Black Finance Guru Weighs In On Financial Crisis

Ariel Investments is one of the largest African-American owned money management firms in the U.S. Its founder John Rogers, Jr. shares how he beat the odds and rose to success, and what lessons can be learned from the current financial crisis.

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MICHEL MARTIN, host:

I'm Michel Martin, and this is Tell Me More from NPR News. Coming up, we asked James Lipton, host of "Inside the Actor's Studio," what's playing in his ear.

But first, every so often, you want to talk about the issues of the day with people who aren't just smart, but wise. That's why we created Wisdom Watch, an occasional feature where we ask some respected elders to guide us through some of today's most challenging and important issues. The country's current economic challenges inspired us to reach out to our next guest.

John Rogers, Jr. made a swift rise in the world of high finance. After graduating from Princeton University, he spent just two years at the investment firm William Blair & Company before starting his own company in 1983. Today, Ariel Capital Management, Inc. manages the investments of thousands of individuals and corporations, as well some of the nation's biggest public and private pension funds. The company also sponsors groundbreaking research about the saving and investing habits of African-Americans.

John Rogers joins us now from Chicago. Welcome. Thank you so much for speaking with us. Although I do admit that elder doesn't really work in your case, since you're still a spring chicken.

Mr. JOHN ROGERS, JR. (Founder and CEO, Ariel Capital Management): Yeah. I've been doing this now for 25 years at Ariel. But I just turned 50.

MARTIN: Well, congratulations. Consider the alternative, right?

Mr. ROGERS: Yeah.

MARTIN: So when did you get the investing bug?

Mr. ROGERS: I got the investing bug from my father when I was 12 years old. Every birthday and every Christmas after then, he gave me stocks instead of toys. Of course, it wasn't a lot of fun to go to the Christmas tree and find an envelope instead of a toy, but over time, I really started to appreciate the dividend checks that he gave me that I got from the companies that he had given to me. So it really worked out very well.

MARTIN: Were you able to spend the money in any way you wanted? Because I can really see that being a bummer, frankly, as a 12-year-old.

Mr. ROGERS: In the beginning, when my father wasn't wealthy, so the dividend checks were quite small. But as the years went on, they got larger, and they grew, and he let me spend it any way I wanted to, so I started to really appreciate those investments.

MARTIN: Is the story about "Wheel of Fortune" true? It's a story about you. Is that true?

Mr. ROGERS: That's true. I was sort of fortunate in college.

MARTIN: When you were in college, you were on "Wheel of Fortune," and?

Mr. ROGERS: I won about $8,500 in prizes over three days, and back then, the prizes were a lot smaller, and they didn't have the kind of big jackpots you get these days.

MARTIN: And is it true that, instead of buying a car or something else, that you invested it with your broker?

Mr. ROGERS: I did take that money, as well as the $10,000 I won in the New Jersey State Lottery, and gave that money to my broker so I could invest in common stocks.

MARTIN: So you really are a hardcore?

Mr. ROGERS: Yeah. I had a broker right across the street from the campus at Princeton, and I was the one guy on the basketball team that would be reading my Barons and my Fortune and Business Week on the way to the road games and keeping up with the market and calling my broker from wherever I was to try to buy and sell.

MARTIN: I understand that when you graduated from Princeton in 1980, you went directly to work as a stock broker. You are the first person hired directly out of college by that company. Did you have trouble being taken seriously? I think you were probably also the only African-American, too.

Mr. ROGERS: Yeah. There was no other African-American professionals at the time, and there was only one other younger broker. And it was hard to get taken seriously for both reasons because people weren't used to dealing with an African-American stockbroker. There weren't many of us on LaSalle Street at the time, just really less than a handful. And then, of course, being 22 years old, 23 years old, people didn't really want to entrust serious money to me. So it was a tough going.

MARTIN: What was your pitch? I mean, how would you persuade them?

