The transcript from this week’s MiB: Beating the S&P For Generations with Chris Davis of Davis Funds, is below.
You can stream and download our full conversation, including any podcast extras, on Apple Podcasts, Spotify, YouTube (video), YouTube (audio), and Bloomberg. All of our earlier podcasts on your favorite pod hosts can be found here.
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Masters in Business · Bloomberg Radio
Barry Ritholtz in conversation with Chris Davis, Chairman & Portfolio Manager, Davis Advisors
[00:00:02] Announcer: Bloomberg Audio Studios, podcasts, radio News. This is Masters in Business with Barry Ritholtz on Bloomberg Radio.
[00:00:17] Barry Ritholtz: This week on the podcast. Strap yourself in for another banger. Chris Davis chews up the scenery. He is the portfolio manager of Davis Advisors. They’ve been kicking the S&P’s butt for the past, I don’t know, since 1969. $20 billion in client assets. Fascinating conversation. Charlie Munger was his mentor. He sits on the board of Koch and on Berkshire Hathaway. I thought this conversation was spectacular. I think you will also, with no further ado, my sit down with Chris Davis.
[00:00:53] Chris Davis: It’s so always good to be with you. Thank you so much.
[00:00:56] Barry Ritholtz: So before we get into your career — master’s degree with honors from the University of St. Andrews in Scotland — like how did that come about?
[00:01:08] Chris Davis: Well, one of the things that confuses people is I actually don’t have an undergraduate degree. I only have the master’s degree. Wait, how — I sort of skipped that middle step.
[00:01:18] Barry Ritholtz: So did you go to an undergraduate college?
[00:01:21] Chris Davis: Well, what happened is I went to St. Andrews. I had originally only intended to go for a year. I wanted to be a veterinarian. That’s a long side story. And I had worked at the Bronx Zoo. I had worked at the —
[00:01:33] Barry Ritholtz: Wait, wait, wait —
[00:01:33] Chris Davis: Humane Society.
[00:01:34] Barry Ritholtz: So the original plan wasn’t “dad’s a fund manager, grandfather’s a fund manager, I guess I’m gonna go into the family business.” That was not the —
[00:01:44] Chris Davis: Plan. Definitely not. But I give both of them credit. They felt that all of their kids should be financially literate. And so every kid worked for my father or for my grandfather at some point and learned, because they just felt like, look, you’ll have money over time. It’s not taught in schools, just the basic fundamentals of investing. And God help you, if you turn on the TV, you’re gonna get a totally distorted view of what investing is.
[00:02:15] Barry Ritholtz: Fire hose of nonsense.
[00:02:17] Chris Davis: Exactly. And so we all had this grounding. But for example, my smartest sibling without question is my younger sister, but she’s a small town doctor. But boy, does she understand investing. She’s very thoughtful in how she’s managed her financial affairs. So we owed that route, but we all thought we were going different paths. She was interested in medicine. I was interested in veterinary medicine. And so I was gonna go to Cornell, and I was very young for my high school class, and I was very late hitting puberty. I mean, I was five feet tall my senior year in high school. That’s when I broke five feet. So you can imagine what this looked like, but my scores and grades were okay. And so Cornell took me into their pre-vet program, but the woman that ran it said, look, this is a seven year program, it’s intense. Why don’t you take a year off, like a gap year? So I proposed that to my father. He said, we don’t do that in our family. You could go study, but there’s no year off, like to go ski or find yourself.
[00:03:27] Barry Ritholtz: Did you skip a grade, or — like me — were you born in October, November, December, so you’re young relative to the rest of —
[00:03:33] Chris Davis: No, I had skipped a grade sort of early because, bizarrely — nobody in my family believes this now — but I didn’t talk until quite late. So they had sort of, and then when I started talking, they jumped me ahead —
[00:03:47] Barry Ritholtz: Making up for —
[00:03:48] Chris Davis: Exactly. It never stopped since then. But anyway, so I had this year, and it was the first year that the University of St. Andrews was interested in taking direct applications from students where they dropped the requirement to have A levels or O levels, the British entry exams, mostly because they wanted the Yankee dollar. Of course, you’ve gotta remember Thatcher had just become prime minister. She was slashing the public support of the Scottish universities. So I applied. There were, I think, eight of us Americans that came in that first year. And they had a program where after two years you could apply into the honors program, which would allow you to concentrate on just one subject. And I ended up picking two. But needless to say —
[00:04:41] Barry Ritholtz: What were the —
[00:04:42] Chris Davis: Two? It was philosophy and theology.
[00:04:44] Barry Ritholtz: Very —
[00:04:45] Chris Davis: Interesting. I picked them my freshman year thinking, well, when I go back to Cornell, I’m gonna be filled up with organic chemistry and biology and anatomy and so on. So I may as well pick things that I’ll never get to study again. So I picked things like medieval history, philosophy, theology, and —
[00:05:03] Barry Ritholtz: I love that. That’s something I always, in hindsight, wish I did. I started out physics and math and switched to political science and philosophy. So I got to study some stuff that was fun. But medieval history sounds like that would be a delightful semester.
[00:05:22] Chris Davis: You used the perfect word — fun. I mean, I became a good student in high school. I wasn’t a good student before. In fact, recently I found my eighth grade final report card. I went to a school here in New York, and it was a pretty strict, wear-a-uniform sort of boys school. And the headmaster would review each report card before it went to the parents and then make a comment on the bottom. And the headmaster’s comment on my final elementary school report card was: “Yet another semester of squandered potential.”
[00:05:57] Barry Ritholtz: Not living up to his potential. That’s —
[00:06:00] Chris Davis: Oh my god, my —
[00:06:00] Barry Ritholtz: That’s a classic.
[00:06:01] Chris Davis: My children found that — my mother gave it to my children, which was a big problem. You can imagine. But anyway, so I thought I’ll just be in Scotland for a year. I picked subjects I would never study again. They were so fun. It was just —
[00:06:15] Barry Ritholtz: Especially in Scotland, studying medieval history.
[00:06:18] Chris Davis: A medieval university, where Hume had been a professor. I mean, it was just amazing. And of course it’s also a Presbyterian seminary — St. Mary’s, which is one of the colleges there. So I thought, well — and it wasn’t that I was a deeply faithful sort of person. I more thought of theology from the point of view of: people organize their lives around religion. People die for it. I should study this. But there was also a secondary reason I was interested, which is, if you look at communities that have a religious institution at their center — whether they’re rural, urban, suburban — almost all outcomes are better. Intact families, crime rates, graduation rates, all of these sorts of statistics tend to go better. So to me, I was lucky that I never had one of those childhoods where it was beaten into me or something. So it was more this curiosity about how it seemed to serve communities to have a shared value system. Anyway, I picked those subjects, I applied into this honors program, so I was able to get the master’s at the end, but there was no undergraduate degree along the way.
[00:07:34] Barry Ritholtz: And there was no going back to Cornell to become a vet. Although the ardor for that faded.
[00:07:40] Chris Davis: Although because I deferred my admission freshman year, I still get mailings from their alumni department because I matriculated, but then deferred. And I’d like to think the development department has nothing to do with them sending me these mailings. But I lived on a sheep farm in Scotland, and of course that was when I realized I was confusing loving animals with wanting to be a vet. And those are very different things.
[00:08:06] Barry Ritholtz: Yeah. Very much so. We used to foster dogs and get them adopted. And anytime I meet someone who’s like, “oh, I really don’t care for dogs,” it’s like —
[00:08:19] Chris Davis: Oh, that’s a big X. Done. We weren’t allowed to have dogs when I was a kid, but I grew up right in the city, on East 84th Street. But my parents, from the time I was in maybe third grade or so — probably eight or nine years old, something like that — they said I could walk dogs, I could be a dog walker, provided I didn’t cross any streets. So I’d put up a notice in the elevator in our building if anybody needed their dog walked. And then I would just walk the dogs around the block before school and after school. I can still remember the name of every dog I walked. Which is amazing. And I loved it. And of course it actually became seed capital, which is unexpected. But the reason was, I could probably charge 50 cents a walk back then. So it was nothing. But I got to be with dogs and I enjoyed it. It was like a paper route.
[00:09:11] Barry Ritholtz: And you’re running a small business. I had a paper route, and it was just so formative.
