Published February 21, 2002  |  A A A
SmartMoney Magazine by Lauren Young (Author Archive)

Mr. Rogers' Neighborhood

John Rogers has his own personal comfort zone. He always wears a gray pinstripe suit to work, eats at least one meal a day at McDonald's and collects — get this — teddy bears. Sound quirky? Perhaps. But this fund manager has used his eccentric style to clobber the S&P the past five years.

By Lauren Young
March 2002

JOHN ROGERS, THE $8 BILLION MONEY MANAGER, is on a mission. To get a 99-cent hamburger. It's a chilly, early-winter afternoon in Chicago, and Rogers, coatless, marches two blocks from his downtown office building to his favorite hangout, McDonald's. Once inside he darts past two men in suits scrutinizing the menu board. What's to scrutinize? It's McDonald's — you've got Big Macs, Filet-O-Fish, Quarter Pounders, apple pies. Rogers rushes right up to Derrick, the guy taking lunch orders with the handheld computer.

"I'll have a plain hamburger. Super Size fries. Super Size Diet Coke." Rogers rattles off the order as if he's done it a thousand times before. The scary thing: He has done it a thousand times before.

Standing intently at the side of the counter, Rogers waits about a minute before the bag with the burger and french fries reaches his hands. Then he dashes off to the drink stand. It's of the do-it-yourself variety, which is just the way he likes it. "It's nice to get free refills," he says, smiling like a 12-year-old.

After the ice machine crunches out a few cubes, he fills his 42-ounce cup with Diet Coke. Now on to the condiments. He passes on the ketchup and mustard, but grabs a handful of salt packets.

Rogers's Ariel Fund staggered during the tech runup, but came back last year to clobber the S&P — by 27 percentage points.


At his favorite table Rogers gets to work. He dumps two salt packets on his naked hamburger and another two packets on his fries. He devours the burger in four bites, takes a couple of gulps of Diet Coke and begins on the fries. They need just a few fistfuls to disappear. After two more gulps of his soda, he starts eyeing his lunch companion's fries. He gets the go-ahead. He dumps another packet of salt on those fries and digs in.

Finally, before heading back to the office, he refills his cup with Diet Coke.

John Rogers — Princeton grad; only son of well-to-do Chicago parents; friend to movers and shakers (including Bill Bradley and Jesse Jackson); chairman and founder of one of the country's hottest investment companies, the $8 billion Ariel Capital Management — is a McDonald's junkie. A bona fide fast-food fanatic. He stops by the golden arches 10, maybe 12, times a week. In round numbers, he consumes 250 burgers and 26,000 individual fries a year. But don't worry. He has other favorites, too. Just this morning he was at the same Mickey D's, lingering over a greasy biscuit and the morning papers. And tomorrow morning he'll be chomping on McDonald's pancakes smothered with butter.

He's a 43-year-old man with the digestive tract of a high school tuba player. Amazingly, though, he's nearly as trim as he was in his days playing basketball at Princeton. In fact, "the last time I checked with the doctors," Rogers says, "my cholesterol was within the right range."

Good thing, because Rogers has no plans to change his fast-food ways. "I like the way McDonald's feels. It's comfortable," he says. "It's an oasis for me."

You see, besides burgers, McDonald's has all the ingredients John Rogers craves in life. Consistency, efficiency, timeliness and, best of all, predictability. Get this — so he doesn't have to worry about any big decisions first thing in the morning, he always wears one of eight custom-made pinstripe suits. The thing is, they're all charcoal gray. He shuns wearing an overcoat to avoid coat-check lines. He has BusinessWeek FedExed directly from the printer so he can read it a day earlier than most subscribers (he even rips out the ads to make for easier reading). And forget about sending Rogers an e-mail — he doesn't use a computer.

Notice a pattern? "He's quirky, but he's consistent, very consistent," says Craig Robinson, who played basketball with Rogers at Princeton in the early 1980s. Eric McKissack, who has worked with Rogers since 1986 and manages one of Ariel's funds, puts it this way: "John is constantly figuring out ways to narrow his choices to manage his life."

Constantly. When it came time to discuss family planning with his wife, Desiree, Rogers insisted on having just one kid. That way he could focus his attention on his sole offspring, Victoria — and not waste time going to two parent-teacher conferences. "You try living with that, honey," says Desiree, who's now his former wife.

Okay, so you may not want to live with John Rogers, but he's probably the kind of guy you want managing your mutual fund. Over the past five years, the fund has delivered a 15.8% annualized return, trouncing the Standard & Poor's 500 by more than five percentage points. Part of the reason: When it comes to picking stocks, Rogers is pure Value Meal. He concentrates on consistent, solid small businesses with strong balance sheets and steady sales and earnings growth while shunning glitzy technology and telecommunications stocks.

His aversion to rapid growth names meant the Ariel Fund (ARGFX) got left behind its peers in 1999 during the tech boom — and narrowly cost Rogers a spot on our roster of superstar managers in this month's cover story. (See "The New Superstar Funds," page 93.) But don't cry for Rogers. Last year, when most investors were reaching for the Zantac, the Ariel Fund gained more than 14%, beating 80% of its peers and the S&P (by 27 percentage points). His trick: buying bargains. The 35 or so stocks in the Ariel Fund generally trade at a sizable discount to what Rogers and his team at Ariel peg as a company's fair market value. These small companies also tend to be unloved by other investors and out of favor with Wall Street.