Mr. ROGERS: I would persuade through, I think, passion. People could tell how excited I was, and I did original research. I got on the plane and went to visit companies that I was interested in and created compelling stories about why those companies were going to do well. And fortunately, those first couple of stocks did really, really well, which gave me more confidence and helped gain the confidence of others.

MARTIN: Well, what do you think now, now that we are in the middle of what seems to be kind of a worldwide meltdown?

Mr. ROGERS: It's the most unsettling time I've ever experienced, like everybody else. It really is the worst time since the Depression, but I do think that I agree with what Warren Buffett said, that these are a time to buy stocks, that these stocks are selling at bargain prices, and this is kind of a once-in-a-generation opportunity to buy wonderful businesses at three and four and five times earnings.

MARTIN: Forgive me, and I hope I don't sound like a jerk, but why would someone believe you at a time like this? Not you personally, but somebody who's been in the market your whole life, when you've seen on Wall Street , you know, of the five major investment houses - what, three of them are now gone in the space of a couple of months.

Mr. ROGERS: Well, I think you're right. People who've lost a lot of money - I've talked to people saying, I just can't take it anymore. I've got to get my money out of the market, and no matter what, I'll be able to sleep better at night. But I think you have to remind them that this is a dynamic country, that we've always been able to resolve our problems and move forward. And we're just so resilient here, and that, if you can buy great companies at cheap cheap prices, that's what matters. You shouldn't worry about the market.

MARTIN: Alan Greenspan testified to Congress recently, and one of the things that he said, that he realizes he was wrong about after, what, 40 years of sort of one way of thinking, was thinking that the market was going to regulate itself, and that he did not estimate properly the need for more oversight. Is there anything that you've been wrong about over this period? Is there anything that these current circumstances have caused you to fundamentally question?

Mr. ROGERS: Well, I think that the thing that I've questioned, I guess, for ourselves here at Ariel has just been that we've got to be more conservative when it comes to owning companies that have grown by acquisition. And often, when these companies have grown by acquisition, they loaded up on debt to do so. And it really comes back to haunt them because they've grown a lot because they bought these other companies. But if they've added too much leverage, they can't stand a recession. And the companies now spiral out of control because of that.

The other thing I've also learned is, you've got to be careful with companies have complicated their business model, and they're trying to do too many things. And we really do believe the companies that keep it simple and stay within their circle of competence and stay focused, those companies are more successful than the ones that branch out and try to do too many things.

MARTIN: If you're just joining us, we're speaking with John Rogers, Jr. He's the founder of Ariel Capital Management. It is the largest African-American-owned money management firm in the U.S.

And one other thing I've mentioned at the beginning of our conversation is that your firm has sponsored some of the most important and complete research we have into the saving and investment habits of African-Americans. And one of the data points that seems to persist over the 10 years you've been doing this research is that, even though African-Americans have by every standard improved their education, improved their overall economic standard, they still lagged far behind whites in terms of wealth. Why is that?

Mr. ROGERS: Well, I think it's because most African-Americans didn't have the kind of experience that I was fortunate to have. You know, I had a father who loved the markets and wanted me to be exposed to the stock market. Typically, African-American families haven't had family members talking about the stock market at the dinner table every night, and that's because typically, in the past, we didn't have the kind of opportunities to create wealth in this country the white Americans did.

And so people sit around and talk about how to manage wealth when you have a lot of wealth. But if you haven't had that kind of an opportunity in the past, so therefore ,you're not going to talk about it, and then your kids therefore don't get the exposure to the markets. And so we may have to start making those choices of what funds to invest in the 401K plan and when to get started and how to make the right decisions. They don't have that experience.

MARTIN: We know that African-Americans and Latinos are among the groups hardest hit by the subprime mortgage crisis. What about other aspects of investment? Are you worried that African-Americans and Latinos particularly, as people who've been kind of late to the game, are going to suffer the effects of this downturn longer than other groups?