[00:09:16] Chris Davis: So formative. And this was like a paper route for city kids, because you couldn’t have a paper route in New York. But then an amazing thing happened. New York City, around — it’d have to be around 1977 or ’78 — passed the pooper scooper —
[00:09:32] Barry Ritholtz: Law, I remember.
[00:09:33] Chris Davis: And everything changed, because people had these dogs and nobody even knew what to do. Nobody had ever imagined cleaning up after a dog. There were all sorts of inventions —
[00:09:47] Barry Ritholtz: Just the bag. It’s not that complicated.
[00:09:49] Chris Davis: But people didn’t — people were so grossed out, they had to carry shovels with them.
[00:09:52] Barry Ritholtz: You change the diaper on the baby — this is just processed food. There’s no big deal.
[00:09:58] Chris Davis: Well, for me, it meant that my rates could go from 50 cents to $5, and people were glad to pay it. And instead of one or two dogs, I had four or five. It was real money. Because what it meant was I was suddenly making $50 a week in —
[00:10:16] Barry Ritholtz: As a 10-year-old. That’s good.
[00:10:17] Chris Davis: That’s good. And so you start thinking about — holy cow, I’m making $250 a month, I’m making thousands of dollars a year. And it was just fantastic. So I’ve loved dogs ever since.
[00:10:32] Barry Ritholtz: So let’s talk a little bit about the early days of the career. You start as an accountant at State Street Bank and ultimately end up as an unglamorous research analyst at Tanaka Capital Management. These are very much bottom rung on the Wall Street ladder. What’d you learn in those days?
[00:10:53] Chris Davis: Well, it wasn’t really my first job. My first job was, I became a pastoral assistant at the American Cathedral in Paris. So I moved from rural Scotland to Paris. Well, that was like landing in Oz. Honest to God, my eyes lit up. But again, in the same way that living on the sheep farm convinced me I was confusing loving animals with wanting to be a vet, working for the American Cathedral convinced me I was confusing loving people with wanting to be a priest or something. So I moved from there to Boston and I thought about teaching. I actually even applied to the CIA, because I was very interested in research and international affairs. I’d lived abroad five years then. And I thought it would be an amazing thing to be the greatest expert on, let’s say, Czechoslovakia — to learn the language, the history, the people, the economics, the business, the military, the topography. And so I didn’t wanna be a spy, but I wanted to be an analyst. And the CIA wisely turned me down, having briefly had a stint in the Workers’ Revolutionary Party. And —
[00:12:09] Barry Ritholtz: So they looked at your history and said, this guy’s —
[00:12:12] Chris Davis: They were like, this needs to ripen a little more.
[00:12:15] Barry Ritholtz: We don’t know if you have the ethical malleability that we’re looking for.
[00:12:19] Chris Davis: But so I started thinking about the summers that I had spent working with my dad and my grandfather, both of whom loved their jobs. They loved investing, they loved their career. And of course that was infectious. Even as kids, I thought the idea of investing was so interesting, because they didn’t highlight the math to begin with. They highlighted the stories, the people, the ideas. But I realized that even though I’d had this study of the idea of businesses being made up of people and ideas, I had no grounding in the rigor of it. And so what I like to say is, my father and grandfather let us live in a foreign country — like live in France for some time, hear French spoken, see this new culture — before we had to learn the grammar and read the textbooks and so on. So they got the order right for setting the hook of curiosity. But I knew enough to know that I couldn’t go into investing without a real grounding. And of course, a bank is perfect. I interviewed a lot of places. George Putnam himself turned me down for a job at Putnam. So I had a lot of rejects before. And State Street Bank had a program for entry level accountants. They had a wonderful training program. I had an operation center in Quincy, Massachusetts, and I would take the red line down there, and I could do my day job, but they would also pay for any schooling you wanted. They had something called the State Street Institute, and you could take courses in anything to do with economics, accounting, business. And — you took advantage of that? — I took advantage of that, although I will say I was fooled by one course. They had a course in their catalog that was called “The Rules of Rhythmic Touch.” Now I —
[00:14:28] Barry Ritholtz: Thought that sounds like massage. That —
[00:14:30] Chris Davis: Sounds pretty good, right? I circled that one in the little course catalog. It was only a two-night course, and I showed up, and it was how to use a 10-key punch tape calculator without looking at your hands. So when you’re summing up a column — a skill for an accountant. It’s the rules of rhythmic touch. And I would say, if you put one on this table now, I would bet you a large sum of money I could run a column of numbers faster than you.
[00:15:01] Barry Ritholtz: I’m gonna defer on that one.
[00:15:03] Chris Davis: So that’s how I got the grounding there. Graham Tanaka was somebody I had met during my summer jobs. He was a very talented analyst at Fiduciary Trust. He’d been at JP Morgan before, and we’d stayed in touch. And I learned that he was hanging out his own shingle and starting his own firm. He’s Japanese American, really a very driven, talented guy. And he said he wanted an apprentice — I would be his first hire and we would go from there. And that was a terrific experience.
[00:15:44] Barry Ritholtz: How long did you stay at Tanaka?
[00:15:46] Chris Davis: I stayed there about two years. Because what happened after the first stretch is, my grandfather, who I was close with — when I went to work for Tanaka, my grandfather opened up an account at Tanaka, because he had big investments in Japanese firms. He had a lot of admiration for Japanese culture and values. And he admired — this is —
[00:16:13] Barry Ritholtz: Late seventies, early eighties.
[00:16:15] Chris Davis: This was late eighties now. So we’re probably in ’89, something like ’88. But Graham was a growth investor primarily in the US, and he just happened to have Japanese heritage. So my grandfather opened an account, and as the time there progressed, my grandfather was worried about his health failing. He loved the business, and he wanted to die at his desk. And so he started asking if I would come in on the weekends and go through his accounts with him. And Graham, of course, was so respectful of that. So it was a very gradual transition out. There wasn’t an end date of my time with Graham so much as there was a start date of my time working with my dad and grandfather.
[00:17:04] Barry Ritholtz: So your father launched Davis Advisors in 1969. And your grandfather was still running his Davis investing shop in parallel. Did they ever end up merging? What happened when you decided, all right, it’s time?
[00:17:25] Chris Davis: Well, my father was my grandfather’s only son. And as often happens, they had a very complicated relationship, I’m sure. And so they never worked together. My father grew up with this famous name, because the numbers were right in the beginning. It was a hundred thousand dollars that he borrowed from his wife’s family. It was 800 million when he died. And it was 2.2 billion when his wife died. And she was the successor trustee. And then it all went to charity after that. He didn’t believe in inheritance, but it was in trust for her. And she lived to be 106. Although, I will tell you, I managed her account, and in 2008, of course, I had to go see her. And we had a lot of financial stocks, and we had a really bad mark at the bottom, probably down 40 or 50%. And I went to see her in Florida, and I said, grand, I just want you to know the businesses are sound, we took some body blows, but in the long run it’s going to be fine. And she said, “You idiot, I’m 98 years old. What do I care?” She said, “I don’t buy green bananas. And you’re telling me I’m down 50%? Go get back to work.” So she teased me, because of course she lived long enough to see it all come back. And she would always tease me about not buying green bananas, and my telling her she just had to have a little bit of a longer term perspective. But anyway, my grandfather built his firm, which was called Shelby Cullom Davis & Company. My father built his, which in the beginning was called Davis, Palmer and Biggs. And then the New York Venture Fund was a fund managed by Davis, Palmer and Biggs. And when I was working at Tanaka, I went to a meeting — it was Chubb Insurance, an analyst day sort of thing. And there weren’t that many analysts then, so it was held around a big boardroom table. And the CEO was Dean O’Hare. And I looked around the table, and both my father and grandfather were at the same meeting by chance. And I thought, this seems a little nuts. And so I spoke to them both, because I was very close with them both. One of the things my father was very clear on is, he wanted out at age 60. He said, hard stop. And here was my grandfather at the time, and he was probably in his late eighties, early eighties then. And he said, I wanna die at my desk. I mean, he was the one that called investing “the best game in town.” He would say, this is the best game in town. He loved his firm — and now his firm, most of it was his own capital. So in a way he was just managing his own, but he loved being in the flow. In a way, my grandfather loved being a great man. He had served as an ambassador. He was a co-founder of the Heritage Foundation, chairman for a long time, had very conservative political views — although that was a slightly different organization, very different 25 years ago than it is now. But he was a passionate Reagan Republican, sort of a Hoover Institute Republican. And his namesake, Shelby Cullom, was a Republican senator and governor under Lincoln. So it was in him deep. And so he loved the game, and it wouldn’t have occurred to him to stop working. My father loved investing, but he did not like the responsibility of the business. He didn’t like boards and clients and employees. That was not his thing. He was a much more — wonderful human being, but very different than my grandfather. So he wanted out before he turned 60, my grandfather wanted to die at his desk. And I thought, well, here I am. I don’t know what I am at the time, 26 or something. And I was like, here’s a great idea: why don’t we merge the companies, and then I’ll come in, and I’ll learn from both of you. And I was an S&L and a banking analyst then. And of course this was going right into the teeth of the S&L crisis. So it was an exciting time to invest. And then we’ll figure out a way for the three of us to do this.
