Interview conducted and condensed by Jeff Bailey
You founded Ariel at age 24 with $200,000 from friends and family and chose the turtle as your logo—slow and steady—for value investing patterned after Warren Buffett. But before the markets crashed in late 2008, slow and steady was increasingly unpopular with investors, and some of your clients were jumping ship.
We’ve been in business 27 years. I never dreamed the 26th year would be the toughest of all. There was a lot of chatter about whether we’d lost our touch.
What’s it like when a client calls to fire you?
I don’t usually take many of those. But once in a while someone gets through to me. I remember one, a California state teachers’ fund, was calling to fire us. I said, “This is not a good decision for you. With everyone getting fearful at the same time, it’s proof positive we’re bottoming.”
Since the stock market bottomed in March 2009, your biggest fund has gained (through March 31st of this year) more than 150 percent—for now, at least, vindicating your approach. What advice do you have for us regular people, freaked out about our 401(k)s and kids’ college expenses?
The most important thing is to stay the course—not to get shaken out of the market during a difficult time.
If you fund managers are so smart, why can’t you get out before market crashes and get back into stocks before they start soaring again, sparing us working saps the 35 percent loss in our retirement accounts?
There’s no statistical evidence that human beings have an ability to move in and out of the markets effectively. It’s next to impossible.
I see. So we’re stuck with trying to beat the market averages. You raised lots of money for Barack Obama’s presidential campaign, gave his early transition team office space at Ariel, and cochaired the inauguration. Have you played basketball at the White House?
I’ve played basketball with him since he became president.
Who calls fouls in the president’s game—offense or defense?
And who’s the bigger hacker—you, captain of your Princeton basketball team, or the playground player, Obama?
People would say I am.
Ah, the diplomat. You’re said to be the first at Michael Jordan’s fantasy camp to have beaten him to three baskets in one-on-one. Don’t tell me you took His Airness to the hole.
I did! Michael was daring me to shoot long jump shots. I did once and missed. He was in my head. I went back to what I’m best at, which is driving. [To see the contest, go to youtube.com/watch?v=5B7U74Dg04k.]
Your funds invest a lot in Chicago-area companies—Hewitt, Jones Lang LaSalle, and Hospira are among the top ten holdings. What’s up with that?
Warren Buffett has been a hero of mine for close to 30 years. I’ve read every book on him, every magazine article. I love to see him on CNBC. The most important thing to us that Warren talks about is the circle of competence—investing in things you understand. You’ve got to be there—involved in meetings with CEOs, on conference calls, on company tours—and see if you believe their stories of recovery. The fact that you have something close to home makes it easier.
Photograph: Bob Stefko