How Dodge & Cox Looks at Financials
Dodge & Cox's Charles Pohl on the fund's investment process, weighting, and recent purchases in the financial sector.
Dodge & Cox's Charles Pohl on the fund's investment process, weighting, and recent purchases in the financial sector.
Dan Culloton: In 2008, all of the funds really got hurt by their weighting in financials, in some financial picks. The weighting has come down since then, although you haven't abandoned financials altogether. But I'm wondering if the weighting in your funds is down because you've become more reticent to invest in financials or if the opportunities just aren't there based on your criteria.
Charles Pohl: Well, if you look back at the end of 2006, we were significantly underweight financials, and it wasn't until the prices started coming down in the fourth quarter of 2007 that we even got up to where we were approaching the index weight in financials. And at the end of '07, we were still slightly underweight financials, and approximately by the same amount that we are just a tad underweight today.
The valuations, though, have moved significantly lower. And so to keep that weight where it is, we've added significantly to the financials. Particularly in the spring of 2009, and into the summer, we added a number of new names into the portfolio: State Street, Bank of New York, SunTrust. We added to BB&T. We added to Wells Fargo. So broad additions across the board, and that kept us from having that weighting fall even further.
Culloton: Given what's happened in the last couple of years in the financial sector, are you requiring anything different from the financial companies you own, or are you still essentially looking for the same things?
Pohl: Well, I think we have a process that we've developed over the 80 years we've been in business: a bottom-up, fundamental, analysis-based approach. And we've continued to apply that for decades, with great long-term success, and that continues to be the foundation of our approach.
Clearly, we've been through a very rare event in terms of the financial crisis that occurred in the fall of 2008, but we haven't fundamentally changed our process as a result of that. We've stuck with what has served us well over long periods of time.
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