It's a strategy as sexy as a plain McDonald's hamburger — but it works. "I'm a natural contrarian," says Rogers, sipping a Diet Coke. "If you're going to be above average, you can't do the things the average person does."

And understand this: John Rogers is anything but average.

Melba Pryer is Rogers's "Girl Friday." She's been keeping house for Rogers and his family, on and off, for more than 40 years, since he was a kid growing up in Chicago's Hyde Park section. By now she knows his habits well. "He likes things a certain way," she says coyly. "He doesn't like things to get run down. He likes you to buy things in sixes — shaving cream, deodorant, and he changes toothbrushes every other week."

Following his careful instructions, she also makes sure Rogers's kitchen is always stocked with Pillsbury cookie dough, River Queen Cajun Peanuts and Diet Coke. And she taste-tests his favorite red seedless grapes before buying. "If the red's not running sweet," Pryer confides, "I'll get the green ones."

Rogers's eating habits are legendary among friends. It's a given that he'll send back meals at restaurants if a vegetable he doesn't like is touching his meat. And when they were teammates at Princeton, Robinson remembers going on road trips and watching Rogers eat only hamburgers, french fries and pizza. "I'd say to myself, ÔThat guy is going to kill himself,'" says Robinson, who's now an assistant basketball coach at Northwestern. "It was weird to me then, but I'm sure it must be weird for others now. They must think, ÔOh my God, who is this guy?'"

Unfortunately, no one prepped Randy Mehrberg for dining with Rogers. When Mehrberg was hired as the Chicago Park District's top lawyer in 1993, Rogers — the organization's board president at the time — invited him to dine at the tony Racquet Club of Chicago on the city's gold coast. Mehrberg scanned the menu, picking the salmon. Rogers ordered popcorn. "I thought it was the popcorn shrimp," says Mehrberg. "Then they came out with a silver tray — of plain popcorn."

"I don't eat fancy things at all," Rogers says. "I want to eat what I like."

And then there's his preoccupation with time. Even though he doesn't wear a watch, Rogers will only wear Ferragamo loafers to work so he won't waste time tying his shoelaces in the morning. He also refuses to own an answering machine at home so he doesn't have to return calls. A few years ago, while riding in an elevator to his office on the 11th floor, he turned to Sarah Duncan, an Ariel co-worker. "I can't wait until we move to the fifth floor," he told her. "I'm going to save so much time." Duncan started to laugh, figuring her boss was joking. She quickly held it in. "I realized he wasn't."

What gives? Why such an obsession with efficiency and order and time-management? To Rogers, it's simple. "Most of the things I do make my life easier," he says. "When I look back on my life, I want to be able to say that I did what I said I was going to do."

So far, that's quite a lot. In 1983, at 24, and just two-and-a-half years out of college, he became the first African American to start an investment management company. Today Ariel has 51 employees and more than 120 institutional clients (including United Airlines, ChevronTexaco and the California State Teachers' Retirement System). Last year its assets grew more than 50%.

But business is hardly Rogers's only commitment. "John is the Jackie Robinson of what he does," says Rev. Jesse Jackson, who has known Rogers since he was 10 years old. "What keeps John going is not just the money. He's a trailblazer." For instance, Rogers is co-chairman of Jackson's Wall Street Project, an annual conference in New York that promotes minorities in business. He's also chairman of the Chicago Urban League, is on four corporate boards and was a leading campaigner for Bill Bradley when the former senator (and Princeton basketball player) ran for president in 2000.

Then, of course, there's basketball.

When Rogers went to Princeton, he was no Michael Jordan. He saw more pine time than prime time. But Pete Carril, the legendary Princeton coach who preached a patient, deliberate brand of hoops, made an impression on him. Sitting on the bench, he often dreamed about coaching a team one day. "I love that idea of plotting strategy with your teammates," he says. "To go out and do something together to win." These days he's the player-coach for a weekend three-on-three basketball team that includes Craig Robinson; Kit Mueller, another former Princeton player who's now a hedge fund trader; and Arne Duncan, CEO of the Chicago Public Schools system. A couple of years ago, their team, Slow & Steady, won the Chicago three-on-three championships when Rogers sank the game-winning jump shot.

Rogers made a video featuring photos and footage from the team's various victories — and set it to the sentimental tune "Old Friends" by Simon and Garfunkel. Robinson loved the video, but gagged on the music: "It's like we all died. We actually won these games."

But what do you expect from a guy who still collects teddy bears (especially Winnie the Pooh); once flew to Detroit, by himself, to see Cher in concert; and picks the cornball comedy The Wedding Singer as his top movie? "Without a doubt, he has his sensitive side," admits Mueller.