[00:22:15] Barry Ritholtz: And how long did it take for that to all come together?
[00:22:18] Chris Davis: My father turned 60 in 1997, 1998, somewhere like that. And my grandfather died —
[00:22:29] Barry Ritholtz: He’s 86, 88 —
[00:22:32] Chris Davis: Something like that. Don’t quiz me. My grandfather died in, let’s see, 1994. So I’d have to say he was 86 or 87 when he died. And so, in a way, the timing all sort of overlapped beautifully. My grandfather worked almost to the end. My father helped coach me through that transition, and then he walked out the door in 1998. And that was that. He’s been an incredible mentor. He’s always available to talk, but as he said, I’m here to give you advice, I’m not giving any orders. And he didn’t sit on our boards. He just walked out, and just like my grandfather, started giving his money away. He created and oversees the largest international scholarship program on Earth.
[00:23:34] Barry Ritholtz: And I know there’s a foundation. I haven’t read the book, but there’s John Rothchild, who was, I think, Peter Lynch’s co-author. He’s a lovely man. “The Davis Dynasty.” How odd is it to have — hey, the story, the game isn’t over, and you are writing this book. How odd is it to be part of a book like that?
[00:24:02] Chris Davis: Well, first, it’s probably a book read by dozens of people nationwide. Because remember, it is the riveting biography of the Dean of Insurance Stocks. So that’s a pretty narrow pool. Not —
[00:24:15] Barry Ritholtz: Not a hot seller, you’re saying.
[00:24:17] Chris Davis: And I do think I experienced the writing of that book as sort of terrifying.
[00:24:28] Barry Ritholtz: A lot to live up to. It was a lot —
[00:24:30] Chris Davis: Your dad and your grandfather. It was a lot to live up to. Sure. And I will say it’s something that I’m just profoundly grateful to my dad for — well, really to both of them. But my dad is a very humble person. And in that book, it is 90% about my grandfather, and my dad was sort of what I would call a quiet doer. He loved investing, he loved research, but he was very low profile. And so his view was very much that, despite the graphic title, this is really a book about his father. And I think that’s true. In fact, at our firm, we made slimmed-down versions of that book and called it “The Davis Discipline” instead, which was much more consistent with our view of life. Because “dynasty” implies dynastic wealth, it implies inheritance —
[00:25:32] Barry Ritholtz: And there’s no inheritance.
[00:25:33] Chris Davis: There’s none of that. Which —
[00:25:35] Barry Ritholtz: I would imagine people would be surprised to learn.
[00:25:39] Chris Davis: Yeah. And it’s funny, it’s not something I’m quite as fanatic about.
[00:25:46] Barry Ritholtz: Well, Warren Buffett is a big believer in — hey, you should give your kids enough. I know I’m gonna mangle this — give them enough money so they could do anything, but not so much money that they can do nothing.
[00:26:00] Chris Davis: You didn’t mangle it. You stuck the landing. That is exactly the right philosophy. And I would say my father and grandfather sort of believed that. I mean, I have siblings that were helped out. And I had an aunt that my grandfather left some money to, to ensure that she and her kids would be all right and so on. So it wasn’t ruthless. But I think it came from a place of compassion — this view that there’s something dignified about earning your way in the world. And, well, look, Barry, if you look at the greater world, there’s a lot of fear. And fear can be a motivator. But God, is it a weight. People live one operation away from bankruptcy, a layoff away from being foreclosed on. If you as a parent can put a safety net there, if our society doesn’t — if you as a parent can do that for your kids, and my grandfather did that, and my father did that — there was, I don’t think we ever grew up with a feeling that there wasn’t a safety net. And so the freedom from that fear is a huge gift you give your kids. It was a huge gift that was given to me. And that’s what gives you the confidence to be able to try anything. Because you’re not worried — especially when you start having kids and you think, my God, I can’t take this risk, I can’t leave State Street. It never occurred to me that I couldn’t leave. But I think their view was, the fortunate thing was both my dad and my grandfather were very frugal. So we didn’t live in hardship, but we certainly didn’t go to Southampton and Palm Beach and Aspen. They had a very puritanical sense of that. We went out to Fire Island, and we had a house on stilts — I still have a house out there, and it’s in a swamp. It’s one storm away from the end, and there’s no cars. You take a little ferry out there. I always think of it as the anti-Hamptons.
[00:27:30] Barry Ritholtz: Oh, very much is.
[00:28:00] Chris Davis: And that’s what I love. My parents had a place in Maine, but it was not a fancy deal. Like a little cabin. Not Kennebunkport. Well, they had a nice house, but it wasn’t a Newport mansion. And they had it because — they used to call them, in the twenties, people like my grandparents were called “rustics.” Isn’t that a funny word? It was people that were wealthy, but would go and live very simply in the summer. It’s very much a Scandinavian ethic. And I think it developed especially in the late 19th century — there was a movement called the Chautauqua movement, that I’m still a supporter of, which basically said: as the bourgeoisie and wealth were being created, there was this one branch of wealth creators that decided they wanted to be English aristocrats. And they built mansions in Newport, and they had yachts. And then there was another branch that said, that’s not the American way. Rockefeller in many ways embodied a certain amount of that sense of stewardship. Some were even more extreme in terms of restraint. But the Chautauqua movement sprung up — they created these places, there’s still one left, it’s in upstate New York, where you would go with your family for self-improvement. And you would live simply, and there would be lectures. You would improve your mind, you’d improve your soul, you’d improve your health. And you’d bring your kids. There would be a sort of day camp for the kids, and there’d be church on Sunday. But it was a non-denominational church that was about service. And then there were lectures. It’s where Salman Rushdie was stabbed, if you remember, a couple of years ago. He was in Chautauqua, lecturing at this place that still exists, and people go for a week or two weeks every year. So the place I go on Fire Island was part of that Chautauqua movement. But the ethos of it, I think, is something my parents and grandparents really subscribed to.
[00:30:49] Barry Ritholtz: Really, really fascinating. Coming up, we continue our conversation with Chris Davis, chairman and portfolio manager at Davis Advisors, discussing how he developed his philosophy and investment process at Davis. I’m Barry Ritholtz, you’re listening to Masters in Business on Bloomberg Radio. — I am Barry Ritholtz, you’re listening to Masters in Business on Bloomberg Radio. Chris Davis is my extra special guest. He is the chairman of Davis Advisors. In 2005, he was named Morningstar’s Portfolio Manager of the Year. He helps to oversee $20 billion in client assets, a healthy chunk of which is he and his colleagues. We briefly mentioned Buffett earlier — later on I get to ask people who their mentors were, but I have to bring this to this part of the conversation. Warren Buffett and Charlie Munger were your mentors? Is this remotely true? It just seems insane.
[00:32:13] Chris Davis: Oh, it started in — I wanna say it was 1990. So —
[00:32:23] Barry Ritholtz: He’s already a well-known investing rockstar at that point.
[00:32:28] Chris Davis: The way it really started was with Charlie. I met Charlie long before Warren. The reason was, I was trying to sell a business. My grandfather, as I started going through his accounts and going in there on the weekends — he had a business called securities lending. And I don’t know how well you know that business —
[00:32:48] Barry Ritholtz: Anytime you’re gonna short a stock, you gotta borrow it from somebody, and that’s gonna cost you a little —
[00:32:52] Chris Davis: It’s gonna cost you a little margin. So my grandfather’s view was, he had a portfolio of appreciated stocks that he was never gonna sell. And he said, if somebody wants to short the stock and pay me to borrow it, fine. And the number one borrowed stock in those days was Berkshire — Berkshire Hathaway, of course, because you couldn’t borrow it anywhere, because everybody had the certificates. They weren’t —
[00:33:17] Barry Ritholtz: Literally had the paper certs.
