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Dodge & Cox Balanced DODBX Regains Its Stride, Finally?

edited January 2013 in Fund Discussions

In 2002, MarketWatch published an article called "One fund for a lifetime." The author Paul Merriman actually recommended two: Vanguard Wellington (VWELX) and Dodge & Cox Balanced (DODBX). The article impressed me back then, and my wife rolled her 401 into DODBX. The fund closed shortly afterward.

Here's a look back at its performance (from 2003 Dodge & Cox and Morningstar reports). The fund avoided the tech bubble and sailed steadily upward. You tripled your money over ten years with this consistent, sector-topping choice:


DODBX became one of the most highly recommended balanced funds during this time. Remaining a Moningstar 5 star fund for years. Here is a mid 2007 snapshot (from Schwab report):


And then, the bottom fell out. Its strong value bent had it chasing value traps, like GM, Fannie Mae, and Wachovia. It also did not recover to its old form due to continued poor stocks picks, like HP.


Lately though it appears strong against other notables, like FPACX and OAKBX, and has climbed back into the 4 star category for last three years. Here's a comparison this past year:


And YTD, Morningstar shows it's top of class:


How about the other "fund for a lifetime" Merriman picked back in 2002? Vanguard Wellington has performed masterfully:


With its success, the still-open VWELX has swelled to $62B in assets, while DODBX has a modest $12B. DODBX remains more aggressive with a 75% stock holding versus 65% for Wellington. And, the stocks DODBX is picking, BAC, GS, Panasonic, and yes even HP, may indeed now be at true value levels compared to their book value and earnings power.

My guess going forward? To paraphrase a FundAlarm report on Dodge & Cox from several years back: If this firm can't beat its benchmark over the long haul, then active management is a myth. I choose DODBX.


  • DODBX had hands-down the most beautiful chart I've ever seen from 09/1988 to 06/2007. Definitely a buy&hold, put your widows and orphans in there. But for the next 21 months it underperformed vs. other balanced funds. For the remainder of 2009 it did recover some lost ground, but since then it has oscillated between over- and under-performing relative to other balanced funds. I had my wife's IRA in DODBX from 03/2003, but finally ran out of patience in 04/2012 and transferred it into VWELX, which held up much better in the 2007-2009 timeframe. Plus DODBX's annoying $12.50 annual IRA fee, which they would deduct from her IRA shares if I forgot to send them a check, helped to push me over the edge. I hope this fund finds its way again, but I'm going with VWELX from now on.
  • I have been in since that 02 article, and it certainly seems to have improved, but (recent, tempting) past performance does not etc.

    I cannot imagine why anyone would automatically prefer it now over Oakbx, Glrbx, and even AOR / AOM, my two 'new' favorite ETFs.
  • edited October 2012
    It hurts.

    HPQ slammed today 13%!

    HPQ has been a top holding at D&C for years now.

    As staunch a proponent as I am for this fund family...has D&C lost it?

    Despite the long record. Gold M* rating. Low fees.

    Not just 2008 with its chasing of value traps. But even today, its endorsement of continually distressed equities, like HPQ.

    So, I need to ask.

    Has D&C's time, its investment management philosophy, passed?

    I want you to say no. But I trust this forum will be frank.
  • edited October 2012
    You know, I was actually going to bump this thread as well, yesterday.

    You have a situation where technology is advancing rapidly, especially in terms of consumer technology - not only in terms of the technology itself, but how some technology is effecting consumer behavior in regards to other technology.

    People are taking pictures on their phones and not printing them out as much - less printers sold, less ink sold, etc. I, quite frankly, am rather stunned by some of the cameras that are included with phones. They aren't going to replace SLRs or anything, but they are not bad. They used to be an afterthought, now they are - in many instances - pretty nice, considering the limitations of the size, lens, etc. Why would someone buy a basic camera (from Sony, Canon, etc)? As someone who enjoys photography and needs something more than a camera phone (although I actually think my camera phone is not bad), I am curious what a much smaller, probably more specialized digital camera market looks like in 5-10 years, and who serves the market.

