First Portfolio

[Evan]

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Evan,

Is expectation of future price increases built into the price of mutual funds like it is for stocks? I know it is intrinsically because they track stocks, but if for example everyone thinks DODFX will do well in the future, will it be overpriced?

The other Dodge and Cox funds have outperformed their indexes over 10-year periods. Additionally, the fund's ER is only .3% higher than comparable index funds.

Do you really think my EV is higher going with an international index fund?

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I'll start at the end. I have no idea what the EV of this fund is so I certainly have no idea if it's higher or lower than any one of many international index funds. Just want to make that clear.

So now more people see that this guy is awesome. So they give him money. Now he's gone from 7 or 8 figures to 10 figures. All of the sudden there's just not a big enough market for some of his ideas. Let's say he made 20% one year by buying Apple right before Macworld. With the bigger portfolio he's not going to be able to pour as much money into that stock without running the cost up on his own (okay I lied, I am talking about transaction costs).

So the point I'm making is that as funds become "THE fund" and more money gets pumped into it it becomes increasingly hard for the managers to maintain their performance even if they previous performance was 100% a product of skill. It's not really the same supply/demand market as the stocks themselves, but logically the market is going to set the price for both in this fashion.

Now obvious the ideal size is not 1 cent, but the point on the high side still stands.

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A couple of things here Evan, by not knowing who Dodge and Cox is, you've pretty much lost all credibility about feigning any knowledge about mutual funds. Second, you do realize D&C has a great record of closing their funds when they get too large don't you? Look at DODGX, it's one of the 10 biggest funds out there, and it still decimates the SPX. The managers had the sense to close it when it was getting bigger, now it can chug along with its desired asset base. Do a little more research before you start deifying Bogle because you're coming off as plenty ignorant.

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Neither in the post you quoted, nor anything else I've ever written in my life, have I claimed to know anything about specific managed funds. I suspect I never will. My post had nothing to do with any specific managed fund. It was about economics, and I don't need to know who the LP's at this fund are to talk about that.

I'm not entirely sure what you think I said that was ignorant. Your post reads something like this to me.

"D&C is big, you ought to know it."
"D&C closes their fund when it's too big, I think they do a great job of it but I'm not going to articulate why I'm in any way qualified to make this distinction"
"You were right, the historically best funds to become the biggest"
"Their past history is excellent"
"Something about chugging along, which doesn't sound like a very good thing"
"You're stupid!"


Basing future expectations on historical performance not only doesn't make much sense, it's been empirically proven to not work. What is the threshold for amount of money they can "chug along" with? What they have now? 10% more? 15% less? What happens if whoever is running the show retires? You can't just claim they're doing the right thing and not explain it. They get paid based on a management fee so it's in their best interest to have the most money they possibly can under management. Obviously they have to keep in mind that significantly impaired returns would hinder their image, but it still makes sense that shutting the fund would be a lagging indicator for two reasons. First, simple, people are naturally greedy. Second, it's not a science to determine how much you can effectively manage, it's a lot of guesswork and it would pay for them to err on the side of taking in too much.