[00:33:19] Chris Davis: Yeah. There was very little Berkshire that was in street name. It was in individual people, and therefore you couldn’t borrow it.
[00:33:25] Barry Ritholtz: It was locked away and safe.
[00:33:27] Chris Davis: So he had a big holding, and he had a broker dealer — Shelby Cullom Davis was a registered broker dealer. And so he could lend out the shares and make a couple hundred basis points a year extra return on top of the Berkshire return. So that’s how he started in the securities lending business. But gradually, the guy who was doing it for him and administering it said, well, we can also help — we’ve got all these people that wanna short all sorts of different securities, and we can act as what was called a broker finder. We’ll go out and find the securities for these people to short, and we’ll make a little spread as they go through. Well, this business grew and grew and grew, and soon there were 17 employees in the securities lending business. And it was a big operation. And my grandfather by then was probably in his eighties and was nervous, because as I went through the list of counterparties with him, there were firms we had never heard of. There was this one called LTCM. And I said, what is this LTCM? We’ve got, like, $500, $800 million lent out to them. “Oh, that’s Long-Term Capital Management.” So we talked about it. He said, yeah, I think we gotta get rid of this thing.
[00:34:58] Barry Ritholtz: So wait, did he hold on to that business, or did they spin it —
[00:35:01] Chris Davis: So I said to him, we gotta get rid of this thing. And he said, fine, well, see if you can find somebody to take it over, because we do have 17 employees, and they made their careers here. We’re not gonna fire everybody. And so we started calling around, and I thought, what characteristics do we need? We need a lot of excess capital, ideally an appreciated portfolio of securities, a sort of AAA type balance sheet, and somebody that can understand it. So I thought, well, Berkshire. So a wonderful friend in those days named Bob Lenzner, who was a reporter at Forbes —
[00:35:42] Barry Ritholtz: I recall — I had lunch with him at, I wanna say, the Harvard Club. I think he was an alum. Is that right?
[00:35:49] Chris Davis: Could have been his kids. Our kids were —
[00:35:51] Barry Ritholtz: I could be wrong, but —
[00:35:52] Chris Davis: Our kids were in the same elementary school. And I got to know him just watching basketball games with third graders or something. And he mentioned casually in conversation that he had met this brilliant guy, Charlie Munger. And I said, well, I know who Charlie is, but I’m dying to meet him. And so Bob arranged for us to have breakfast. Charlie was in New York, and I went down — it was at the Millennium Hotel down by the World Trade Center. And I sat down and introduced myself: Mr. Munger, pleased to meet you, I’m Chris Davis. And I said, I’m working with my grandfather at Shelby Cullom Davis & Company, and have I got a business for you. And I pitched our securities lending business, and Charlie put up his hand after about four minutes, and he said, “I have no intention of buying a business run by seven guys named Vinny and Barry.” It was the perfect description. I mean, we had Vinny, Tony, Mikey, Nicky. And so we did end up finding a buyer eventually, just not Berkshire. And it wasn’t really a buyer — we just did a sort of earn-out. We just wanted everybody to have jobs. And so they all got a job at a broker dealer.
[00:37:14] Barry Ritholtz: So beyond the pitch to Munger, how did your relationship —
[00:37:17] Chris Davis: Go? Well, so the pitch ended in four and a half minutes. And so I said, well, I’m sorry I wasted your time. And I got up to leave, and he said, where are you going? And I said, well — just don’t leave, I’m only just getting to know you. I’m not interested in your business, but tell me about you. And we got talking about a few things. But what really happened was, I started listening. And as you can tell, I like to talk — around Charlie, I just listened as much as I could. And we sat at that table till lunchtime. And Charlie said, I have to go to a lunch, but if you find yourself in Los Angeles, give me a call and I’ll make time for you. And so, of course, I started going to Los Angeles pretty regularly. And so that was a huge gift in my life. It was a gift professionally, but thank God it was a gift personally. He helped me through some hard times in my personal life. He was just a wonderful mentor in every dimension.
[00:38:23] Barry Ritholtz: So there are a lot of things that all of us have learned from Warren and Charlie — through the letters, through the annual meetings, through all sorts of stuff. I’m curious, what did you learn from Charlie that none of us can find in the public materials?
[00:38:46] Chris Davis: Well —
[00:38:48] Barry Ritholtz: Good question.
[00:38:49] Chris Davis: Right. I think, most deeply, I learned about integrity in the traditional sense, meaning wholeness. Charlie was a whole person. The alignment — what he thought, what he said, what he did — they were all the same thing. His sense of his own code of being was so disciplined, but was filled with this — his reputation as a curmudgeon may have been cultivated. I never saw it. He was a truth speaker, but he was also, in a very profound way, a very loving person — very cheerful, very committed, profoundly loyal. So I used to joke that if I did a Venn diagram of the things I admire about my father and the things I admire about Charlie Munger, there’s surprisingly little overlap. They were both frugal. But Charlie was an incredibly broad thinker. My father was just single-minded about investing. Charlie was curious about everything. Charlie was very committed to relationship, continuity, breadth. My father is very specialized, very narrow. My father is incredibly physically fit and remains, to this day, very vigorous. Charlie was willfully sedentary. My father is very nomadic. And Charlie went to the same island in Minnesota and lived in the same house his whole life. He was very much a creature of habit. And so they were very different that way.
[00:40:46] Barry Ritholtz: Just imagine if Charlie exercised, how much longer he could have lived.
[00:40:50] Chris Davis: I don’t know, 99 and three quarters is pretty good. That’s one of the things he said — he said, I’m not sure I see the alignment.
[00:40:58] Barry Ritholtz: So let’s talk a little bit about the returns and about the philosophy. Back of the envelope, I calculated Davis Advisors has been compounding shareholder wealth at greater than 10% annually since 1969. Does that sound remotely accurate?
[00:41:17] Chris Davis: That sounds right. We’re still ahead of the market from the beginning.
[00:41:21] Barry Ritholtz: Starting out in 1969 — early days of a horrific bear market. You have managed money through — well, you were in grad school, but your dad — during the ’87 crash, you’re involved during the dot-com implosion, during the financial crisis, during the pandemic. I mean, you have seen lots and lots of cycles across all of these decades and all of these different environments. What key investment principles stand out as absolutely core, non-negotiable — this is the heart of what we do?
[00:41:58] Chris Davis: Well, the entire investment process boils down to these two questions: what sort of businesses do we wanna own, and how much do we pay for them? I should say, before I go on, that the interplay between those two is part of the nuance of investing. You may own a slightly lower quality business because the price is so extreme. But the characteristics that we look for in every business have to do with durability. Because we buy businesses thinking our goal is to own them forever. Our goal is for the return to be driven by the earnings yield on the business over time, not by some change in the valuation and finding an exit strategy. And so those characteristics are exactly the characteristics you would look for if I said, you’ve gotta put a business away for your kids or your grandkids. So the nature of the business, the returns on capital, the competitive moats, the nature of the balance sheet, the risk — and very importantly, the character of the people running it. We spend a lot of time on management evaluation. In this land of AI — I just came back from the Markel annual meeting — character will not show up efficiently, I don’t think, in the AI world. And boy does it matter when you think about navigating an unpredictable future — just that ability to be resilient, to adapt, but always to be investing the money as if it’s your own. And there are CEOs that do that. So that’s the nature of the business. And then the valuation discipline is the securities analysis part of what we do. If the first part is business research, then this is the securities analysis. It’s adjusting the income statement — that’s where the accounting training comes in. It’s understanding the incremental returns on capital, and it’s adjusting the balance sheet, every account on the balance sheet, because of course GAAP earnings is a convention, but it may or may not reflect reality. So you put those two things together and we build an IRR, an internal rate of return forecast. We work on this concept of owner earnings in each business. And then we focus on the quality and the durability of the business.
[00:44:26] Barry Ritholtz: I can’t help but point out that you talk about buying or owning businesses, not buying stocks. That seems to be a very fundamental distinction compared to most fund managers.