    The desktop computer is going away faster than I'd expected.

    So mobile has had, I think, a ripple effect. Look at Best Buy. I don't understand how Gamestop will evolve to be able to continue around in 5 years. I've talked in other threads about other aspects of retail that will be challenged by mobile and things like price comparison apps (which are likely terrific for the company that owns them and harvests an s-load of information about what is being scanned - they are not terrific for companies like Best Buy, effectively turning them into showrooms.) It doesn't have to be just Best Buy, either - someone could try on a pair of shoes, scan the box and see that an online store has them for less and buy from the online store on the spot.

    I can see where some of these apps would evolve and you start getting competition. Even if it's not online competition, you're in a shoe store, another shoe store a mile away sends an offer for a few bucks off if you go there instead.

    I'm really surprised that more companies have not used geo-fencing in order to send messages to consumers that are nearby their stores. "Geofencing: Can Texting Save Stores?" :

    Advances in payment/POS (point of sale) technology have resulted in even artists at fairs being able to take credit cards via Square or other POS companies. The issue with mobile payments is that you have fifty different companies trying to get in on it and it's just going to cause confusion. Financial technology and changes in financial technology (EMV chip credit cards and required upgrades for US retailers over the next couple of years by Visa and others to be able to accept new forms of payment) is going to lead to some companies doing well - I mean, look at V and MC, who are both making a giant play for the global "unbanked" with mobile payments and other new financial technology. The changes in financial technology over the next five years are - I think - going to be big and make me wonder if there's not more to go for V or MC, but there's also a number of other companies that stand to benefit. Again, watch Visa's "Currency of Progress" ads and all the discussion of "financial inclusion" to people around the world who don't have access to the financial system (the "unbanked" - millions and millions of people who don't have a bank account, but have a phone) and you see what they're going for.

    The real stunner for me is the video game industry, which has done horrendously in the last year or so, as while a 99c mobile game isn't going to offer the same scope as a $49.99 physical video game, people are responding to the 99c value proposition - if they dont like it, it's a lot easier than if someone dropped $50 on a game they didn't like - as a result of that, look at the video game stocks, especially something like gaming giant Electronic Arts or, well, most of the video game companies.

    You have a host of companies that seem to have been unable to make the move as things changed to mobile, and as a result, things like HP and Sony have been clobbered. I'll also note that I do not know how Microsoft continues on not really doing any one thing all that well for that long without starting to have faith erode.

    HP's Whitman in September: "We have to offer a smartphone." (Uh, oh gee, really, Meg?)
    HP's Whitman yesterday (um, less than a month later): "No HP Smartphone next year." (Huh. Er, well, what else is in store? Nothing good? Ok.)

    Sequoia and Buffett have, at times, I believe talked to some degree about not investing in technology because of how things quickly evolve/move to the next big thing. This time period is a tremendous example of that. You have managers who believed that HP was a value, but it's not - it's (and I said this months ago on another thread about D & C and Nokia) unfortunately one of a number of companies (and there's a lot of them!) that seem to have been caught by surprise by the move to mobile or the extent of it. Or, they just became too difficult to steer/be nimble - read the Issacson biography of Steve Jobs in regards to Sony and it feels like that may have continued to be the case with Sony.

    The key problem is a big one: it's not as if companies like HP have years to casually play catch up.

    What's working now is Apple, Google, cloud stuff, data centers and there's a company on the French market that I find fascinating that I've talked about before called Gemalto. Even Ebay, with purchases of smaller, start-up style companies, has shown an ability to at least try to move and adapt. Naspers is an EM example (and a rather interesting conglomerate with considerable exposure to e-commerce), and was, surprisingly, less effected by Facebook cratering than I'd thought.

