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Dodge & Cox's Recipe for Success

Contrarian picks, patience, and strong teams contribute to the fund family's solid long-term record.

Tony Thomas: Morningstar sees Dodge & Cox as a model fund family, and when it comes to investing in stocks, the firm’s domestic, international, and global offerings have solid long-term records. Many people wonder what the firm’s secret is, but the answer really comes down to a few key points: It’s willing to go against the grain with its picks, it has the courage to be patient, and it has deep and collaborative investment teams. These features define the firm and are keys to its success.  

The teams at Dodge & Cox are value investors. To them, that means looking for opportunities to pick up good businesses at cheap prices--often when other investors are heading for the exits. To protect against “value traps,” Dodge & Cox wants firms to have strong competitive advantages and capable leaders that can weather the storm affecting the business or industry in question.

Today, the Dodge & Cox portfolios are full of unpopular plays. With negative interest rates and slow growth in Europe, its international and global portfolios have stocked up on the continent’s leading banks, such as BNP Paribas and UBS. With talk of “Medicare for All” and concerns about drug pricing and addiction weighing on U.S. pharmaceuticals, Dodge & Cox has seen opportunities to add European firms like Roche and Sanofi. Problems at individual companies also open doors for the Dodge & Cox teams: They’ve added to their long-standing Wells Fargo stake in recent years, and they’ve bought more Bayer stock as that firm deals with its acquisition of Monsanto and litigation surrounding its Roundup herbicide. 

Not all of these contrarian picks pan out. The firm made some bad financials bets in the global financial crisis a decade ago, and more recently its energy names have languished even as oil prices have firmed up a bit. But it’s important to be patient, and Dodge & Cox excels at that. Its managers keep portfolio turnover low compared to many actively managed peers.

Because it takes discipline to be a contrarian investor and a patient trader, it helps that investment teams manage the Dodge & Cox portfolios. There are domestic, international, and global investment committees ranging in size from seven to 10 members. Each member has been at Dodge & Cox for at least a decade, and others are among the firm’s most senior investors. This mix of experience and youth greatly reduces key-person risk and reinforces the firm’s investment culture. It also fosters consistent execution across the firm’s strategies.

All of these strong points have been hallmarks of the Dodge & Cox approach to its stock investing throughout its 89-year history, and the fact that they’re so deeply engrained in the firm’s culture helps give us confidence that its stock funds are fine options going forward.