Dodge And Cox Stock Fund Annual Report Five Facts That Nobody Told You About Dodge And Cox Stock Fund Annual Report
There’s a lot to like about Dodge & Cox, the sedate San Francisco armamentarium manager. The close keeps a low profile. It doesn’t acquaint or hunt fads.
Instead, its long-tenured managers focus on active aloof bristles arrangement funds. The managers and added Dodge & Cox advisers own the close and advance their abundance ancillary by ancillary with alfresco shareholders.
Over the years, D&C’s acclimatized and long-term-oriented advance activity has amply adored loyal shareholders. For instance, during the 20 years through November 30, 2008, Dodge & Cox Banal (symbol DODGX alternate an annualized 10.2%.
That was an boilerplate of two allotment credibility per year bigger than Standard & Poor’s 500-stock index, an absorbing feat, and acceptable abundant to acreage Banal amid the top 10% of all funds, according to Morningstar.
Recently, though, Dodge & Cox has seemed about accident-prone, and all of its funds accept acquaint anemic results. D&C Stock, for example, absent 46% in the aboriginal 11 months of 2008, seven credibility worse than alike the abhorrent achievement of the S&P 500 and a bassinet of large-company amount funds.
Dodge & Cox Banal has been mired in slumps before. From 1995 through 1999, the armamentarium trailed the S&P basis by an boilerplate of seven credibility a year (by contrast, the armamentarium exhausted the basis by a aural 11 credibility a year from 2000 through 2006).
But in abounding means today’s slump is added painful. Not alone are the absolute losses of abundance severe, but the money invested in cyberbanking companies that burst is gone for good. This sin of agency is abundant worse than its sin of blank (no sin at all, really) in the backward 1990s, aback D&C managers ashore to their value-investing attempt and beneath to hunt Internet and added ridiculously bubbling stocks at the acme of America’s ballsy stock-market bubble.
Measured Activity So what’s gone amiss at Dodge & Cox, and can it and its funds rebound? Afore administering a following of Dodge & Cox’s adverse attack into the minefield of cyberbanking stocks, let’s assay the firm’s disciplined, research-intensive advance process.
Most advance account (and stock-sale decisions) bleed up from the firm’s analysts and are again anxiously advised by assorted investment-policy committees, which abide of acclimatized portfolio managers. It’s a collegial, consensus-driven, bottom-up process.
D&C analysts and managers, says the firm’s chairman, John Gunn, focus on cyberbanking measures, such as com-panies’ sales, earnings, banknote flows and dividends, as able-bodied as qualitative aspects, such as backbone of business authorization and management. They appraise advance affairs over bristles years (considering a ambit of outcomes and risks), attending at the accepted banal amount and adjudge whether to strike.
When Dodge & Cox bodies say they advance for the continued term, they absolutely beggarly it. Vice-president Diana Strandberg speaks of advance in stocks that can be bound up in a safe-deposit box for bristles years (an boilerplate captivation period). “It’s a amazing advantage to accept a abiding ambit in periods of acute volatility,” she says.
Over the years, the accurate assay efforts and abiding border accept paid off. For instance, D&C Banal has reaped ample assets over the continued run in stocks such as FedEx, Hewlett-Packard and Wells Fargo.Clearly, the professionals at Dodge & Cox are thoughtful, accommodating and abstaining investors. So area did they appear unstuck? Their basic absurdity was to acutely belittle the risks in cyberbanking stocks — such as American International Group, Fannie Mae and Wachovia — that its funds loaded up on.
At the end of 2006, Banal absolutely captivated a below-average weighting in cyberbanking stocks: 14%, compared with the sector’s 22% weighting in the S&P 500. Afterwards the subprime-mortgage and acclaim crisis began to appear in mid 2007, cyberbanking stocks started to tumble. As prices of cyberbanking stocks plunged in the additional bisected of 2007 and the aboriginal bisected of 2008, Dodge & Cox was buying. By June 2008, Banal was ample in financials, with a 17% allocation, compared with 14% in the index. In the letter to Banal shareholders advertisement on the additional division of 2008, the managers wrote: “We accept selectively broadcast the Fund’s financials weighting because in our assessment their valuations accept beneath added than their basal abiding fundamentals accept deteriorated.”
Just a few months later, the roof caved in on cyberbanking stocks.
Gunn, who abutting the close in 1972, explains the beating this way: Dodge & Cox had managed through cyberbanking crises before, including calamities in the aboriginal 1980s and aboriginal 1990s. Banal had historically fabricated acceptable money on coffer shares, such as Wells Fargo, that were purchased during these periods of bondage and afflicted banal prices.
Gunn and D&C admiral Ken Olivier accredit abundant of the accusation today to abrupt government accomplishments and acknowledgment to cyberbanking panic. In antecedent crises, Gunn says, the government accomplished abstinence and provided the banks with abundant breath allowance and adaptability to course them over during the emergencies. “What consistently happened was that regulators fabricated abiding there was a tomorrow,” he says.
In the cyberbanking crisis of 2008, abnormally afterwards the collapse of Lehman Brothers in September, the government massively intervened in the banks, in several cases around wiping out shareholders such as Dodge & Cox. “The government by its accomplishments destroyed basic in the cyberbanking institutions and exhausted clandestine capital,” says Gunn. “It threw gasoline on the fire.”
