What's the Biggest Change in Market Structure?

A year and a half into the pandemic, a lot has changed in the investment landscape.

Individual investors have been empowered, economies reacted in unpredictable ways, and we still have no clear idea of what is to come. At the same time, when we take a retrospective look, we can find parallels between the trends, behaviors, and reactions of today and events in the past. Today we’re joined by one of the great conversationalists in the community, Chris Davis, to share his perspective on investing in a time of COVID and his outlook for the future.

Chris Davis is the Chairman of Davis Advisors, where he oversees approximately $30 billion of client assets for both individuals and institutions worldwide. Chris joined Davis Advisors in 1989 as a financial analyst and has been a portfolio manager of the firm's flagship fund, the Davis New York Venture Fund since 1995. That fund has a very long history, having been founded more than a half-century ago. An investment of $10,000 at the fund’s inception would be worth $3.6 million as of June 30, 2021, versus 1.9 million for the S&P 500. Chris studied Moral Philosophy and Practical Theology at the University of St. Andrews in Scotland and is on the board of directors at the Coca Cola Company and Graham Holdings.

In this episode, Chris, Tano, and I discuss how the pandemic compares to past crises, Davis Advisors’ approach to triage as we entered the pandemic, why the banking industry offers more certainty to investors than other financials, the impact of low interest rates, the advantages US companies hold have over European companies, and so much more!

Key Topics:

• The two types of crises Chris has seen over his career (1:53)
• COVID in the context of past crises (3:48)
• Davis Advisors’ approach to analyzing the long-term impact of COVID (7:48)
• How Davis assessed key companies and industries as we entered the pandemic (9:38)
• Structural changes in the banking industry in the past decade (13:39)
• Why investments in banking come with a higher degree of certainty (15:18)
• The inherent uncertainty associated with insurers (17:21)
• Long-term dangers of the aggressive consumer bailout (19:36)
• How Chris saw history repeating itself in the past year (21:30)
• The biggest change in market structure (23:13)
• What active managers need to understand about dispersion (26:05)
• Factors that feed dispersion between Europe and the US (30:10)
• How Chris views his European investments (33:31)
• Two components of valuing a business (37:04)
• Amazon as a modern-day Standard Oil (39:14)
• Why successor CEOs should focus on preservation and protection (43:04)
• The impact of low interest rates (46:24)
• How banks have performed in the face of a significant headwind (49:03)
• The high adaptability shown by banks (50:36)
• Key differences between US and international banks (53:11)
• The numerous disruptors that the banking system has absorbed (56:16)
• How inertia and regulation protect banks from disruption (58:41)
• Chris’ thoughts on the growth of the payments industry (1:00:27)
• Viewing Bitcoin as a digital version of gold (1:04:29)
• Why Chris’ opinion on Bitcoin has shifted (1:07:35)
• Chris’ big takeaway from 2020/2021 (1:10:08)
• The impact of China becoming the largest consumer economy (1:11:15)
• Why state and federal government finances keep Chris up at night (1:13:16)
• Chris’ top book recommendations (1:15:10)
• And much more!

Mentioned in this Episode:

• Davis Advisors
• Davis New York Venture Fund
• Walter Isaacson’s Book | The Code Breaker: Jennifer Doudna, Gene Editing, and the Future of the Human Race
• Morgan Housel’s Book | The Psychology of Money
• John Tierney & Roy F. Baumeister’s Book | The Power of Bad: How the Negativity Effect Rules Us and How We Can Rule It
• Benjamin Labatut’s Book | When We Cease to Understand the World

Thanks for Listening!

Be sure to subscribe on Apple, Google, Spotify, or wherever you get your podcasts. And feel free to drop us a line at valueinvesting@gsb.columbia.edu.

Follow the Heilbrunn Center on social media on Instagram, LinkedIn, and more!