Ariel Investments celebrated a milestone in New York yesterday with a press breakfast announcing that its Ariel Fund ranked No.1 out of 219 in Lipper’s Mid-Cap Core universe since the market bottom on March 9, 2009 through December 31, 2018.

The mutual fund firm also released a study of lessons learned from the 2008 global financial crisis called From the Front Lines of the Financial Crisis. “This study is a reflection on the tough decisions we faced during this challenging time, what we learned and how this knowledge enabled us to strengthen our investment process,” said John W. Rogers Jr., chairman, CEO and CIO of Ariel Investments.

Ariel Investments President Mellody Hobson moderated a panel that featured Rogers; Charles K. Bobrinskoy, Ariel Investment vice chairman and head of investments; and Timothy Fidler, Ariel investment director of research and co-portfolio manager of the Ariel Appreciation Fund. Below are key takeaways:

Practice Time Arbitrage

Although speed is of the essence because of cell phone communication, the internet and real-time data, Rogers practices time arbitrage, which is the ability to envision the future beyond where herds of investors are focused at any given time.

“Stocks are often mispriced when everybody gets excited about the current moment, and that’s where the opportunities emerge to take advantage of the volatility that comes from all the short termism in our society,” said Rogers, who majored in economics at Princeton University. “But if you're willing to look beyond it, that's where you can foresee opportunity.”

During the financial crisis, Rogers consulted with a number of longtime colleagues and acquaintances including his former Princeton professor Burton Malkiel and value investor Mario Gabelli. After showing Gabelli his portfolio in early 2009, he was encouraged when Gabelli told him it was likely to do very well. As it turned out, 2009 was the best year in Ariel's history.

Devise A Method To Measure A Company’s Strength

After the crisis, Ariel Investments implemented its own debt-rating process rather than continue to use existing rating agencies. “Rating agencies are slow to downgrade a company because it's an admission of a mistake and because the companies pay for the debt ratings,” said Bobrinskoy, who is a high school classmate of Rogers. “An inherent bias exists. That’s when we decided to create our own debt-rating process.”

During the crisis, strongly performing but highly indebted companies were forced, by panic-stricken banks, to issue equity at very low prices, which diluted Ariel Investments. As a result, Ariel implemented new rules for how much stronger balance sheets needed to be before its fund managers would invest in a stock.

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