As returns go,

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Dodge & Cox Stock fund may not shoot the lights out. What's appealing is its ability to make money in vastly different markets. Case in point: its double-digit gains in both 1999 and 2000.

In any case, shooting the lights out isn't the point, since Dodge & Cox is more oriented towards avoiding losses than scoring big gains. "Our basic objective is to preserve and hopefully increase the purchasing power of our clients' wealth over a longer time period, around four to five years," says John Gunn, who joined Dodge & Cox in 1972. (Check out our

Meet the Family profile of Dodge & Cox.)

Despite the fund's value tag, Gunn sees himself as essentially a growth investor. "All equity investors are growth investors," he points out. "If the world economy was going to have a zero rate of growth over the next five years, we'd all buy long-term bonds and sit on the porch with a big thick book." But he remains cautious on growth names in the technology universe.

One measure of Gunn's price-consciousness: The last time his fund overweighted technology was in 1991. He still remembers, "You could buy



for eight times earnings in the fall of '90."

TSC: What's your take on technology at this point? I know you reduced your weighting over time as it got too expensive. What do you think now?


As the price goes up, it starts to develop downside. We ask ourselves, how would we invest today if we were going to lock it up in a safety deposit box for four to five years? Jeez, I could open the box there and end up with about half the value

laughs. In tech, today's peacock is tomorrow's feather duster. Very often, not always.

TSC: Have you been adding to anything lately as valuations have gotten better?


No one-off things. In the technology, media and telecommunications area, it's like looking for investments in an environment of falling anvils. We're prepared

to buy on a number of larger companies should they drop but I don't really want to talk about that.

TSC: Outside technology, have you added to anything else recently?


We think


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is a very interesting company. We got involved maybe four or five months ago. We had been investors in the past and had gotten out of it. It's a really well-run building products company, a major supplier to

Home Depot

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. It's sort of like the poor man's Home Depot.

TSC: Have you made any buys more recent than that?


There are some things we're still assembling positions in.

TSC: You've talked about being on the lookout for growth stocks. What are some areas you like?


We're interested in areas of technological innovation. We see the declining costs of communications, the declining costs of computing power. And the pharmaceutical and health care area. Another is the global area. That's sort of tied in with technological innovation. That is probably one of the bigger stories going on in the background over the next five to 10 years, the five billion people out in the developing world.

TSC: Do you have much exposure to emerging markets now?


We do in an indirect way, because of our large exposure to industrial commodities and energy in our portfolio. A significant amount of the world's population is going into the rapidly industrializing phase, where their increased consumption per capita of raw materials is fairly rapid.

What's interesting about all these basic industrial inputs to run modern industrial commodities -- whether it's energy or industrial commodities or


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tractors -- is they don't sell for much. We have close to 38% of our portfolio in energy, industrial commodities and machinery.

TSC: That's your biggest weighting. You like it even though the economy's slowing now?


We're locking on a four- to five-year time frame. Everybody tells me the economy's slowing. It probably is, but I don't bring anything to the party on that. It's all about alternative investments and where we can get the most bang for the buck with our clients' current investment dollars.

TSC: What's an example of a stock you like on that theme?


Dow Chemical

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. It's a worldwide-focused company in chemicals. It's pending this

Union Carbide


acquisition, which has dragged on forever as they're trying to get the kind of deal they want through the


. But we think that over time the earnings can double as the global economy expands in the next three to five years. It sells at 16 times or something like that.

TSC: When did you buy it? Recently?


We've owned it for a long time.

TSC: What do you look for in terms of valuations?


There's no one silver bullet of valuation.

Sometimes we'll buy companies with a lot of current earnings, a lot of cash flow, a lot of sales. Sometimes we'll buy a company where we have no current earnings, but we're buying lot of current sales and we can see them starting to work their way out of a situation.

Price means a lot to us. Our portfolio at year-end was about 14 times 2000 earnings.

We have a fairly low market cap-to-sales

ratio. We own a lot of



. We don't own


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. And there's probably a price-to-sales differential between the two of them of 10 or 11 times. Is Wal-Mart better? Yeah, sure

laughs. Is it 10 or 11 times better? I don't think so. We'll find out.

TSC: Can you tell me about your top holdings?



Golden West



Bank One

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kind of trade off for our top holdings. Golden West is very focused on getting deposits and making mortgages for their own account. They're gradually going national and using the Internet in fairly innovative ways. Golden West has grown earnings in the teens for a long period of time. And it's not particularly expensive. It's sort of thought of as just another S&L, but it really isn't.

At Bank One, we think Dimon's assembled quite a good team. Out over a four- or five- year time frame, that may result in a fair amount of increased earnings. Bank One is a product of a whole series of acquisitions and had never really been adequately managed. It kind of fell upon evil days in '99 and had a blow-up with its credit card division. Then they brought in Mr. Jamie Dimon, who'd been at


. He's brought in this crew of people; they're consolidating the company out of Chicago, eliminating this, that, and the other thing and improving profitability. We think Bank One is a major bank in a lot of growth areas in the country.