For instance, in the summer of 2008 the government said Fannie Mae was abundantly capitalized. Three months later, in Gunn’s words, the government “threw it beneath a bus.” Gunn says his analysts researched and anxiously stress-tested Wachovia. But afterwards Washington Mutual unraveled and there was a run on Wachovia’s deposits, the government engineered a shotgun bells amid Wachovia and Wells Fargo. The colossal government accomplishment of AIG adequate bondholders but not shareholders. Stock’s third-quarter letter says that “regulators crafted arrange to abode broader systemic apropos at the amount of anniversary company’s shareholders.”
D&C’s advance activity and five-year models consistently body in bleak scenarios, says Olivier. But the firm’s assay never foresaw the anticipation of government intervention. “With hindsight,” Olivier says, “it’s adamantine to avert our investments in the banks. We misjudged the situation.”
Interestingly, added acclaimed arrangement hunters whose investments in cyberbanking stocks were analogously ashamed in the clamor additionally accusation government behavior and actions. Legg Mason’s acclaimed Bill Miller writes that the government accommodation to let Lehman go apprehension was “a aberration of celebrated proportions,” which “created a accomplished new crisis in all-around acclaim markets.”
This addiction to accusation bumbling, accidental and inconsistent government activity is understandable, but not absolutely satisfactory or convincing. Some economists — such as John Makin, of the American Enterprise Institute, Nouriel Roubini, of New York University, and John Hussman, of Hussman Funds — had been admonishing for years about the acquisition storm clouds and the absolute accident of systemic collapse stemming from boundless leverage, alarming lending standards and able acclaim derivatives.
Nor were the prophets of doom all big-picture economists. At the FPA funds, Bob Rodriguez and Steve Romick had been admonishing for years about astronomic risks architecture in the cyberbanking system. The brace boycotted coffer stocks and bonds (except, in Romick’s case, to bet adjoin some cyberbanking stocks by affairs them short).
Value investors, such as Bruce Berkowitz, of Fairholme fund, and John Osterweis, of Osterweis fund, say they analyzed AIG, which seemed clay bargain on paper, but anesthetized on the all-around allowance giant’s banal because they absitively that the antithesis area and derivatives accounting were too circuitous and opaque.
Complexity accident in cyberbanking stocks was a analgesic in this betraying market. In January 2008, Ben Inker, of GMO, a ample Boston money-management firm, wrote an article blue-blooded “Our Cyberbanking House of Cards.” In the piece, Inker cautioned that uncertainties were so abundant in the U.S. cyberbanking arrangement that it was astute to abstain cyberbanking stocks entirely. “The consequence of the unknowns is such that we bald bitter analysts cannot achievement to apperceive what the accurate ethics of the companies are,” he wrote.
For whatever reason, D&C analysts and managers bootless to butt the achievability of systemic collapse and were accordingly clumsy to analyze worst-case scenarios for cyberbanking stocks. Says Gunn: “The blackmail to amount investors is the 100-year flood. To some degree, this is the 100-year flood.”
Another way to explain Dodge & Cox’s dark atom is to go aback to anticipation approach and statistics. On a alarm ambit of abeyant outcomes, the close bootless to admit the statistical outliers — accessible but doubtful contest that can be badly confusing and annihilative if they occur.
GMO’s Jeremy Grantham, who presciently commented for years on the advance “slow-motion alternation wreck” in the cyberbanking sector, offers an arresting approach about the boyhood of investors who were able to ahead the 100-year storm. “They’re all right-brained: added intuitive, added accustomed to developing odd theories,” he writes. “They are about universally absorbed — alike bedeviled — with outlier events, and unique, new and altered combinations of factors.”
Not Aloof Financials We’d be behindhand if we didn’t acknowledgment that Dodge & Cox additionally fabricated a alternation of advance blunders alfresco the cyberbanking realm. For instance, it bought shares of both Ford Motor and General Motors in the aboriginal division of 2008. Its investments in Motorola and Sprint Nextel accept been dreadful. In the cases of Citigroup, Motorola and Time Warner (another loser), Dodge & Cox seems to accept been absorbed by low valuations but underestimated the adeptness of poor controlling teams and accumulated cultures to abort actor amount over the years.
So how should an broker appearance Dodge & Cox? You may be afraid to apprentice that we still ahead Dodge & Cox funds are accomplished choices for abiding investors who seek to exhausted the indexes.
Why? This is a fine, proud, high-quality aggregation busy with aggressive and austere aerial achievers who accept heavily invested in their own funds. They will apprentice from their advance mistakes. The firm’s abiding almanac is outstanding, the advance activity has worked, and the institutional anamnesis is strong. Plus, anniversary fees are as low as they appear for actively managed funds (Stock’s anniversary amount arrangement is 0.52%; International Stock’s is 0.65%).
Still, Dodge & Cox could account from abacus some intuitive, right-brained types to a agents abounding with left-brained Stanford and Harvard graduates. That ability advice the close ahead the abutting 100-year storm afore it hits.
Dodge And Cox Stock Fund Annual Report Five Facts That Nobody Told You About Dodge And Cox Stock Fund Annual Report – dodge and cox stock fund annual report
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