TO: Clients and Friends of Ariel Investments, LLC
FROM: John W. Rogers, Jr., Co-CEO and Chief Investment Officer
DATE: December 9, 2020
RE: Company Update
From time-to-time, we send company updates to keep our valued clients and friends current on developments at Ariel. We did so earlier this year, as Coronavirus was breaking in the US and stay-at-home orders were being put into place. With 2020 coming to a close, we thought a brief status report is warranted. While there is no pressing matter, we wanted to let you know how we are continuing to work together while working apart.
I have often said, and do believe, there are great similarities between music and money management. I even wrote about this back in 1996 explaining that, “while technical proficiency is important, like music, money management is an art, not a science.”1 In that same letter, I added, “. . . in both cases, while styles come and go, only a select few prevail over long periods.”
I have been thinking about this comparison once again after recently reading about Bruce Springsteen’s widely acclaimed new album, Letter to You. In describing the experience of birthing his latest masterpiece in collaboration with his E Street Band, Springsteen told The New York Times, “I’m at a point in my playing life and artistic life where I have never felt as vital. My band is at its best, and we have so much accumulated knowledge and craft about what we do at this time in my life where I said, ‘I want to use that as much as I can.’”2
I believe we have been channeling a similar level of vigor and energy as we continue to virtually function during this incomparable modern-day crisis. Our history is serving us well. Given our steadfast focus on our asset classes for decades now, our accumulated knowledge runs deep. Coronavirus may be in a class of its own, but our pandemic playbook is time tested. Leaning into the value stocks that become abundant when fear prevails and selling becomes indiscriminate is exactly what non-consensus, contrarian investing is all about. It is what we do.
This is not to suggest our collaborative research process is always easy. Dissention and disagreement exist and must be carefully managed. Springsteen acknowledges this inherent tension, telling The Atlantic, “We weren’t immune from the vicissitudes. We had the same ups and downs as most rock bands. It’s like a marriage. The ups and downs have deepened us. The band is as close now as it’s ever been. We had to suffer.”3
His words resonated with me. Our talented team has weathered the inevitable ups and downs of stock market investing. Our common suffering has been as our common bond. That suffering comes during difficult performance periods when every missed basis point feels like death by a thousand cuts. Fortunately, the suffering is never in vain because we believe you win or you learn. In our case, when we are learning, we develop the pattern recognition that keeps us from repeating the same mistakes. Past challenges mean we can be more resolved in the present—which proved exactly the case when our portfolios withstood the worst of the market’s severe volatility this past March.
Audible, Audits and Arielles
Until there is a widespread vaccine, we expect to continue to work from home. While we prefer to be together, we are using this moment to continue to improve and grow. As Springsteen noted, “Having the time to listen is, at least, one upside of being stuck in place.” While he was referencing music, we think the same applies to virtual communications which require a higher level of attentiveness. We hope this more intense listening effort imprints throughout the firm and continues into the future. In the same way that the depression babies were the best savers, maybe we can become the best listeners?
Beyond research and portfolio management, we are making progress throughout the firm. As part of Ariel’s continued commitment to quality and maintaining a high level of internal controls in servicing our clients, we are pleased to report we completed our inaugural SOC 1 Type 2 exam for the year ended September 30, 2020. More specifically, an independent auditor assessed our firm’s controls and verified they were suitably designed and operating effectively. The examination and independent testing resulted in “an unqualified opinion” under the United States Attestation Standards of the American Institute of Certified Public Accountants (AICPA). For a first-time effort, this is a very positive outcome.
Covid has not prevented us from adding talent to the Ariel team. We are pleased to welcome Arielle Patrick as our new Chief Communications Officer. Arielle is a fellow Princetonian who joins us from Edelman Worldwide, where she served as an Executive Vice President & Transaction Director in the Financial Communications and Capital Markets group. In this newly created role reporting to Mellody, Arielle (our second Arielle/Ariel at Ariel!) will oversee and integrate all aspects of communications, including: media relations; public and community affairs; internal, corporate and executive leadership communications; branding and marketing content. She is a super star who brings tremendous energy and vision to this role. We will be saying goodbye to Jim Carlton who joined us last year to help refresh our patient investing brand. Having completed the project, we wish Jim all the very best and offer our sincerest thanks for his effervescent personality and can-do spirit. Stay tuned for our newly modernized look which will be unveiled next Spring.
A Venti Role
Lastly, I want to congratulate Mellody Hobson on being named the new Non-Executive Chairman of the Board of Starbucks Corporation. The significance of this appointment is especially noteworthy since Mellody will now be the only African American woman chairing a Fortune 500 company when she formally assumes the role next March. This is Mellody’s second stint as a board chair—her first being at DreamWorks Animation until the company’s sale in 2016. She has been a member of the Starbucks board since 2005, serving as Vice Chair of the Board since 2018. Mellody is known for her incredible work ethic and she will be an outstanding Chair for one of the most iconic companies in the world, while maintaining her role as Co-CEO of Ariel. We have benefitted from her fearless leadership for 29 years now and are delighted Starbucks will too! At the same time, Ariel will surely be advantaged by the knowledge and insight she will continue to bring back to our firm.
As we write, the Dow is hitting its fiftieth new high of the year. Fiftieth. During a pandemic. Tech stocks continue to dominate the leader board as enthusiasm for a post-vaccine economy has turned to euphoria. In some ways, we are not surprised. As we wrote after the market’s free fall at the end of the first quarter, “This crisis will end. The question is not ‘if,’ but ‘when.’” We went on to say, “Currently, our base case scenarios assume a ‘U’ shaped recovery marked by six months of severe economic pressure with underlying stresses equivalent to the worst of 2008-2009. With low expectations for the rest of this year, we believe 2021 will look more like the fundamentals we saw in 2019. If our view proves correct, today’s buys will be very profitable.” Here we will be the first to admit that while we were happy to find bargains in the wreckage, the market’s recovery from a terrible shock has, once again, exceeded our optimistic expectations. If 2020 has taught us anything, it is that everything is possible and nothing should ever be taken for granted.
Watching the impossible play out underscores that the learning never ends. With renewed hope and true gratitude, I am eager to continue my life’s work—almost 38 years and counting. And on this last point of aging, I will close with a final quote from Springsteen who says, “When you’re young, you believe the world changes faster than it does. It does change, but it’s slow. You learn to accept the world on its terms without giving up on the belief that you change the world. That’s a successful adulthood—the maturation of your thought process and very soul to the point you understand the limits of life without giving up on the possibilities.”4
The virus, the markets, the human spirit have taught us the possibilities are indeed limitless.
1 Rogers, John W. “Music and Money Management.” The Patient Investor. December 31, 1996. Page 3.
2 Zoladz, Lindsay. “At 71 and Off the Stage, Springsteen is Still on Fire.” The New York Times. October 19, 2020, page C1.
3 Brooks, David. “Bruce Springsteen and the Art of Aging Well.” The Atlantic. October 23, 2020.
4 Brooks, David. “Bruce Springsteen and the Art of Aging Well.” The Atlantic. October 23, 2020.