    There's a lot of companies that are working in technology, but I think there's a lot of companies that are suddenly dinosaurs, which few likely could have imagined 5+ years ago. I was a skeptic on mobile (largely because of social networking, which I still think is largely inane), but I think aspects other than social networking are quite interesting and I think it's clearly having wide-ranging implications on many aspects of business and consumer behavior today.

    Additionally, I think mobile continues to evolve and - among other things - may be more and more how people (literally) shop.
  • edited October 2012
    Here is D&C's commentary on HPQ from June '12 Letter to Shareholders:

    "Hewlett-Packard (3.5% of the equity portfolio on June 30) hurt relative results in the first half of the year. Hewlett-Packard, down 21% year to date, has been one of the portfolio’s largest equity holdings for the past several years. The company has struggled recently with management changes, acquisition integrations, and disappointing earnings.

    Despite these concerns, we have confidence in the company’s prospects due to its durable business franchises (such as printers and servers), its attractive valuation (trading at 0.3 times sales and 4.7 times forward earnings on June 30), a management team led by new CEO Meg Whitman, and its scale advantages as one of the largest technology companies in the world."

    D&C actually added to its HPQ position earlier this year by 700,000 shares. HPQ is now down 41% for year. D&C trimmed much of its other top holdings. They have been bullish on HPQ for years, first holding it in 2001:

    And yesterday's fall:

  • it;s interesting that d&c don't have price targets at which point to book profits or cut losses. usually, even if a favorite stock becomes too expensive, managers cut position sizes and look to re-enter at a cheaper valuation. seems here there is no risk management whatsoever. thanks for the education on the fund, charles.
  • edited October 2012
    Reply to @Charles: Edited to add - HP down another 3.7% today (as of right now)

    Meh. The valuation can go on being more and more attractive for quite some time. I'm not saying there's no value to be found within HP, but again, as I said above, there's not exactly "all the time in the world" for Whitman to do something and, as far as I'm concerned, her efforts so far have not been impressive. However, to her credit, I guess, I'm not sure if she could truly turn the ship around anyways.

    Again, personally, I'm of the view that there are simply some companies that not only DID NOT catch the rise in mobile computing, but to take matters worse, found mobile taking away from aspects of their business (such as Sony's digital cameras and HP's printers and other such things.) Now they're struggling to catch up and I just don't think they have the time to do so, when other companies have already broadly advanced.

    Again, I'm not saying that there's not value in an HP, but I think it's eroding by the day (there's time value/opportunity cost) - things are just moving quickly and having it suddenly dawn on Whitman that "we need to do a smartphone (dur) and then a month later go, "Ooops, that isn't happening" is not exactly a confidence booster.

    Is there really much in the way of "value" in technology investing, when time is so costly as technology is moving so rapidly? Does value not take time?

    I don't like Nokia or HPQ, two companies D & C has been all behind. These companies (RIMM too, and there's some others) can't get it right "next time" or "eventually" - they need to have been getting it right yesterday, with how fast technology is moving. I think that'll eventually become an issue with Microsoft (and Intel's CEO said the other day that Windows 8 is being put out "unfinished.")
  • Reply to @scott: Business world is still largely dominated by Microsoft software. In our company, we have a choice of PC laptop or Apple Laptop. I do use an Apple MacBook Pro. We are one of the largest Apple deployments in business settings but Apple is definitely not business oriented and does not care much about the business needs. They do not have a docking station for MBP, centralized management functions are close to non-existing, they even removed the Kensington Lock port in the latest MBA and MBP. Microsoft might not be the flashiest software but gone are the days of issues and Windows 7 is actually very stable and thus there is a huge cash flow to Microsoft.

