12 Aug 2009 Dodge & Cox - Semi Annual Report ( Portfolio )
The first half of 2009 illustrates the importance of persistence for long-term investors. The S&P 500 fell 25% from January 1 through the recent market trough on March 9. During this time, the U.S. government and others around the world pledged fiscal and monetary stimulus. Management at many companies took dramatic actions to reduce costs and inventories in response to rapidly shrinking demand. Some companies even increased productivity in this time period. With capital markets stabilizing and the rate of economic decline moderating, investors began to anticipate the nadir and eventual upturn of the economy. We do not know why the shift in investor sentiment began on March 10, but since then the S&P 500 rose by 37% through June 30. Our investment experience and belief in the favorable long-term prospects of the individual companies in our diversified portfolio lead us to be optimistic and persistent in staying fully invested. Looking back over the last six months, it would be difficult to identify the time to invest by observing daily news reports. Even now, the recent signs of potential improvement (such as increased consumer confidence, increasing auto sales, and increasing new home starts) are balanced by countervailing forces (such as increased unemployment, continued decline in housing prices, and increased foreclosures).

We have found in decades of investing that share prices can change much more in the short term than underlying business fundamentals. In a difficult environment, when companies are under pressure and share prices are down, we often see indiscriminate selling of companies perceived as risky. We believe our investment process gives us the tools to make informed decisions: an independent research team with detailed knowledge of the companies the Fund holds, an eye on long-term value across economic cycles, and the patience to hold on to investments that we believe are sound.