"Of Mutual Interest"-The Hodges of the Hodges Fund
Monday, August 10, 2009SUSIE GHARIB: Given the weak economy these days, most investors don't have much of an appetite for transportation and retail stocks. But Don and Craig Hodges, the father and son co-managers of the Hodges fund, pride themselves on betting big on stocks others avoid. The fund is up 20 percent this year, soundly beating the S&P 500. But last year was a different story. The fund lost nearly 50 percent. In tonight's "Of Mutual Interest," Erika Miller talks to the Hodges and she begins by asking Don Hodges whether 2008's poor returns changed the fund's investment strategy.
DONALD HODGES, CO-PORTFOLIO MANAGER, THE HODGES FUND: I can't say that we're changing our approach from the standpoint of what we use in making our decisions. What we have done is cut back on the number of stocks that we own. And we've gone over the last couple years from having around 100 positions in the portfolio to probably about 45 right now. And the reason we're doing that is to get more impact on the recovery from our favorite stocks and it is working.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: Craig, what is your market outlook? How optimistic are you that the recovery is in place in terms of stock market rally?
CRAIG HODGES, CO-PORTFOLIO MANAGER THE HODGES FUND: I think the worst is behind us and the way we look at things, the market could go sideways for a while but we don't look for the market to continue to go straight, straight up. And it doesn't need to. We can find opportunities in a sideways market. There are some real real opportunities out there, real money to be made over the next three to five years we feel.
MILLER: Don, where do you see the best opportunities these days?
D. HODGES: The best opportunities I think from a two to three-year standpoint are some of the contrarian plays. We've always done well by buying stocks that are out of favor because when they do return to favor, they make substantial moves. We think there's a lot of opportunity in retail. We think there's a lot of opportunity in airlines, transportation in general.
GHARIB: One of the most interesting aspect of your fund is the father-son dynamic. Do you consider that an advantage?
D. HODGES: I think it's a great advantage. I bring experience from the standpoint of some of the traditional investments that have been out there for years and years. And I think Craig brings much more perspective to current technologies and things that I'm just not nearly where he is. So I think we work very well together.
MILLER: And Craig, share your perspective. How does it change the office dynamic to be working with your father?
C. HODGES: We've worked together for 22 years now so it's gone real well. We've never had any kind of big disagreement or anything like that. We get along real well and he's great.
MILLER: But disagreements are inevitable. How do you handle them?
C. HODGES: He's always right.
D. HODGES: I can't really say that we've had any.
MILLER: Oh, come on.
D. HODGES: I'm serious. I can't remember us having any kind of an anger disagreement at all over that period of time.
MILLER: It's not just the two of you. There's two other siblings that are also in the business.
C. HODGES: I think all of us feel very honored to work with him. And of course he's 75 years old and is not even nearing a temptation to retire.
MILLER: Is part of that, Don, the desire to go out on top? Is it important to you to see the fund recover back to its highs?
D. HODGES: It's very important. But deeper than that, I love working. I love what I do. There's never a dull moment. It forces you to learn new things every day. And it's just an engaging occupation. And so I feel like if I make it to 90, I will still be interested in the market.
GHARIB: Well, for patient investors, it may be worth the wait. Morningstar, the mutual fund research firm, notes the Hodges fund's impressive long term record. However, Morningstar gives it only two stars out of five because of volatility and above average expenses.
