The MFWire
Manage Email Alerts | Sponsorships | About MFWire | Who We Are

Subscribe to MFWire.com's News Alerts [click]

Rating:Dodge & Cox's Troubles with Financials Not Rated 5.0 Email Routing List Email & Route  Print Print
Thursday, January 08, 2009

Dodge & Cox's Troubles with Financials

Reported by Sean Hanna, Editor in Chief

The bloom is off the rose at Dodge & Cox. Kiplingers takes a look at the once high-flying, San Francisco-based value manager's recent slide, contrasting it with another rough patch that ran from 1995 to 1999.

How bad has it been at the fund firm? Well, Dodge & Cox Stock was off 46 percent through the end of November, trailing the S&P 500 by roughly 700 bps.

Kiplingers claims that this current underperformance is "more painful" than that in the second half of 1990s as it stems from a "sin of commission" (losing money in financial stocks) rather than a "sin of ommission (failing to bet on tech and other growth stocks, which is actually part of Dodge & Cox's business plan).

The article also delves into how Dodge & Cox's "collegial and consensus driven" investment process ended up placing the firm's funds heavily in financial stocks. One source blamed its "left-brained Harvard and Stanford graduates."

John Gunn, Dodge & Cox's chairman, told the magazine that historically financial stocks have performed well following periods of duress and distressed stock prices. He and Ken Olivier, Dodge & Cox's president, point their finger at the government which reacted uniquely this time.

"The government by its actions destroyed capital in the financial institutions and discouraged private capital," says Gunn. "It threw gasoline on the fire."

The magazine, on the other hand, stresses Dodge & Cox's blindness to systemic risk rolled up in a worst-case scenario, alluding to Nassim Taleb's so-called "black swans."

Another way to explain Dodge & Cox's blind spot is to go back to probability theory and statistics. On a bell curve of potential outcomes, the firm failed to recognize the statistical outliers -- possible but improbable events that can be hugely disruptive and destructive if they occur.

Still, the magazine in the end recommends the funds even today. "This is a fine, proud, high-quality company populated with competitive and serious high achievers who have heavily invested in their own funds. They will learn from their investing mistakes," it notes while adding that "The firm's long-term record is outstanding, the investment process has worked, and the institutional memory is strong. 

Stay ahead of the news ... Sign up for our email alerts now

 Do You Recommend This Story?

Return to Top
 News Archives
2021: Q1
2020: Q4Q3Q2Q1
2019: Q4Q3Q2Q1
2018: Q4Q3Q2Q1
2017: Q4Q3Q2Q1
2016: Q4Q3Q2Q1
2015: Q4Q3Q2Q1
2014: Q4Q3Q2Q1
2013: Q4Q3Q2Q1
2012: Q4Q3Q2Q1
2011: Q4Q3Q2Q1
2010: Q4Q3Q2Q1
2009: Q4Q3Q2Q1
2008: Q4Q3Q2Q1
2007: Q4Q3Q2Q1
2006: Q4Q3Q2Q1
2005: Q4Q3Q2Q1
2004: Q4Q3Q2Q1
2003: Q4Q3Q2Q1
2002: Q4Q3Q2Q1
 Subscribe via RSS:
Add to My Yahoo!
follow us in feedly

©All rights reserved to InvestmentWires, Inc. 1997-2021
14 Wall Street | 20th Floor | New York, NY 10005 | P: 212-331-8968 | F: 212-331-8998
Privacy Policy :: Terms of Use