Money talks. If only we could hear what it says, we could realise how it just requires patience and enough discipline to help create it. The name Mellody Hobson comes to mind when it comes to making money with patience and harbouring a long-term perspective. Hobson is the Chief Executive Officer of Ariel Investments, a firm with more than $17 billion in assets under management (AUM) to date.
Mellody Hobson’s investment approach is not unique – in fact, it is a practice elucidated and explained well by many personal financial experts though only a few have managed to follow it on principle. Throughout one's lifetime, relationships may arise and fade, yet there's one enduring bond that endures: The connection with money. This explains Hobson’s early tryst with money and her constant efforts to attain financial independence early on in life.
No doubt acquiring financial knowledge empowers you to make wiser choices, leading to a more stable and secure life in the long run. While sharing her investment approach, Hobson mentions that the key to successful investing is patience. Once you have identified your investments, all you must do is stay put with them and allow them enough time to compound and grow into a sizeable amount.
A look at Hobson’s investing style over the years underlines her focus on the value investing approach. Though her company mostly invested in small-cap stocks and international stocks, an examination of its portfolio indicates how its fund managers actively pursue value opportunities throughout the entire stock market irrespective of the market, size, or value of the company.
Emphasis on strong fundamentals: Her investment choices revolve around companies with a proven track record of profitability, solid management, and a competitive edge in their industries. Identify the company’s unique strengths or competitive advantages that set it apart from its competitors. A sustainable competitive advantage can lead to long-term success. Thereafter, look at the company’s position within its industry and its ability to capture market share. Companies with a strong market presence often have a better chance of weathering economic downturns. This will help to assess the company’s potential for future growth and expansion, including new markets, products, or services.
Investing with a long-term focus: Hobson firmly believes that value stocks require time to reach their full potential. As a patient investor, she is willing to wait for the market to recognise the actual value of her investments. However, this also means that you must be willing to recognise your financial objectives and define them well. Then, there is risk tolerance that most ignore not realising that not all may have the appetite to handle fluctuations in the value of their investments. Long-term investing often involves some level of risk, so it's essential to align your investments with your risk tolerance.
Embracing diversification: Recognising the importance of minimising risk, Hobson diversifies her portfolio extensively. By investing in a wide range of industries and across various countries, she spreads her risk effectively. Diversification is a key principle in long-term investing. To reduce risk, spread your investments across different asset classes (e.g., stocks, bonds, real estate) and industries. Diversification helps protect your portfolio from significant losses if one investment performs poorly as it helps expand and distribute your portfolio investments across a variety of asset classes, industries, and geographical regions. This strategy aims to lower risk while potentially increasing returns.
To date, Hobson’s investment approach has been unbeatable. Her firm’s returns have constantly outperformed the market. She attributes her success to her constant endeavours to stick to the basics. One of the most influential names in the investing world, Hobson looks for certain features while putting her investors’ money in any particular stock(s).
- Management efficacy: She places significant importance on a company's management, seeking teams with experience, talent, and a successful track record.
- Competitive advantage: Hobson seeks out companies that possess a unique advantage over their competitors, whether it's a strong brand, a distinct product or service, or a valuable patent.
- Reasonable valuation: She avoids overpaying for stocks and focuses on companies trading below their intrinsic value, ensuring a sensible investment approach.
Hobson often cites Warren Buffett’s principles of investing, the most important one being, “There is nothing wrong with getting rich slowly”. One may equate this principle to the famous English proverb: “Good things come to those who wait”, thus, once again stressing on the need to exercise patience while investing.