Ariel Investments' John Rogers on How You Can Still Win With Value Investing

Episode Summary

Executive Summary: Bloomberg’s Odd Lots features a live Future Proof interview with Ariel Investments co-CEO John Rogers, who argues that value investing remains viable despite the dominance of passive investing, mega-cap tech, and growth stocks. He emphasizes patient, old-school security selection, deep company research, management access, and buying “orphan” small and mid-cap stocks at steep discounts to intrinsic value.

Main Topics: Why value investing still works (Priority: 5/5): Rogers argues that long market cycles and valuation extremes create recurring opportunities for disciplined value investors, especially when growth stocks become crowded and expensive. Small-cap inefficiency and orphan stocks (Priority: 5/5): He says smaller companies often have less analyst coverage and weaker research, creating mispricings that skilled stock pickers can exploit through deep work and screening. Ariel’s research process (Priority: 4/5): Rogers describes Ariel’s multi-layered research: sector specialists, computer screens for cheap stocks, peer fund review, and extensive reading of filings and publications. Case study: The Sphere and unusual assets (Priority: 4/5): He explains how Ariel came to own Sphere Entertainment through a spin-off and why a unique, hard-to-replicate asset can still fit a value framework despite lacking traditional comparables. Management access and field research (Priority: 4/5): The conversation highlights Ariel’s practice of meeting management teams, visiting companies, and observing customer experiences firsthand as part of the investment process. Macro outlook and consumer segmentation (Priority: 4/5): Rogers says the economy is stronger than expected, recession risks have been overstated, and his portfolio is tilted toward higher-end consumers who are more resilient than lower-income households. Volatility as opportunity (Priority: 4/5): He views sharp selloffs and periods of panic as moments to add to favored positions, provided channel checks and management conversations do not reveal a fundamental change.

Key Arguments: Market leadership and valuation extremes are cyclical; periods like the Nifty 50, dot-com, and post-COVID growth surges eventually reverse. Small-cap stocks are more likely to be mispriced because research coverage is thinner and less deep than in large caps. Value investing is not dead; it simply struggles when growth outperforms for unusually long stretches, making bargains more visible when sentiment turns. Ariel’s edge comes from long-term relationships, a large research team, and frequent direct contact with company management. A stock is attractive when it trades at low multiples and at least a 40% discount to private market value. Unique assets can still be analyzed through value principles if the market is underestimating future cash flows and optionality. Higher-end consumer businesses are preferable in a mixed macro environment because affluent customers are more resilient than lower-income households. Selloffs can create attractive entry points when prices fall faster than fundamentals and sentiment becomes overly negative.

Data Points: Ariel Investments age: Almost 42 years old - Rogers cites the firm’s longevity as evidence it has seen multiple market cycles. Management experience: Most of Ariel’s team have been together for more than 20 of the 42 years - Used to support the firm’s continuity and credibility with company management teams. Portfolio discount threshold: 40% or more discount to private market value - Rogers defines a bargain as buying below estimated intrinsic value by at least this amount. Company size: 130 people - Ariel’s current headcount supports its research process and sector specialization. Sphere seating capacity: 20,000 people - He describes the Sphere in Las Vegas as a major venue and entertainment asset. Cruise customer income: Roughly $150,000 - Rogers uses Royal Caribbean to illustrate the resilience of the higher-end consumer. McDonald's board tenure: 20 years - He notes his long association with McDonald's as part of his consumer/field research credibility. 2008-2009 crisis behavior: Bought more in the financial crisis - Ariel added to cruise stocks and other names when they were severely discounted. Early August volatility: Stocks down 10%-12% in some cases; 15%-20% after earnings disappointments - He says Ariel actively looks for opportunities during sharp, short-term drawdowns. 1987 market drop: 22% in one day - Rogers references the crash as a historical example of panic-driven mispricing.

Pivotal Quotes: "You want to be greedy when others are fearful and be fearful when others are greedy." — John Rogers: He invokes Warren Buffett to explain the emotional discipline behind value investing. "The opportunity to take advantage of the very rare inefficiencies in the market are in the small cap sector." — John Rogers: Rogers explains why Ariel focuses on smaller companies with less research coverage. "When we think the market is recognizing all the underlying fundamentals of the business, people understand the story... that's the time when we'll start to lighten up." — John Rogers: He describes how Ariel decides when to sell winners.

Implications: For investors, the episode argues that active value stock-picking still matters, especially in under-researched small caps and during panics. It also suggests patience, fieldwork, and management access can still create edge despite passive dominance and fast markets.