Mr. ROGERS: I do worry about the fact that people of color, because they're new to this game, and you get in, and all of a sudden, you see your 401K plan is down 30, 40, or 50 percent, it's easy to panic because you don't have, again, the sort of a lot of family members in the past who've ridden through ups and downs in the market cycles and kind of knows that the markets generally come back over time, and so you'll get out at exactly the wrong time and guarantee the chance that you won't be able to recover when the market finally does move up again.

MARTIN: Whose fault is this? Is there somebody that we should be holding responsible or accountable for this?

Mr. ROGERS: You know, there are probably two places. I think you have to think about the fact that Congress has moved to the defined-contribution 401K plan model, and I think that there probably needed to be more done to make sure that corporations are creating the literature that encourages people to invest with the kind of creativity that you think about. And if you're trying to market to people from different cultures who have different values and different life experiences, you've got to be thoughtful and creative with how you communicate with those various groups.

I think secondly, there needs to be more of an emphasis on public schools to have financial literacy in their curriculum. I think that's absolutely critical. I understand maybe why languages are important and other kind of cultural things within public schools are important.

But if you think about it, the one thing everybody needs to be successful in life is to be financially literate, to be able to make the right choices not only in their pension plans or their 401K plans, but also to understand all the issues around mortgages and consumer debt. And if you don't get those things right, as we've learned with the subprime crisis, you can really change your life for the worse in some really meaningful ways.

MARTIN: I understand your emphasis on personal responsibility here, that there are people who should have understood what instruments they were buying, what papers they were signing. But given the fact that you've got hundreds of thousands of people here, maybe first-time home buyers who didn't have the kind of financial training or the financial literacy that you had growing up, do you think that these executives who pushed these products or people who sold these products, these people should be held accountable for that?

Mr. ROGERS: I think that those that didn't do it ethically certainly should be held responsible. And I also think these executives should be held responsible for the fact they have so little diversity in their executive ranks.

So because there are no people of color often in these major financial institutions in the top, they're not role models for the next generation of people to get exposed to what's going on in the financial markets, and you don't have people in the boardroom often or in the executive suites talking about the importance of how to communicate to those that don't have all the financial tools to make the right decisions.

MARTIN: What's it going to take to see the kind of diversity on Wall Street that we see in other industries?

Mr. ROGERS: Well, I always tell people, we need to have more leaders like Maynard Jackson and Harold Washington, who, when the large companies came to their cities to do business, if they were going to be underwriting bonds or practicing law for the city or what have you, they insisted that those large firms have minority partners.

And guess what? All of a sudden, those companies started to show up with women and people of color in leadership roles because they knew that, you know, Maynard and Harold wouldn't work with them or tolerate it if they didn't. And so you need to have the customer demanding diversity when they go out and buy from other institutions.

MARTIN: Are there any kinds of companies you just will not invest in?

Mr. ROGERS: We typically won't it - we won't invest in companies that are, you know, manufacturing hand guns. That's one of the key things that we believe is, you know, a horrible thing for our society. Snd the second thing that we don't do is we don't invest in tobacco-related companies because we think the litigation risks there are so substantial and the fact those really aren't growth industry any longer.

MARTIN: Interesting. Finally, do you have any - I do hope this won't be the last time we talk. Do you have any wisdom to share?

Mr. ROGERS: Well, the one thing I tell people, and, you know, my daughter is 18. And I say that, you know, there's a lot more opportunities, I think, in the entertainment part of our economy than in sort of the financial services and consulting side of our economy.

It's another example, like sports, where, if you're talented and you bring in the ratings and create great creative shows in whatever media you happen to be in, the opportunity is coming your way because I think it relatively - I know it's not perfect, but it's a more even playing field than a world that's just based on relationships and who you know. So, I encourage young people to try to find those careers where you can get really measured by the talent that you have, not just because of the wealth of relationships that you might or might not have inherited.

MARTIN: John Rogers, Jr. is founder and CEO of Ariel Capital Management. He was kind enough to join us from his office in Chicago. Thank you so much for joining us.

Mr. ROGERS: Thank you.

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