[00:44:42] Chris Davis: It’s so profoundly important. We view ourselves as business owners. We view the management as our partners in most cases. We view the signs of short-termism as dangerous. It’s one of the reasons we feel that the activist movement has completely lost the thread and should be greatly resisted — whereas it was very useful when it started. We could talk about that later. But absolutely, we’re owning businesses, and we’re trying to own businesses that are compounding machines. I watched what it meant for my grandfather to own businesses for 20, 30, 40 years. I look at our own portfolio. I look at companies like American Express or Wells Fargo or JP Morgan in the financial world. I look more recently at companies like Amazon, Texas Instruments. You look at what a business can compound over 20, 30 years. I mentioned Markel — when I first met the now-CEO of Markel, we met in Omaha at the Orpheum Theater at a Berkshire annual meeting in, like, 1990. The stock was at like 19 or 20, and it’s at 2000 now. And by the way, they have an activist idiotically saying they should split up the company. The company’s doing fine. It’s a company that is being built to last. And the idea of getting a quick sugar fix — because you can sell some part to private equity at a premium — that doesn’t serve capitalism, and it really won’t serve the long-term shareholders of that business.
[00:46:17] Barry Ritholtz: You mentioned a number of financials in that list. I’m kind of curious, because financials have had some pretty good years. They’ve had some pretty rough years. Obviously the financial crisis was devastating. Although my pet theory about JP Morgan Chase is, when they had their subprime problem, it predated everybody by five years. And there was still a bid when they had to get out. So they got a little lucky. And they happen to have a particularly talented CEO. But this concentration of financials — I’m curious what led to it. And I’m curious about the relationship between what some people describe as high conviction investing and concentration in a particular sector like financials.
[00:47:11] Chris Davis: Well, I think high conviction investing is exactly the right description. And if we end up with a focus on a particular sector, it’s not necessarily because of a view of the sector — it’s because of the individual companies. Financials is one of the most misleading sectors there is. Because to me, what creates correlation risk is when businesses are tied to the same macroeconomic variables. Financials is a massively broad category. There are financials that have risk if the wind blows in certain parts of the world; there are financials that have risk if interest rates change; financials that have risks that have to do with recession, some to capital markets — they’re all different. And I’ll give you a really powerful example. I started our financial fund, I don’t know, in something like 1990. That fund from then to today has outperformed the S&P 500. And it has outperformed the S&P 500 quite meaningfully when you compound it out. At the time we started it, I didn’t even know there was a financials index. But it was founded with this belief — and my grandfather of course specialized in financials, I started as a financials analyst — he had a phrase that he loved, which is, in financials you can find growth stocks in disguise. And he said the reason is that you have industries that are huge, where companies can grow for a long period of time by simply growing. Just this year, Progressive finally passed State Farm. Progressive has probably compounded in the high teens for 30 years. And it just became maybe the largest insurance company in personal auto. So these massive industries where you can compound for a long time without outgrowing your sector. Second advantage: the business model doesn’t really go obsolete. Making a spread on money is about the oldest business there is — maybe the second oldest.
[00:49:14] Barry Ritholtz: Thank you.
[00:49:16] Chris Davis: What else? It’s an industry where you have huge dispersion of outcomes, but relatively homogenous valuations. So — I mentioned Progressive. You have companies that have grown. Capital One — you look at Capital One’s growth record from 1987 to today, and yet it’s trading at nine or 10 times earnings, because it’s a financial. I’m like, it looks like a growth stock to me. It’s still run by the founder. It’s a fintech company, it’s a data science company. It’s in the top 10 of all holders of AI and machine learning patents. But it trades at 9.8 times earnings and 1.2 times book value, with a mid-teens return on equity. It seems just nuts to me, but whatever, we love it. So that’s the idea of growth stocks in disguise. And the last advantage of financials is that culture is a defining and sustainable difference.
[00:50:12] Barry Ritholtz: This is a theme I have heard from so many really savvy executors — CEOs as well as investors. How do you, as an investor, wrap your arms around culture? It feels like you almost have to be in it to see it. Is it something that, as an outside investor, you get access to? How do you identify quality culture?
[00:50:39] Chris Davis: Well, it’s a perfect question, but I’ll give you the punchline for the differentiation. Last year, our financial fund, which is 95% in large cap financials, outperformed the S&P financials index and the XLF, the largest financials ETF, by 1200 basis points.
[00:51:01] Barry Ritholtz: Touché, right?
[00:51:02] Chris Davis: It was a great year for us. But the point is, they’re in large cap financials, we’re in large cap financials. How can you get such dispersion? But the same is —
[00:51:13] Barry Ritholtz: So because they own everything, and you own the better companies.
[00:51:16] Chris Davis: Well, they’re very concentrated — they’re concentrated in the mega cap banks by and large, and Visa and MasterCard. But we’re fairly concentrated too. We only have 20, 25 names. And 20 or 25 names are probably 80% of the index.
[00:51:33] Barry Ritholtz: Does the gap come from the stock selection or the screening out of what you don’t like?
[00:51:40] Chris Davis: Well, it really goes back to the culture question. So to bring it full circle — within financials, we are looking for the companies that we feel can be compounding machines. And we’re looking for the companies where their culture creates a durable advantage. The reason culture can create an advantage in financials is because, in most cases, your cost of goods sold is an estimate. And if you have an aggressive management, they can use accounting to front-load earnings that you’ll pay the piper for — three, five, excuse me, 10 years from now. So they can look good for a long time. Whereas if you do the opposite, if you have a good culture, you’re understating the near term, but you’re building cushion for the long term. And so when the times go rough, when the tide goes out and you see who’s swimming without a bathing suit, that’s where the culture really matters. Now, you mentioned all the crises that I’ve seen over my career. I’ve seen a lot of these management teams and these companies go through crises, and you see who’s wearing a bathing suit. So we just went through an interest rate crisis, right?
[00:52:55] Barry Ritholtz: 2022, 500 basis points.
[00:52:57] Chris Davis: And we used to get questions from clients all the time: why don’t you own First Republic? In October, my colleague Pierce Crosby wrote a research report — just internal, just for himself — saying he’s just startled by the amount of risk Silicon Valley and First Republic are taking. He said it’s sort of amazing. Look at the duration on their assets. They’re assuming their liabilities, their deposits, are gonna be with them for 8, 10, 12 years, and that they’re uncorrelated. So we used to get questions, why don’t you own them? They’ve had such great growth records. And our view was, well, it’s been a mistake not to own them in the sense that they’ve outperformed, but we are not gonna own the companies that are optimized to the upcycle. And that’s a different culture. They had a growth culture, but it blew them up. And so we instead looked at companies like — well, JP Morgan was an outstanding example. Wells Fargo, Capital One — where they didn’t reach for the easy money of taking that extra risk on the interest rates. They could have. Jamie Dimon stood up at an analyst meeting and said, I could add a billion or $2 billion to my profits with a phone call, and I’m not gonna do it —
[00:54:13] Barry Ritholtz: Because of the risk.
[00:54:14] Chris Davis: Because of the risk. He said, I could put out my money for five, seven years, and he didn’t do it. So you could see that. So some of it’s quantitative. You identify culture by accounting choices. Look at how accident year reserves develop at insurance companies. Look at how credit losses develop. Look at the duration in the asset portfolio of a bank. Look at the mark-to-market risks that an investment bank is taking, and so on. So you can identify culture quantitatively in financials — that’s a big advantage. But then the next part is qualitative. And there, I think Warren put it best: in a complex financial, the CEO has to be the chief risk officer. You can have somebody with that title, but if the CEO doesn’t understand the nature and the complexity of the risks, they should not be the CEO of a financial company.
[00:55:03] Barry Ritholtz: So not only am I hearing a lot of Warren’s voice in things you say, I’m also hearing a lot of similar companies — Coca-Cola, Amex, Wells Fargo. Coincidence?
[00:55:18] Chris Davis: Well, it would be strange if we ended up different. Of course, I always like it when we owned it first. So for example, we were, I think, the largest shareholder of General Re before Berkshire bought it. And by the way, our research was not so good on that one.
[00:56:00] Barry Ritholtz: Oh, really? Not his favorite pick, over the —
[00:56:01] Chris Davis: As you saw subsequently, Gen Re did not perform very well for many years. And I think Warren would say — I think he has said publicly, I won’t put words in his mouth — I’ll put it this way: well, I’ll tell you what. Charlie came to visit us, and we have a wall of mistakes where we frame the stock certificate —
[00:56:08] Barry Ritholtz: A good temple of — yes, is that what that is?