    I cannot tell the same for HP. They divested their cutting edge research and they are just one of many names in the industry.
  • edited October 2012
    Thanks fundalarm. I think your observation is precisely my growing concern. Like scott's warning to tech companies that "need to have been getting it right yesterday, with how fast technology is moving." Perhaps same is true for wealth management companies, fund companies, hedge funds. Innovative trading methods to help manage risk have evolved rapidly. And while the "stodgy, tried-and-true" D&C shop may feel they have all the time in the world to eventually get it right, the investment market today will demand more risk management, especially for the moderate, balanced fund category. Nobody wants to lose 55% of their wealth in an 18-month period when invested in a moderate fund, like DODBX lost circa 2008. Fool me once, ok, but not twice. Its HPQ holding has my sensitivity way up right now. Irony is, this same week, M* gave DODBX back its 3rd star.
  • Reply to @scott: Man, that "value" in technology question is profound stuff. If value means only under-appreciated, it should not matter. But if value means price/book, you are spot-on, since "book value" for a tech company can vanish in a flash. Thanks again...your post sure got me thinking about impact of mobile market. Hey, do you think Panasonic (a childhood favorite) is in same precarious category?
  • edited October 2012
    Reply to @Charles Yeah, it was something I was pondering yesterday - how does one find value in a sector of the investing universe where things are moving so rapidly that value can't be nurtured over a reasonable time? There's "technically cheap", but time is of the essence - and I think more now than ever before, the way that technology is advancing. What's remarkable in this day and age is how many classic names seem to have been blindsided by the shift in tech.

    The question becomes who are the next key names in tech - I've brought up French stock Gemalto before - that's up nearly 100% in the last 52 weeks. That's something I'd look at if there's ever a pullback (which never seems to occur.) Google is also looking all the more appealing.

    I definitely like Panasonic products, as well, but have you seen Panasonic's stock? Holy sh....;range=2y;compare=;indicator=volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=undefined;

    Panasonic is trading for less than book (and so is Sony), but what's the thesis? Not everything that's cheap is a "value" - Sony at least has the entertainment division, but it's not really doing well anywhere else I can think of.

    Some of these companies will certainly muddle through, but some will not, and I think some of the names that will not are names that no one would have expected 5-10 years ago.

    Panasonic Vs Sony vs HP vs Nintendo vs EA (look at EA and Nintendo in regards to the video game industry...);range=5y;compare=sne+hpq+ntdoy+ea;indicator=volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=undefined;
  • Putting much faith in M* and its ratings can be misplaced. Remember, they still give Artio International a bronze rating. How bizarre is that? Despite DODGX's good 12 months, I have trouble thinking the managers who lost almost 36% in one 3-month period (the worst of the large cap value funds I track) have really changed their stripes. Adding to HP (and goodness knows they could be right) only heightens my concern. We moved on years ago, for better or worse. As for DODBX, a balanced fund that has a 5-yr downside capture ratio of 150 is over the top, especially when compared to OAKBX and VWELX. However, folks who have held on to the D&C funds for more than a decade, and who did not look at their statements during the interim are probably very happy. It's when comparison shopping begins that the true volatility of funds is revealed. LC Value and Balanced are two areas that most of us consider to be relatively low volatility.
  • edited October 2012
    Interesting Discussion. Bit under 30% with D&C nowadays due to moving some to OAKBX as markets recovered. Guessin had maybe 35% with them when all hell broke loose in '08. What saved me somewhat was averaging out of DODBX and into the new global fund. You'll recall foreign markets plunged even more than U.S. (as markets recovered went back into DODBX). Mitigated losses but didn't prevent them. For most average investors, DODBX is plenty aggressive enough. In good years it'll run with lota decent equity funds. Unfortunately, risk is up there with many all equity funds too. Currently, only hold DODBX and DODIX. -

    As to HP, D&C defended the #**&#** as a value hold for over a decade. Usually their largest (around 3-5%), and always on the verge of a turn around. Sounds like finally admitting their error - as HP has turned into what's better termed a "value trap." Tech is incredibly tough to get a leg up on. Latest greatest idea inevitably goes out of style or becomes obsolete. Tablet computers are replacing paper documents to a degree. Who types up letters and mails them anymore? Unless it's a letter from your former spouse's attorney - or the IRS - it's more likely to arrive electronically. Ask the Post Office about paper-based communications. Ask Reed Hastings about mail-out DVDs. On and on it goes.
  • Reply to @scott: Scott, that's one of the more masterful and thoughtful analyses of the communications/tech sector that I've seen. It strongly suggests to me that no one has the slightest business investing in this area unless they have done as much work as you have.