Compulsive but corny. Efficient yet expressive. It doesn't make much sense — until you delve a little into Rogers's past. His parents made names for themselves in Chicago during the turbulent 1960s. His mom, Jewel Lafontant, one of the first black women to graduate from the University of Chicago Law School, became a prominent lawyer and figure in the Republican party. His dad, John Sr., is a Tuskegee airman who flew more than 100 combat missions during World War II. Later, he served more than 20 years as a Cook County judge.

But the couple divorced in 1961, and young John found himself shuttling between his mom's Hyde Park home during the week and his father's efficiency apartment on weekends. "Divorce. It does something to you," says Pryer, 67, who still works for Rogers's father. (Lafontant died in 1997.) "I don't know what psychologists say, but children of divorce have to have something to hold on to, something that's yours."

Rogers admits the back and forth visits drove him "half crazy," but he also came to appreciate his dad's straight-shooting demeanor. Rogers compares his dad, who's now retired, with the drill instructor in An Officer and a Gentleman. "You know how at the end Richard Gere's character learns to respect Lou Gossett Jr.?" Rogers says. "Over time you learn to respect and admire that kind of discipline."

"He's honest," says John Sr., 83, of his son. "He got that from me. If Johnny says it, you can rely on it."

That's not all his father passed on. When Rogers was 12, his dad, who grew up during the Depression, started giving his son dividend-paying stocks. "I knew the stock market was the future for blacks," the elder Rogers says. "They don't know whether you are black, blue or green if you are trading in stocks."

The younger Rogers sharpened his investing interest at Princeton, running off after a class or practice to a nearby brokerage firm to check in on his small portfolio. He also latched onto value investing after reading Burton Malkiel's classic A Random Walk Down Wall Street. When he graduated, he spent a couple of years as a broker with the Chicago firm William Blair. But he was eyeing opportunities to open his own shop. With some seed money from family and friends, he finally did and, starting with the Municipal Employees' Annuity & Benefit Fund of Chicago, slowly built his accounts.

While Ariel has grown in size, Rogers has stayed with his small-cap value model. For the $640 million Ariel Fund, he targets only companies with a market capitalization of $2 billion or less. Rogers prefers companies with a dominant market share that trade at a 40% discount to their estimated fair market value. They're also usually stocks that scare most investors because of dubious news, like a botched product launch or missed earnings. Rogers is willing to wait these companies out, as his turnover rate — 29%, compared with 77% for the average small blend fund — indicates. "Value investing works when you're investing in tried-and-true companies,"he says. "It's easier for investors to get their arms around the reasons why a good, old-fashioned company is going to stay and compete in the future." (Fund tracker Morningstar classifies Ariel as a blend fund because many of the fund's holdings morph into growth stocks as their prospects improve.)

The Ariel Fund staggered during the tech runup. It lost almost 6% in 1999, while its typical peer gained 16%. But it has rebounded sharply, boosted by the turnarounds of such stocks as spicemaker McCormick (up 43% since 2000) and advertising agency Grey Global (up 61%). Lately, Rogers has added shares of International Game Technology and WMS Industries, two slot-machine makers, betting that Las Vegas and other gambling destinations will still thrive despite the effects of Sept. 11.

What does concern Rogers is that more African Americans haven't picked up on the power of the market. Since 1998, Ariel has co-sponsored a study with Charles Schwab on African-American investing trends. The latest research shows that blacks are 35% less likely to invest than whites. Rogers is looking for ways to get blacks more tuned in to the markets.

His starting point is inner-city kids. In 1996 Rogers and several friends (including Duncan, his basketball teammate) provided funding and support for a new public elementary school. Unlike most schools, the Ariel Community Academy, with more than 300 students, offers a curriculum with a decidedly financial spin: The basics of investing — from selecting stocks to tracking leading economic indicators — are woven into the daily math and history classes the students take. The academy has been recognized for its above-average student retention rate and its 69% student participation in after-school programs.

What's Rogers's motivation? "I feel guilty that I wasn't there in the '60s to march with Dr. King," he says. "Dr. King sacrificed his life to end discrimination. The people who got their heads bashed in sacrificed their that others could vote, sit on the same bus, use the same washrooms." He pauses. "I haven't had that kind of sacrifice in my life."

It's mid-December and Ariel's year-end company holiday party is in full swing at a converted old firehouse in downtown Chicago. The entertainment — a palm reader, a handwriting analyst, two magicians and a couple of caricaturists — is outlandish. And so is the menu. There are lamb chops, shrimp, oysters, crab claws and artichoke-cheese crisps. John Rogers passes on everything. Instead, he bites into a plain deep-dish pizza ordered with him in mind.

The year has been a banner one for the company, and in a few minutes the boss will toast his team. But first, Rogers sits down with the palm reader. As he sips a vodka with cranberry and orange juice, he listens intently. It's an odd scene. Here's a guy who has spent his whole career figuring out ways to leave nothing to chance. Could he possibly put any stock in what a fortune teller says?

Still, as Rogers walks away from the palm reader, he looks a little tickled by what he's heard. "What'd he tell you?" someone asks him. Rogers pauses, then shyly, with a small smile and raised eyebrows, confesses, "He says we're going to have another good year."

It's nice to know that, in these chaotic times, even the most methodical among us can appreciate a little hocus-pocus.

Additional reporting by Eleanor Laise

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