Rogers, John W. Jr. 1958–

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John W. Rogers, Jr. 1958

Investment firm manager

Wall Street Smarts

Investing Over the Long Haul

Socially Conscious Investments

Documented Success

Mutual Funds Attracted Smaller Investors

Thoughts on Minority-Owned Businesses

Sources

Once his father gave him shares of stock as a 12th birthday gift, John W. Rogers, Jr., was hooked on Wall Street. He secured the services of his own broker at age 18 and four years later, in 1980, became a broker himself. Raising $180,000 from family and friends, Rogers started his own investment firm, Ariel Capital Management, with one other employee in 1983. By 1992 Ariel had 16 employees, managed nearly $2 billion for individuals, corporations, university endowments, and some of the nations largest public and private pension funds, and was one of the largest black-owned investment firms in the country. In addition, Rogers created the only two mutual funds in the United States managed by African Americans.

Rogers was born into a prominent Chicago family in 1958. His mother, Jewel Lafontant, senior partner in a Chicago law firm and longtime figure in national Republican politics, was named ambassador-at-large and U.S. coordinator for refugee affairs by President George Bush in 1989. John Sr., a circuit court judge, instilled early business sense in his son by giving him shares of stock as Christmas and birthday gifts and allowing him a checking account where he could deposit the dividends and his allowance.

Except for one bounced check, John Jr. learned his early financial lessons well. Soon he was following the newspaper stock tables and watching the stock ticker prices race along the bottom of the television screen on Chicagos local business channel. He also spent a lot of time after school in the office of his fathers broker, Stacy Adams, one of the first black stockbrokers in Chicago. At the age of 16, Rogers was hawking hot dogs, peanuts, and soft drinks during White Sox games at Comiskey Park, putting the earnings into more stocks and phoning Adams to check on their progress during his work breaks.

Wall Street Smarts

Rogers graduated from the highly regarded University of Chicago Laboratory School in 1976, the same year he played on the Illinois Class A, All-State Hall of Fame basketball team. Attending Princeton University as an economics major, he quickly found a local broker whose enthusiasm convinced him that he, too, could be successful in the field. While in college, Rogers flew to the West Coast to appear on the Wheel of Fortune, winning $8,600 in prizes that he immediately invested with his broker.

At a Glance

Born March 31,1958, in Chicago, IL; son of John W. Rogers (a judge) and Jewel S. Lafontant (an attorney and government official); married Desireé Glapion (director of Illinois Lottery), 1988; children: Victoria. Education: Princeton University, B.S., 1980. Politics: Republican.

William Blair & Company, Chicago, broker, 1980-1983; Ariel Capital Management, Chicago, founder and president, 1983. Member of the board of Chicago Symphony Orchestra and University of Chicago Laboratory School; trustee, Princeton University, Rush-Presbyterian-St. Luke Medical Center of Chicago, and La Rabida Childrens Hospital and Research Center of Chicago; director of Chicago Urban League and Family Focus, Evanston, IL.

Awards: Entrepreneur of the Year, Arthur Young and Venture magazine, 1988; Mutual Fund Manager of the Year, Sylvia Porters Personal Finance Magazine, 1988; Minority Small Business Person of the Year, U.S. Small Business Administration District, 1989; distinguished alumni award, Association of Black Princeton Alumni, 1991.

Addresses: Home Chicago, IL. Office Ariel Capital Management, Inc., 307 N. Michigan Ave., Suite 2014, Chicago, IL 60601.

After graduating from Princeton in 1980, Rogers went to work as a stockbroker for William Blair & Company, a Chicago investment banking firm. Besides being the first person hired directly out of college by the company in more than four years, he was the first black professional ever to work at the 400-employee firm.

For Rogers, it was the perfect place to learn his trade. The company had everything under one roofcorporate finance, public finance, trading, money management, mutual funds, and researchand specialized in small-company stocks. With experience and omnivorous reading of financial newsletters, magazines, and investment classics like Security Analysis and A Random Walk Down Wall Street, Rogers quickly began to develop his value-oriented investment strategy.