    Nice job.
  • edited October 2012
    Reply to @Investor: Well, you know the background story there as well as I do. Business chose early on to go MS because the equipment was cheaper. They still overpaid, though, because it took MS - what- five or eight years to finally come up with an OS that actually worked decently? What did all of that cost in lost productivity?

    But once they had gone down the IBM/MS path, they were hooked. Apple had virtually no business following, realized that they never would have, and walked away from the arena. As a computer entity, Apple would be long out of business today if it hadn't come up with the iPod and everything that's followed in the portable consumer area.

    But look at the great preponderance of apps that are involved in that area- other than business apps that support sales, there is very little (if any) app software that actually replaces the "backroom" computing functions that are still done by desktops and larger installations.

    This is exactly why the home desktop pc is becoming a dinosaur- very few consumers use their desktops seriously as I do- intensive use of spreadsheets, databases, and drawing programs. Those areas are becoming "specialty" uses for professional use- what's the point of putting Excel on a home PC if the most that anyone ever uses it for is a glorified list-maker?

    The money these days is in the handheld stuff- and more and more of the serious app stuff that's developing there is devoted to more efficient ways to transfer money from consumers to businesses. And the great remainder of the less-serious apps are simply cheap entertainment for the mindless masses... let's keep as many people as possible entertained and not thinking about what the system is really doing to them.

    I read an article the other day regarding the diversion of disposable income to this area- one family "doesn't eat out much anymore because the bill for our four iPhones is $300 a month." This family's budget is that tight- and they choose to piss it away on iPhones? There is no hope.
  • edited October 2012
    Reply to @Old_Joe: Thank you for your comments and additional analysis - they're greatly appreciated.

    This: ""doesn't eat out much anymore because the bill for our four iPhones is $300 a month." This family's budget is that tight- and they choose to piss it away on iPhones? There is no hope." startling, but ab-so-lutely what's going on. It's not that everyone can afford this, that, and the other (yes, some can) - it's that many people are doing less of this (dining out), that (entertainment - movies, etc) and the other (?) in order to afford phone bills and data plans.

    I admittedly was skeptical of a lot of it - and still think social networking is largely inane - but I'm fascinated by other aspects of it (such as mobile finance.) I guess my view is that, basically, there's millions and millions of phones out there - how does the mobile experience evolve and what does that mean for a lot of different sectors (beyond just technology.) Mobile payment and finance are going to be increasing over time and are already a huge part of other economies around the world.

    Credit cards in the traditional strip sense will be out, and EMV chip cards will gradually be forced into use in the US, and it's the credit card companies pushing for the technology to be put to use.

    The credit card companies see billions of people who have a phone, but no bank account. In 2012, 1.7 billion people have a phone but not a bank account.

    Visa even has a "fact sheet" on this, which they term "financial inclusion" (read: look at all the potential new customers! Wheeee!) It's not really a wonder that the credit card companies are pushing for the new technology.

