Christopher Davis - Investing with Curiosity
Value Investing with Legends
The Growth Value Dilemma Is No Good
The most important determinant of return over time is whether you correctly assessed the competitive advantages. An enormous amount of that goes into understanding the business model and the nature of the advantage in a particular business. A company that has a, I'll pick a number, but let's say 20% incremental return on equity and is trading at 20 times earnings is a way better value than one with an 8%.
Today’s conversation is with the Chairman of Davis Advisors, Christopher Davis. Christopher oversees approximately $30 billion of client assets worldwide. Christopher currently serves as CEO and Portfolio Manager and Davis Advisors continues to be recognized as a leading independent investment management firm and one which wholeheartedly embodies the basic principles of value investing.
Christopher received an early education from his father and grandfather who shared their passion and enthusiasm for investing and business with the family but when it came time to start university, he decided to go in a completely different direction. From veterinary school to seminary, Christopher took the long way around before settling into a career in investing. From his first job at the State Street Bank, Christopher quickly found his own passion and has thrived in the field for the past 30 years.
On this episode, Christopher and I talk about the impact his family had on him on a young age, the importance of finding the right investing style for you, why he placed so much importance on developing a strong accounting foundation, why Wall Street needs to embrace globalization, his approach to assessing competitive advantage, and so much more!
Key Topics:
- How Christopher was impacted from an early age by his father and grandfather’s natural curiosity and passion for business (2:13)
- Why Christopher believes a lot of people get turned off of the investment business (3:53)
- Why curiosity is key in building knowledge and experience (4:46)
- The importance of finding the investment style that resonates with you (5:26)
- The winding path Christopher took before starting his career in investing (6:58)
- Why Christopher decided that working at a bank was the best first step into the investing profession (8:58)
- What Christopher learned as an early employee of Tanaka Capital Management during the S&L crisis (10:24)
- Christopher’s decision to switch his focus to insurance and financial services (11:00)
- The particular advantage in the insurance industry for investors who can gain insight from the accounting choices companies make (12:57)
- The management culture Christopher looks for in insurance companies (14:07)
- The often-overlooked value of business model stability in the financial services industry (15:10)
- Christopher’s transition to Davis Advisors and the joining of the family firms (18:42)
- From breaking the third-generation stigma to leading the firm (20:05)
- How investing with the idea of owner earnings became a core philosophy at Davis Advisors (23:08)
- The drawbacks of rules-based accounting systems versus principles-based accounting systems (27:34)
- Why Christopher believes we're in a period of extreme disconnect between what financial statements show and the underlying reality of many businesses (28:27)
- The importance of correctly assessing a business’s competitive advantages (30:55)
- Christopher’s approach to assessing the durability of a competitive advantage (31:50)
- How technology has created advantages of scale in the financial services industry (38:33)
- Two big trends Christopher expects to play out within the next 20 years (39:54)
- Why the distinctions of domestic, international and emerging markets are becoming less relevant today (41:22)
- Finding investment opportunities where there’s a disconnect between perception and reality (42:19)
- The importance of recognizing opportunities for investors in foreign markets (43:35)
- Christopher’s approach to business valuation (51:27)
- How Christopher’s firm views and evaluates a business’s management (53:15)
- What you can learn from studying a business’s alumni (55:13)
- Why Christopher is such a strong advocate for active management (59:38)
- And much more!
Mentioned in this Episode:
- Christopher Davis’ Firm | Davis Advisors
- Graham Tanaka, President of Tanaka Capital Management
- Kent Daniel and Tobias Moskowitz’s Article | Momentum Crashes
Thanks for Listening!
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