[00:56:10] Chris Davis: And Charlie was looking through it, and he said, where the hell’s your Gen Re? And I said, Gen Re wasn’t a mistake. We got Berkshire stock for Gen Re. That was fantastic.
[00:56:21] Barry Ritholtz: Did you have anything to do with the transaction? Or they just went out and bought it? And you happen to be a big holder?
[00:56:26] Chris Davis: No. We were big GEICO shareholders, so — no, it was, and we overlapped in Amex, but no, I mean, we’re much more diversified. We never owned Apple. There’s huge differences. I mean, starting with the fact that Warren has outperformed all investment advisors for 50 years. But you’d be crazy not to study when Warren owns something, or to study Berkshire itself.
[00:57:00] Barry Ritholtz: That makes a lot of sense. There’s another distinction between the two of you. You say that you are neither deep value nor go-go growth. So what does that leave you? Growth at a reasonable price, somewhere, something adjacent —
[00:57:20] Chris Davis: We love growth at a reasonable price. Because what are the other —
[00:57:23] Barry Ritholtz: Who doesn’t want growth —
[00:57:23] Chris Davis: Growth at unreasonable prices, that turns —
[00:57:26] Barry Ritholtz: Out, or unreasonable —
[00:57:27] Chris Davis: Non-growth at silly prices.
[00:57:28] Barry Ritholtz: Yeah. Growth at a —
[00:57:29] Chris Davis: Reasonable price. I think what we would say is, it’s obvious to us that growth is a component of value, right?
[00:57:36] Barry Ritholtz: Growth is a component of value. So take —
[00:57:39] Chris Davis: A company that grows profitably is more valuable than one that doesn’t grow, right? Think of the business. A business that grows profitably is more valuable. A business that can redeploy its capital at high incremental rates of return is way more valuable than one that can’t, or one that’s capital intensive and shrinking and so on. So growth is a component of value. And the difference between us and a typical growth manager is, we tend to believe more deeply, based on experience, that high rates of growth attract competition. Competition lowers returns. And so we believe in capitalism, and we believe that growth is hard, and maintaining growth is hard. So we tend to be more skeptical than the average go-go growth investor, but we tend to be more open to paying a fair price for a company that can grow profitably than the typical value investor. So much of our research is about the durability of the growth, the competitive advantages that a business has. So our portfolio currently trades in aggregate — if you took all of our companies — at something like 14 times earnings. The market as a whole is at 20 or 21. The value index is at 19 times. And yet we have a portfolio of companies that has grown their earnings over the last five years something like 14% a year. So we feel we have what my dad used to call the value investor’s dream.
[00:59:21] Barry Ritholtz: Low cost, fast growth.
[00:59:22] Chris Davis: Low valuation, and durable, sustainable growth.
[00:59:26] Barry Ritholtz: Really, really fascinating. So before we jump too deep into the current state of affairs, I have to ask you about a quote of yours that I really like: “As human beings, we don’t welcome fear and panic, but as investors, we welcome the bargain prices that those emotions tend to produce.” Discuss.
[00:59:50] Chris Davis: Well, obviously the market is, of course, a voting machine in the short term — it reflects psychology — and in the long term, a weighing machine. And that —
[01:00:01] Barry Ritholtz: Hold on. That’s a great quote. I’m gonna write that down.
[01:00:06] Chris Davis: And so psychology helps shape prices. And what we find is that there’s always risk. What varies is people’s perception of it. And I think today we’re in a time when people are underestimating risks, and therefore prices are generally high. It’s one of the reasons I find it so amazing that our portfolio is trading at 14 times earnings. The market scares me at 21, 22 times earnings, but our portfolio feels like it’s below long-time averages. So I feel this disconnect where I’m simultaneously pessimistic about the market because of the euphoria — there’s no skepticism, there’s no fear in prices — and at the same time, feel very comfortable with our portfolio.
[01:01:03] Barry Ritholtz: So let me push back a little bit, just to hear your reaction. We keep hearing artificial intelligence and Nvidia and all the semis being compared to the dot-com era. And every time I hear that — aside from the fact that many of those companies, forget profits, didn’t even have revenues, and this is a giant-revenue, giant-profit era. Markets today are trading at 20, 22 times. We finished the nineties at 32 times. Theoretically, there’s a ton of upside from here, especially if earnings growth continues. Is it the contrarian take that, hey, this market could go another five or 10 years before things get really stupid?
[01:01:54] Chris Davis: Well, what I’d say is, as I look out there, I see two types of end investor. One is this sort of belief that we’re on a plateau of permanent prosperity. This time is different —
[01:02:07] Barry Ritholtz: A permanently high plateau. Yes.
[01:02:10] Chris Davis: Yes. And they are all in on the momentum trade, which has worked so well. Now, I believe that momentum investing, even though it’s worked so well, to me is crazy, because it’s not common sense.
[01:02:30] Barry Ritholtz: It works until it stops.
[01:02:32] Chris Davis: It works until it stops. And when it stops, you really feel foolish that the fact that you were paying an ever higher price, you thought, was a good thing.
[01:02:40] Barry Ritholtz: Why does price matter? If it’s going up, buy it; if it stops going up, sell.
[01:02:45] Chris Davis: Exactly. And so that’s one group of investors, and they’re taking a lot of risk, because they tend to be in the highest multiple parts of the market, and the parts of the market where there is the most presumption that high margins and high growth rates are sustainable — and the data is over. I think fewer than 3% of companies can maintain a growth rate in revenue of 20% for more than a decade. Like, fewer than 3%.
[01:03:17] Barry Ritholtz: I mean, that’s a huge growth rate for a long —
[01:03:19] Chris Davis: Period of time. And there are a lot of valuations today that have that baked in. You get these analyst reports, and there’s even fewer — less than, I think it’s five-tenths of 1%, but you could check me, it might be three-tenths — but it’s a fraction of a percent that are able to maintain 50% margins for more than a decade. Those are very high margins. But again, they’re in a lot of models right now. So I think there’s risk on that. Now, the other side of people taking risk are the ones that are huddled in cash saying it’s the end of the world. Everything that’s happening — AI’s gonna swallow our children, the world is falling apart, everything that’s happening in Washington — and they’re sitting in cash, which —
[01:04:05] Barry Ritholtz: Is risky as well.
[01:04:06] Chris Davis: Really risky. I mean, just since 2000, the purchasing power of a dollar is down something like 55%. In my grandmother’s lifetime, I think the purchasing power of a dollar fell like 94, 95%.
[01:04:21] Barry Ritholtz: They’re taking — what is it, $7 over 90 years.
[01:04:24] Chris Davis: Right. So I think these huge crowded sides of the market — the people sitting in cash, and the people assuming the extreme growth — are both taking a lot of risk.
[01:04:34] Barry Ritholtz: That’s a terrible barbell you’ve just described. The extremes are either inflation’s gonna kill them, or speculation is gonna get them.
[01:04:42] Chris Davis: Yeah. And where we land in the middle is with this idea that there are durable, overlooked businesses right now. As I say, we have a portfolio of 25 companies trading at an aggregate of 14 and a half times. By the way, that includes owning some Amazon, it includes owning some Google, but also owning some Capital One, owning some Tyson Foods, some MGM —
[01:05:09] Barry Ritholtz: Which portfolio is this?
[01:05:10] Chris Davis: This is our flagship portfolio. So this is the Davis New York Venture Fund. But really, the way people are finding us increasingly — 10 years ago, Barry, we launched our ETFs. We were alone for nine years. We are the only true active manager running a value ETF. I think our value ETF, which is called DUSA, is the number one active-for-passive value ETF for three years. But nobody really cares. That’s all right.
[01:05:40] Barry Ritholtz: Although the past year or two we have seen a lot of flows — hey, most of the money is going to the passive indexes, but the third or quarter that’s not going there is going active.
