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Yahoo Finance Presents: Mellody Hobson

On this episode of Yahoo Finance Presents, Ariel Investments Co-CEO and President Mellody Hobson discusses the economic pain incurred by the coronavirus outbreak, the outlook for a recovery, and why the downturn “creates a buying opportunity” for investors.

Video Transcript

[MUSIC PLAYING]

ANDY SERWER: I'm here with Mellody Hobson, Co-CEO of Ariel Investments. Mellody, so great to see you.

MELLODY HOBSON: Great to see you always, Andy.

ANDY SERWER: So boy, what a time we are in. So many things to talk about. But let's talk about first what you're hearing from your clients, and what you're telling your clients, Mellody.

MELLODY HOBSON: This is very different than what we experienced during the global financial crisis. I think that was a dry run for something obviously bigger, and just much more challenging. In terms of the current pandemic situation, clients are remarkably calm. They're being very thoughtful.

They are in a wait-and-see approach. And they are not in a mode of reacting. They are not in that shoot first, ask questions later mode. And so that's very, very reassuring.

We're telling them that that's the perfect way to proceed right now. This is not a time for big changes. And it's not a time to do anything dramatic. So we're glad to see clients being very, very calm right now.

ANDY SERWER: A lot of people are surprised, actually, that the markets are holding up as well as they are. And some see even a disconnect between what's going on in say the stock market and the real economy. Is that something that you're concerned about?

MELLODY HOBSON: I'm not, because normally, the way we think about it is that the market anticipates the future. So I think in some ways, what the market is telling us, it's telegraphing a recovery. It's telegraphing the fact that this will end. It will not go on forever, even though it feels like it will.

And it tells us not to anchor to now. That doesn't mean there won't be more pain and anguish. And certainly a lot of people are suffering right now. But the market in its own way is forecasting.

ANDY SERWER: You wrote to your clients, "opportunities will arise for patient investors." Can you explain?

MELLODY HOBSON: Yes. So Warren Buffett has a line where he says buy the panic, that you should be fearful when others are greedy, and greedy when others are fearful. Certainly what we've seen in the last few weeks have been some moments of panic. We saw some indiscriminate selling in the stock market, especially in the early days.

And for long-term, patient investors that are thinking through the next three to five years, not the next three to five months, for the people who are really willing to take a long-term view, it creates a buying opportunity for them, where you can buy companies that are out of favor, that have been thrown away, but where you can see a better future down the road. And that's what we're talking about-- not letting that opportunity go to waste.

That doesn't mean rushing in and diving in headfirst. It means being very thoughtful, very patient. I tell people we're nibbling. You don't go in headfirst right now.

ANDY SERWER: We were just talking about the economy. How bad do you think the economic fallout will be, Mellody? Are we looking at a recession? A great recession? A depression? Get out your crystal ball.

MELLODY HOBSON: Well, no one knows for sure. And anyone who speaks to you with any kind of certainty is not to be believed. We have never been here before, so there's no way to forecast. All the models are breaking right now, because we've never seen anything like this before.

But what I would say most certainly, most economists are predicting a recession globally, because we literally-- and I love this line from my friend Zanny Beddoes at "The Economist"-- we've put our economies into a medically-induced coma. And so when you do that, and you've shut down half the economies in certain situations, there's no way to go but down. And ultimately, that will mean a recession.

Now the question is, how long will that recession be? How deep will it be? Probably deep. And then I don't see a V, where we just come back dramatically.

Maybe it'll be a U. Some people are talking about even a W, where we'd go down, and then perhaps see the virus come back in the fall, and go back again. I hope that doesn't happen.

But we do believe, if you look-- start looking out into 2021, which we think is necessary, you start to see better days. But this year is going to be hard. It's going to be hard for the market, and hard for companies. Don't expect a lot in the way of profits right now in most industries.

ANDY SERWER: And what about the government response, both at the local, state level, and the federal level? I mean, obviously they're hindered in that they've never done this before either. But obviously people are also critical of various types of responses. What do you think?

MELLODY HOBSON: I think the Fed and Treasury have been pretty remarkable. I heard someone say they didn't bring a bazooka. They brought the whole arsenal. I think this idea where they've said whatever it takes-- and they've been very explicit about it-- that is what is actually, I think, given the market some footing right now, because they know they are not going to let this stay in a freefall situation.

The stimulus that has been already put into the economy was absolutely necessary. This is not a time where you ask yourself, did you do enough? You'd rather err on the side of having done too much than too little.

And I think that they've-- I-- quite frankly, I give them very high marks for really getting after it, especially when you compare this to the Great Recession. And I remember those days when Hank Paulson went in front of Congress and asked for $750 billion to save the banks. And the first time, they said no, and the market just cratered.

We didn't see that kind of reaction or resistance here. And we haven't. And I don't think we will. And that is reassuring.

ANDY SERWER: And finally, Mellody, can you talk a little bit about what you're doing? Sheltering in place, and your team, and how you're communicating and staying all together?

MELLODY HOBSON: Well, we're all working from home in various locations around the country. It's actually gone remarkably well. I would say that many, many companies have been tested.

And we've actually passed the test. We're able to do our jobs very effectively the way we're working. We're checking in daily in terms of our research teams. We are working with a high level of productivity. That's one thing that I've really been really pleased with.

And I've told people, the one thing that I have found really important is just having a routine, making sure I get up at the same time every day, making sure I set priorities every single day of things that I have to get done, being very clear about what kind of outcomes I want to see on a day-to-day basis, because I know it's easy for all these days to start blending together. And there is no separation between work and home. And that, too, has its own unique challenges to it.

But I think at the end of the day, for us, we've been pleased that we've been able to work so effectively, deliver results to our clients, insulate on the downside. We hate losing money, but we are gratified when we lose less than the benchmarks that are out there.

ANDY SERWER: Well, best of luck to you, Mellody. Mellody Hobson, Co-CEO of Ariel Investments. Thank you so much for your time.

MELLODY HOBSON: Thanks for having me.