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Stanford GSB News

 

Understanding Investing Is Key to Personal Success

April 2008

STANFORD GRADUATE SCHOOL OF BUSINESS—Mellody Hobson, president of Ariel Investments—the first Mellody Hobsonminority owned money management firm in the country—can pinpoint exactly why she was drawn to a financial services career.

The youngest of six children being raised in Chicago by a single mother who worked in real estate, Hobson said she grew up experiencing a “boom and bust life.”

“Sometimes we’d have money, sometimes we’d literally get evicted, phone disconnected, all of those things,” Hobson said. “No one ever talked to me when I was growing up about the stock market or investing. Often we were sort of trying to make ends meet.”

Hobson described her early days and her rise through Chicago-based Ariel to become president at age 30 during the kickoff speech for Gathering 25, celebrating the 25th anniversary of the School’s Black Business Students Association. The two-day event held April 25-26 drew about 200 students, alumni, friends, and featured speakers, workshops, and memories to celebrate the milestone for one of the School’s oldest student organizations.

Those hardscrabble early days, Hobson said, taught her that she “hated insecurity and that sense of not knowing what was going to happen.”

She explained: “I don’t think it’s an accident that I ended up in the financial services industry and working for an investment firm. I wanted to understand money so I could be financially secure.”

Hobson came to Ariel, founded in 1983, as an intern between her sophomore and junior years at Princeton University’s Woodrow Wilson School of International Relations and Public Policy.

After a second summer internship at T. Rowe Price’s portfolio management team, she returned to Ariel after graduation, worked hard, and slowly rose to bigger responsibilities. A voracious worker, Hobson set her sites on becoming Ariel’s president. But the ambitious, accomplished 20-something grew impatient when John Rogers Jr., company founder and CEO, told her she’d first have to pay her dues. The company’s board of directors, he said, wanted her to be 30 before they’d give her the president’s job.

That requirement “to be honest with you, kind of pissed me off. I was not happy about that,” Hobson said. “But they felt that I needed to mature as a person and mature as a leader, and that hard work alone, which is something I was famous for during those years, was not enough.”

In 2000, when Hobson turned 30, the board “lived up to their commitment and made me president,” she said.

While Ariel is no longer the nation’s only minority-owned money management firm, minority-controlled companies in the financial services industry aren’t ubiquitous.

“Of the 9,000 mutual funds, 500 of them are in the newspaper, and we are the only minority company that has mutual funds in the newspaper everyday,” she said. “So when you think that we have come a long way, in my mind, and based upon what we see everyday, we still have an extraordinarily long way to go” in some aspects of the financial services industry.

Hobson said her early struggles also ignited her passion about financial literacy, and what she has found to be a dramatic gap in savings and retirement investment levels between blacks and whites.

Citing research done by her firm and others, Hobson said that while the average black worker had $30,000 in savings in 1998, the average white worker of the same age and education level had $68,000 in the bank. In 2007, the disparity persists, she said, with blacks saving about $173 a month, while their white counterparts save nearly 50 percent more—$252 a month.

Another survey found that while 57 percent of black workers have stocks as investments, 76 percent of their white counterparts had invested in stocks. And a case study conducted by utility firm Exelon found that 34 percent of black employees surveyed did not contribute enough to company 401(k) retirement investment plans to activate the corporate dollar match, compared to only 14 percent of white workers.

The saving and investing disparity could be leading to “a crisis” in the black community in the future, she said, especially since only 20 percent of today’s companies offer traditional pension plans, and the future of Social Security is uncertain for today’s workers in their 20s and 30s.

Companies should strive to find out about savings inequities among their workers, and Hobson said, minorities should strive to become more knowledgeable about investing.

“My mission,” said Hobson, who also is a commentator about financial issues on ABC’s Good Morning America, “is to make the stock market conversation around the dinner table.”