone to groupthink.
  • She is concerned about companies without diversity — how can they survive?
  • She would like something like the NFL’s “Rooney Rule” for financial firms; sometimes you need to force the issue.
  • On being a board member of a public company in turbulent times — role is to serve shareholders as a fiduciary; need to be encouraging because you want the company to succeed; must be sure to learn and know the facts of any situation (the media isn’t always right); “no excuse environment” — need to be “completely buttoned up” as “the numbers will ultimately tell the story.”

 

One thought on “CFA Conference: Mellody Hobson

  1. Pingback: CFA Conference: Post Compendium | Above the Market

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