Over Eighty Years of Investment Experience
Dodge & Cox was founded in 1930. We have a stable and well-qualified team of investment professionals, most of whom have spent their entire careers at Dodge & Cox. This group has worked together in consistently applying our investment philosophy over a period of many years. We believe that the experience and stability of our investment team enables us to build and retain deep institutional knowledge of individual companies and understanding of different markets.
Though our investment team seeks investment opportunities worldwide, we continue to operate from a single office in San Francisco. We have found that physical proximity, and the fact that many of our professionals have worked together for at least a decade, facilitates effective communication and decision-making. This stability and cohesion is reflected by our Investment Committees, where the members’ average tenure at Dodge & Cox is over 15 years. In these committee meetings, individual analysts advocate their investment ideas. Each recommendation is subjected to intense group scrutiny, for both its merits as a specific investment and its role in the overall portfolio. Debate over each proposed purchase or sale is a respectful if sometimes vigorous exchange among colleagues. When all voices have been heard, the group takes action or reconvenes if further research is warranted. We believe that this well-tuned group decision-making process, honed over the decades, enhances individual thinking and reduces dependence on any single person.
Independent research is at the heart of each investment, forming a well-grounded thesis that looks out at least three years. Through our own investigation, we can more completely understand the forces that will determine an investment’s success. Because we independently build the case for our ideas, we have the confidence to invest in out-of-favor areas and the fortitude to hold our ground should short-term sentiment turn against us. In our many decades of experience, we have found that compelling opportunities are often created by an overly pessimistic consensus among other investors.
At Dodge & Cox, everyone on the investment team has a foundation in research and a stake in decision making — from the newest hire to the Chairman. Research is our common language. We utilize multiple resources, including the work of outside research firms. Yet we are skeptics who regularly test consensus conclusions against our own. We have found no quantitative model or research service that can replace the benefits of holding an onsite meeting with a company’s management, conferring directly with its competitors, customers, and suppliers, or taking the time to analyze its financial record from top to bottom.
Most investment professionals begin their careers at Dodge & Cox as analysts. We hire top-caliber graduates who develop their skills with the guidance of senior investment professionals. This sharpens judgment and strengthens the capacity for independent research. Since a Dodge & Cox employee typically spends his or her entire career at the firm, our intellectual capital continues to build, providing us with a perspective that deepens our analysis beyond the face value of current data.
Decades of investing have taught us that the perception of an investment’s worth fluctuates much more widely than its underlying fundamentals. We are skeptical that short-term market trends can be predicted with consistency, so we look further out in our analysis, focusing on the key fundamental factors that will determine investment value over the long-term. As our view diverges from the consensus, we find investment opportunities.
We continually focus on the long-term by asking ourselves the hypothetical question: based on what we know now, how would we invest an “all-cash” portfolio today assuming we could not trade for the next three to five years? This framework forces us to reevaluate our portfolio holdings within an ever-changing market environment, and to reaffirm our rationale for each investment’s long-term value.
Strict Price Discipline
From the earliest days, Dodge & Cox’s investment approach has stressed evaluation of risk relative to opportunity. A strict price discipline — steering clear of popular choices that come at a price premium we would rather not pay — is critical to achieving our investment objectives. Low valuation investments, for example, typically reflect low investor expectations that may serve as a buffer against the risk of significant price decline; these low expectations may also create greater potential for capital appreciation should investor pessimism turn out to be unwarranted or short-lived. At all times, our ongoing search for superior relative value is guided by a rigorous research process that seeks to differentiate the short-term concerns that may be temporarily depressing an investment from the intractable, long-term problems that could doom it.