Less than three years later, at the age of 25, he left William Blair & Company to form Ariel Capital Management, named after the fleet and nearly extinct African and Asian mountain gazelle. Starting with only one major account $100,000 worth of Howard Universitys endowment fund to investwithin six months Rogers and an employee had raised an additional $190,000 in investment capital. From then on Ariel Capital moved nearly as swiftly as its namesake, growing to $45 million in managed assets by 1986.

Family ties helped Rogerss rapid rise in the financial world. His mother was an early investor and remains part-owner of Ariel. More importantly, her business connections helped open doors. She was a trustee of Howard University, and two other corporations where she served on the board of directors, Revlon and Mobil, later became Ariel clients. The firm also landed such accounts as the retirement funds of city employees in Chicago, Detroit, Los Angeles, and the District of Columbia. But, connections aside, the bottom line is results. Our private clients can judge us by just one thing, Rogers told Forbes, growth of assets.

Investing Over the Long Haul

To that end, Rogers quickly perfected a creative but conservative investment style best summed up by Ariels motto, borrowed from Aesops fable about the tortoise: Slow and steady wins the race. His overriding philosophy is one of patience, timing, and making the most out of a down market. Unlike many investors, he has no sophisticated computerized trading programs. Rogers avoids buying into the current hot stock trends of any given moment, and he does not look for potential takeover targets with share prices that might quickly jump. Instead, he seeks out lesser-known, undervalued companies that produce quality products, then invests long-term in their stock.

Intensive research is the key to finding these companies. Rogers devotes several hours a day to reading five morning newspapers, nine business magazines, and more than 80 newsletters, including his own entitled The Patient Investor. He likes to concentrate on smaller companies with market capitalization of $50 million to $1 billion and good earnings records that do one thing very, very well, and have a well-established niche, he told Financial World. Many of these firms are too small to be followed by the bigger Wall Street investors.

Rogers also looks for companies in currently unpopular industries, companies experiencing a temporary setback in earnings, or companies newly created by spinoffs and asset sales, and he aims to find them before they are discovered by other investors. Other criteria are effective and committed management, a clean, simple, and easily-understood balance sheet, good cash flow, and a low debt-to-capital ratio.

A lot of our work is really tire kicking, he explained in Black Enterprise, going out and visiting the companies, getting to know the employees and management, and talking to the customers, competitors and suppliers. The final judgment is whether there will be long-term demand for that product. Rogers expects the earnings of the companies he invests in to grow at a consistent 12 percent to 15 percent annually.

There are several types of companies, however, that Rogers never invests in. He stays away from cyclical industries like heavy machinery, steel, and automobiles because of their frequent ups and downs. He avoids all start-up companies, regardless of their business, because they have no track record. Commodity stocks like precious metals, gas, and oil are too volatile for his taste, while trucking, airline, banking, and other recently deregulated industries are, in his mind, still working themselves out in their new environments and, therefore, are not good buys. We dont make exceptions, Rogers said in Changing Times. Were very rigid.

Socially Conscious Investments

Even more important to Rogers is his strict code of socially conscious investing. He will not buy the stock of any company that does business with South Africa. Nor will he invest in defense contractors, nuclear utilities, cigarette manufacturers, and companies that make weapons or harm the environment.

The principles just make investment sense, he told Fortune magazine. Many defense companies are too reliant upon big government contracts. This reliance pressures management into doing unethical things to get and keep those contracts, he explained. I dont own nuclear utilities because I dont like investing in companies that the courts might put out of business. The same goes for cigarette makers: I dont want to invest in a business everyone is trying to outlaw. In fact, when Kraft, one of Rogerss corporate clients, became a part of tobacco manufacturing giant Philip Morris Companies Inc., he terminated business with them.

Documented Success

Rogerss patient, disciplined approach has worked. Some of his earlier successes included investments in companies that manufacture toothbrushes, hospital uniforms, desktop stacking trays, plastic binders, baseball cards, and milkshake machines. And he has also been known to take advantage of a down market, investing, for instance, $9 million in Caesars World, the hotel and gambling casino firm, when its stock hit a low of $17 per share during the October 1987 stock market crash. By July of 1992 Caesars price per share had risen 80 percent.