[01:05:54] Chris Davis: Exactly. So they’re finding our way. And I’m proud that we are so early. I don’t mind being early. But what I’d say is, the optimistic case you lay out — I think the three elements of change in the civilization that are increasing risk today are: we certainly have a change in the monetary world order. You and I had spent our entire careers in a world of falling interest rates approaching zero, falling inflation, all of the things that fed into that — low wage pressure, de-unionization, globalization. All of that has stunningly and permanently, I believe, come to an end. We are in a state where we are printing so much money relative to what the interest rates are. I think there’s a lot of risk, but certainly we’re not going back to zero, probably, ever again. That was a once-in-history phenomenon, free money. The second big change is geopolitics. There’s no question that for our entire career, we were in a world of globalization. We were in a world of functional peace. We were in a world of stability. We were in a world where the wall fell and markets doubled. All of those things have also absolutely come to an end, and that increases risk. So those first two things increase risk. And what’s the third? AI. There’s this massive technological change that increases risk — it increases the risk of all different types of businesses, and it increases opportunity, but it increases risk. So when you have three fundamental shifts going on, all of which have unpredictable outcomes, and yet you have valuations — not at all-time highs, but elevated — certainly relative to the direction of travel of interest rates over time, then I’d say, I like where we are: with our 14 yield, solid growth rate in the business, durability, AI as a lens, globalization as a lens, inflation as a lens. Put those things together, we sit with 25 companies with these great characteristics, in our ETF or in our funds or SMA, or however the advisor finds us.
[01:08:13] Barry Ritholtz: Really interesting. Coming up, we continue our conversation with Chris Davis, portfolio manager at Davis Advisors, discussing the current market environment. I’m Barry Ritholtz, you are listening to Masters in Business on Bloomberg Radio. — I am Barry Ritholtz, you’re listening to Masters in Business on Bloomberg Radio. Chris Davis is my extra special guest. He is the chairman and portfolio manager of Davis Advisors. So I’m glad you mentioned artificial intelligence as one of those three big shifts that are taking place. How do you, as an analyst and a fund manager, separate what is a transformative technology — and potentially a transformative source of value creation — from just the rampant speculative excess that rears its head on a regular basis?
[01:09:27] Chris Davis: Well, what we’re seeing is Amara’s Law in full bloom. And Amara’s Law states that transformative technologies are overestimated in the short term and underestimated in the long term. We’re in the overestimation, hype phase. And what I would say we do is, we recognize it as a transformative technology — that is absolutely a baseline assumption. Our other baseline assumption at this stage is that we don’t see it as winner-take-all. So we see it a little bit more like railroads, or the telephone, or electricity, where the users maybe end up making more money than the builders. And so we’ll talk about hedging that bet, but we do think it increases the risk environment. It increases the risk of obsolescence in certain businesses. So we start with this idea that it’s real. Then what we do is, as we do our research, we found every company we look at falls into one of five categories. There’s the emerging winners — that’s where all the heat is, all the speculation. And there’s real danger. You and I started very early talking about Cisco. Remember, the three obvious winners of the internet were AOL, Yahoo, and Cisco. Two don’t exist, and one’s a fraction of what it was. And so picking the emerging winners in the early hype phase is risky. But we’d say, if you wanna look in that space, focus on the businesses that have a real shot at being emerging winners but do not have to constantly raise capital — have proven business models, proven leaders, and businesses that are accretive by the investments that they’re making, so that they earn more money by making these investments, even if it takes longer than —
[01:11:11] Barry Ritholtz: So not the hyperscalers.
[01:11:13] Chris Davis: Not the hyperscalers. So for us, that’s where we’ve sat with a little bit of Google. We still have Meta and Amazon. We’ve trimmed the first two because they were huge holdings for us — we bought them when they were so out of favor. But if you’re gonna play in the emerging winners — that’s the first. The second category is, okay, who are the enablers of this technology? That’s the picks-and-shovels mindset. They’re the ones that are gonna benefit from the spending wave, but will not be penalized if the return on the spending is very low.
[01:11:45] Barry Ritholtz: Semiconductors.
[01:11:46] Chris Davis: So yeah, I would say there, for us, it’s been analog chips — Texas Instruments. It’s been semiconductor capital equipment. We are a big shareholder of Samsung, which did nothing, nothing, nothing, and then exploded fourfold in a year.
[01:12:00] Barry Ritholtz: They’re driving the entire inquiry of returns.
[01:12:05] Chris Davis: It’s amazing. So, but again, we viewed those as enablers. But in enablers, I would also include things like natural gas and copper. They are big, big beneficiaries. So we own Coterra, which is now Devon, ConocoPhillips, Tourmaline — our focus is on natural gas and copper. So those are the enablers. Then the users, who are gonna be the beneficiaries. Well, you’ve gotta think — financials is a great example. Anything where you have a big amount of laptop class workers. It’s what Elon called the laptop class. It’s likely that AI will do to the laptop class what globalization did to blue collar workers.
[01:12:49] Barry Ritholtz: Meaning very much hollow it out.
[01:12:51] Chris Davis: Hollow it out. The best will still have work, the best will be more valuable, they’ll be more productive. But there’s gonna be a lot of unemployed second-year lawyers and things like that. And so healthcare — claims processing, compliance functions, things like that. So there we focus on the banks that have the scale, the tech stack, and the management to do it. So Capital One, number one. I’d keep Wells Fargo on that list. I think US Bank crosses that chasm. So those, but also —
[01:13:25] Barry Ritholtz: JP Morgan Chase is part of the group.
[01:13:26] Chris Davis: JP Morgan Chase has done such a great job, but the valuation has gotten —
[01:13:30] Barry Ritholtz: So high. And how do you put the Amexes and the MasterCard, Visas of the world?
[01:13:33] Chris Davis: We don’t own Visa or MasterCard. And we have a very small position in Amex. And essentially the reason is, we just think that is an area where there is a big spread. They may be on the other side, but boy, there are a lot of people — especially merchants — that would like to figure out some way to bypass that.
[01:13:52] Barry Ritholtz: That 3% is a big number.
[01:13:55] Chris Davis: A big number.
[01:13:56] Barry Ritholtz: This is the first time in my lifetime I have started noticing cash and credit card prices on restaurant menus. This was never a thing before.
[01:14:06] Chris Davis: No, and you really see it when you travel. And again, those are so highly valued — at 30 times earnings for Visa. It just seems to us there’s too much risk there. I’ll own the Capital One at nine times. So those are the users. Then the next category is what Jeff Bezos — we call them the indifferent, or the protected. Jeff Bezos, when he said, people ask me what’s gonna change; they all ask me — what’s not gonna change? That’s a very important question. So there, Tyson Foods. Chicken’s not gonna change, right?
[01:14:38] Barry Ritholtz: And wait — chickens aren’t gonna lose their jobs to AI.
[01:14:40] Chris Davis: Chickens are in good shape. But here you have to be careful, because you don’t have high growth rates, so you don’t wanna overpay, and they’re cyclical businesses, so you don’t wanna pay at the top of a cycle. So Tyson, I think, has a low multiple on cyclically depressed earnings. What else? MGM — I think owning 50% of the Las Vegas strip, 20 or 30% of Macau, and a hundred percent of the only legal gambling in Japan, in Osaka, when it opens in 2029 — that’s very valuable. I don’t think that gets disintermediated by AI. So call those the protected, the what-won’t-change. The last category is the Walking Dead. And there, you mentioned Visa and MasterCard — I don’t know, title insurance, I don’t know. There are all sorts of things where it is really amazing how much money is made for something that you should be able to get around. We’ve seen some of the pressure in the SaaS companies. And so that’s the lens that we look at for all of our companies. We put them through this lens of this fast-changing world. We wanna stay nimble. And Barry, one of the things I think is really important is, I think this is a world where taking liquidity risk is really dangerous, because there’s so much flux. So I think that’s some of the pressure we’re seeing in private equity, private credit. People are saying, why did I lock up my money for —
[01:15:59] Barry Ritholtz: Seven years?
[01:16:00] Chris Davis: For seven years? If you’re lucky. It’s gonna be longer, I think. So I think the wheels are coming off that. And indexes — remember Kodak? You ready for a number? 10 million digital cameras had been sold when Kodak was still in the top third of the S&P 500. That’s amazing.
[01:16:18] Barry Ritholtz: Isn’t —
[01:16:18] Chris Davis: That amazing? It’s like, 10 million people knew they would never buy a roll of film again. It was dead. And so the advantage — when Japan peaked in the eighties, every active manager in international investing who was underweight Japan outperformed for the next 10 years just by saying, oh, Japan’s going down, I’m out. And so the index got killed, because it had to sort of go down with the ship. So I think nimbleness, liquidity, flexibility, and this sort of research lens are gonna actually become more valuable. So I think we could see some of the time-tested things that worked in the last decade — dividend darlings, momentum, private equity, indexing — I think all of those things could be challenged given this fast-changing world.