    You're seeing an increasing amount of cities moving away from tickets and disposable transit cards to rechargeable, contactless cards or NFC readers for mobile. The IPhone 5 did not include NFC (near field communications), but the technology is popping up all over the world in various forms - everything from mobile payment to using NFC to check into a hotel and use your phone as the room key to NFC-enabled household appliances. I think the ability of the Samsung phones to share pictures and other files from phone-to-phone is particularly neat and

    What happens to the camera market? I just see the point-and-shoot market eventually going by the wayside, and the SLR market may shrink back towards the traditional - just the Canons and Nikons of the world (or maybe even more specialized manufacturers - Leica, perhaps)

    I haven't invested in it, but I can think of something like JC Decaux, the giant outdoor advertising company (number one outdoor ad co in the world) that owns street furniture in many major cities and is the largest outdoor advertiser in the world. How does street advertising change in the world over time thanks to mobile that will result in coupons that can be scanned from posters to virtual, scannable stores like this one in Chicago?

    ...Or this one by Tesco in South Korea?

    There's a million different concerns - JCDecaux will not do well if things go South, but think about the long-term if phones continue as they have in terms of popularity - do people think about outdoor real estate in a different way if "virtual stores" start to spread? Who knows, but stuff like this is an example of thinking about investing in mobile in the non-traditional (Apple, yadda yadda) sense. (JCDecaux maintains street furniture in many cities in exchange for having the rights to use it for ad space.)

    A lot of the change that's happening is faster than I'd like, but I think my view has really gone from skepticism to pouring over information because my concern is just how massive the mobile industry is getting and how much of an effect it's going to have on everything from various investments to aspects of common daily tasks.

    Who knows where all of this heads - I think there will be significant positives and significant negatives (and some of the negatives have been talked about in threads with Old Joe a week or two ago), but I think it's becoming such an enormous part of modern society that it will have wide-ranging effects. Not only that, but I think the question now really becomes how and where does the mobile experience evolve from here?

    Additionally, it's amazing there isn't a broad mobile phone ETF. There's an ETF for everything else.

  • Reply to @scott: Scott, real nice analysis.

    Who did the campaign for Home Plus, by the way?
  • Great discussion on HPQ and Nokia... Time change and these companies are going down the path of irrelevance similar to Polaroid. Over time it appeared D&C "devolved" from their solid stock picking they once had.

    By the way, we have D&C Stock, International and Income funds in our 401(K) selection.
  • edited October 2012
    Reply to @Shostakovich: Apparently the firm behind it was a Korean firm called Chiel Worldwide (, which is a public company, but unfortunately not available on the pink sheets in the US. Home Plus, oddly enough, is co-owned by Samsung. Not sure who owns the advertising space, maybe local transit.

    In Singapore, their transit company, SMRT (which is publicly traded) leases ad space ("The Advertising segment leases advertising space at the MRT and LRT stations, as well as in trains, and on buses and taxis") and, in terms of telecom, leases fiber optic cables.

    SMRT has not been a great investment (I don't own it, but I've watched it - it has admittedly paid a nice dividend; 4.1% ), but It's an example of just trying to kind of "think outside the box" as to how - if mobile computing is going to continue to be such a big part of society - how the experience of mobile evolves and how some "non-tech" areas may benefit. I think the idea of re-thinking outdoor advertising space (or better yet, having companies see it in a new light) is definitely a possibility over the next several years.

    As for SMRT (and its own ad firm): "SMRT Media is the transit system's ad firm in Singapore, and in October, it launched iMobSMRT, the country's "first dedicated Mobile Interactivity Space" in the public transport network. According to its website, "Commuters can download great deals or access the latest news simply by interacting with Near Field Communication (NFC) tags or Quick Response (QR) codes via their smartphones or NFC-enabled phones."

    PayPal is working with eight leading merchants as part of a Valentine's Day promotion to test the "Shop and Pay On-the-Go" program, which is now live across 15 of the subway stations."

    Aside from SMRT, there are a fair amount of public transit stocks (such as airports) around the world. While advertising is certainly not the main revenue of something like SMRT or Sydney Airport (which is public and has done very well this year -, I think mobile could be a real long-term positive for these sorts of things, which have a lot of ad space and a lot of traffic every day.

    Paypal ad for Paypal Shopping Walls in Singapore Subway Stations:
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