Ariel is one of the few managers dealing with the middle-size, unknown, basic-business type of company, and those companies are the ones that have led the [stock market] charge since the crash, Edward G. Lloyd, former senior vice-president of the United Negro College Fund (UNCF), said in Business Week. The UNCF was one of Rogerss early clients, joining Ariel in 1984 and seeing its initial investment grow by 140 percent over the next four years.

Rogers claims similar results for his other 50 big-money institutional clients, which have included Chrysler, Ford, Procter & Gamble, AT&T, Pillsbury, Sara Lee, and the Stroh Brewing Company. In fact, from 1987 to 1990 Rogerss clients saw their total assets rise more than 53 percent, compared to the nearly 29 percent gain posted by Standard & Poors index of 500 stocks.

We were successful during the 80s because we picked some good, reasonably priced small stocks, he told Black Enterprise. We avoided the go-go, glamorous small stocks that soared in 1980 and then plunged by 1985. Instead, we stuck with low-expectation stocks that didnt go up as much, but also didnt suffer as much.

Mutual Funds Attracted Smaller Investors

Ariels institutional clients have average investment accounts of $30 million. To attract smaller investors, Rogers organized two mutual funds distributed by Calvert Securities, a Washington, D.C., firm that markets socially responsible investments. The Calvert-Ariel Growth Fund, started in 1986, invests in small companies. From its inception to 1992 the Fund appreciated 15.1 percent annually, growing to $260 million in assets, placing it sixth among 53 small-company funds followed and ranked by Lipper Analytical Services. His newer fund, the Calvert-Ariel Appreciation Fund, buys stock in companies as large as $3 billion. It grew to $140 million and gained 10.7 percent in value annually from its start in 1989 to 1992.

But Rogerss very success has caused problems and forced a change in the way he prefers investing. So much new money has flooded his firm and his mutual funds that he can no longer specialize in the small-company stocks that made his reputation. Back in 1986, when he managed only $45 million, Rogers could put 5 to 10 percent of Ariels total capital in 10 or 20 carefully targeted small companies without disturbing their share price or ending up with too large a percentage of their stock. When their share prices rose, Ariels total return appreciated accordingly.

However, as a multibillion-dollar money manager since the early 1990s, Rogers can no longer operate this way. His total assets are too large to permit such a concentrated investment strategy among selected small firms without severely jolting their share price. As a result, he must either scatter his investment portfolio among hundreds of small companies, diluting his overall return, or focus on much larger firms.

Rogers has tried to steer a middle course. Telling Forbes in 1991, We cant take on any more new cash and still preserve our focus, he stopped seeking institutional clients and closed the Calvert-Ariel Growth Fund to new investors. This has allowed him to continue pursuing small companies while simultaneously investing in larger, more well-known firms like Clorox, Hasbro, and the Fleming Companies.

Thoughts on Minority-Owned Businesses

But the spotlight will be on Rogers as he tries to walk this investment tightrope because of the performance standards he has set and the pioneering role model Ariel has become as one of the black leaders in the financial world.

The fortress of finance was one of the last to give way, he told Changing Times in 1990, but not a week goes by without the press reporting the creation of a new firm by minorities.

Still, only a small fraction of all United States pension assets is managed by firms owned by blacks, women, Hispanics, Asian-Americans, Native Americans, and other minorities. Ariel and W. R. Lazard & Company in New York account for more than $3.2 billion of that amount, nearly half of all the assets managed by black-owned firms.

To maintain this pacesetting status, Rogers continues his workaholic six-day weeks to find the necessary time to keep up with all his managerial duties and research responsibilities. Yet people continue to underestimate him, Justin F. Beckett, senior vice president of NCM Capital Management in Durham, North Carolina, told Black Enterprise. They see a mild-mannered, soft-spoken person, but he is a pure competitor who is out to win.

Sources

Black Enterprise, April 1992.

Business Week, July 11, 1988.

Changing Times, September 1990.

Financial World, April 18, 1989.

Forbes, September 2, 1991.

Fortune, July 16, 1990.

World Press Review, May 1989.

CBB spoke with John Rogerss office on October 14, 1992.

James J. Podesta

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Rogers, John W. Jr. 1958–

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