[01:17:05] Barry Ritholtz: I’m glad you brought up a few things there, because when you look at some of the fallout from low-cost indexing — the Vanguard effect, BlackRock, whatever you wanna call it — they have all put the fund industry under a lot of pressure. There’s fee compression. There’s been a move to not just indexing, but to ETFs generally. So when your own business — you’re looking at businesses with moats, businesses with defendable processes, and a good culture. You are running a business with a lot of employees and a lot of clients. How do you respond to this external pressure? How do you manage, not the investments, but the business of investing, when it’s just becoming more competitive and more challenging than ever?
[01:17:58] Chris Davis: Well, we’re lucky, because, one, we charge low fees. If you charge two and 20 —
[01:18:09] Barry Ritholtz: If only I could.
[01:18:10] Chris Davis: I know, I know —
[01:18:11] Barry Ritholtz: I mean, intellectually, I have a problem with that. But part of me is like, nice work if you can get it.
[01:18:18] Chris Davis: I know. I spoke to a guy that charged two and 20 years ago, and I said, why two and 20? What’s the business model? He said, I can’t get three and 30. So that’s hilarious. We’ve always just run with this idea — Charlie once said to me, Charlie Munger: what’s wrong with giving people a bargain?
[01:18:36] Barry Ritholtz: Or at least a fair price.
[01:18:37] Chris Davis: And it makes it easier for you to outperform over time. So, one, I feel — two, we’re a frugal place. I work with seven colleagues. We’ve been together on average 20 years, 25 years average experience. And we would do this with no outside money, because of the inside money. So we run it with what I would call a real family office mindset, with our own money alongside, in a very low cost operation. And the last thing, Barry, is, we are in a lasting game. What I can tell you is, if 90% of the market was passive, the remaining 10% of active would make a fortune.
[01:19:19] Barry Ritholtz: I’ve said that exact thing. If indexing is taking over, doesn’t that create all sorts of inefficiencies for a savvy active manager?
[01:19:29] Chris Davis: Absolutely. And I don’t think it’s a coincidence that we started outperforming. I mean, we’ve outperformed the value index for all periods, but we lagged the S&P in this momentum market — and that changed about four years ago, and nobody’s talking about it.
[01:19:45] Barry Ritholtz: Coming out of the pandemic.
[01:19:46] Chris Davis: Basically, yeah, we’ve been grinding an advantage over the S&P for the last three, three and a half years. And this is with less than half the weight in technology that the index has. So we are underweight the hottest sector, but yet we’ve been grinding out an advantage for three or four years. Why? And I think it’s just because there’s way more money indexed than is thought of. There’s way more money in momentum than is thought, and when I say there’s more in indexing, it’s because there’s so much closet indexing. So I don’t think it’s impossible that we’re already at 70% functionally indexed. Really? So that will really help us. So we’re in a lasting game, we’ve got the balance sheet to do it, and we’re gonna be on the other side.
[01:20:33] Barry Ritholtz: That’s really fascinating. You mentioned you guys would just do this without outside money, but let’s put some flesh on those bones. Davis Advisors, the company, the family foundation, you and your partners, the employees — you collectively have more than a few billion dollars in the funds. So you are not only aligned with your clients. I almost feel like “skin in the game” has become a cliche. But the question I want to ask is, being invested that way alongside the clients, how does that affect your decision-making process? And what does that do when you are going through one of those periodic crises that we’ve seen so much over the past 25 years — dot-coms, GFC, pandemic? How does having skin in the game affect your decisions?
[01:21:29] Chris Davis: Well, I think it makes us much more rational and much more long term. I once had a colleague that we had to part ways with, because he said that he was so unimpressed by things like momentum, even if they worked. He said, look, if I had a blind monkey in my office pointing to the newspaper every day at a stock, and every single day whatever stock it pointed to went up — he said, you could watch that monkey for six months, you could watch it for a year, you could watch it for two years, and you still wouldn’t invest with the monkey. And I said, of course I wouldn’t. It’s a blind monkey. This is my money, this is my client’s life savings. You think I’m gonna say, oh, the blind monkey pointed at the paper? So when we are in an environment where the market is on a tear and people are saying, oh, you’re dinosaurs — we’re able to hold our discipline. In 2007, our financial fund had lagged most other financial funds, because we were underweighted in real estate, and we didn’t own any Fannie, we didn’t own any Freddie, we didn’t own any Countrywide, we didn’t own Bear Stearns, we didn’t own WaMu. And people would say, what, you’re like a dinosaur? And it’s because it’s our money. And so we don’t mind if it takes a while for that weighing machine to work. We look at every year — did the companies get stronger? Did they get heavier, did they get more valuable? And if so, we view our research as working. And sometimes the stocks don’t go up, sometimes they do, but we’re focused on the businesses.
[01:23:07] Barry Ritholtz: On the process, and not just what’s going up that day. The blind monkey reminds me of a fascinating quote from Ken French of Dartmouth. Michael Mauboussin has written a lot about the separation between skill and luck. And French, of Fama-French, had said, it’s very challenging to tell the difference between skill and luck with fund managers. And to really have a data set where you can make an informed decision takes about 20 years. So if you’re gonna wait for that blind monkey, you gotta wait 20 years. And you’re starting out with a blind monkey. I think we have to assume that it’s luck and not skill.
[01:23:51] Chris Davis: Well, and look, Barry, your clients come to you — you could say it’s because of your performance, and performance matters. But —
[01:24:00] Barry Ritholtz: I don’t think my clients come to —
[01:24:01] Chris Davis: Well, what I was gonna say is, what really matters is trust, right? And conviction. And so one of the things — we have clients that say, hey, you went through a period of underperformance, you were out of sync with the market, we weren’t worried. You were building wealth for us every year. We don’t care, oh, this index went here, or the index went there. We’re with you because we have conviction that you’ll get us to our retirement, you’ll get us to our kids’ college funding, you’ll help us achieve our goals. And maintaining that is something you do with your own money. You don’t chase the hot dot. But if you are an investment manager and all of your value comes from the assets under management, you have to chase the hot dot. So trust is an undervalued part of the promise and the value that an investment manager can give to their clients. If your clients trust you, they will get a better return even if you underperform an index — if their trust is able to keep them invested through the ups and downs.
[01:25:02] Barry Ritholtz: Really, really fascinating. All right, last question before I get to my favorites that I ask all my guests. What do you think investors are not generally talking about, thinking about, but perhaps should be? Could be a topic, a geography, an asset class. What important issue is kind of getting overlooked these days?
[01:25:27] Chris Davis: Well, I think these three big transitions in the economy are going to turn a lot of what’s become conventional wisdom about investing upside down for a while. So I think — what hasn’t worked? Active management hasn’t worked. Value, price discipline hasn’t worked. What has worked? Oh, alternatives, illiquidity, that’s been great. What has worked that I think is dangerous? Dividend aristocrats.
[01:26:07] Barry Ritholtz: You think dividend aristocrats are dangerous because —
[01:26:10] Chris Davis: Because they’re looking in the rearview mirror, and they’re not factoring in these big three changes that we talked about.
[01:26:17] Barry Ritholtz: Well, isn’t that the problem with all models?
[01:26:20] Chris Davis: Kodak was a dividend aristocrat. Xerox was a dividend aristocrat. Polaroid was a dividend aristocrat. And that’s fine, unless there is systemic change. And when you have a big change like you had coming out of the seventies, and the change into the eighties, nineties — you have these big changes, and then everything that worked, everything that helped you survive the crash and the depression — in 1948 you could say, I’m not greedy, I just wanna own bonds, stocks are too dangerous — and you are wiped out in a generation, and bonds became certificates of confiscation. So I think people are underestimating how much these conventional strategies — alternatives, the backward-looking models, including even momentum, indexing versus active. And I would even maybe add international. International had underperformed for so long, and —
[01:27:18] Barry Ritholtz: Just the past two years starting to look pretty good.
[01:27:20] Chris Davis: Just starting to look pretty good.
[01:27:22] Barry Ritholtz: And so you like international?
[01:27:23] Chris Davis: I like international. We run an international ETF, DINT, and it’s just like us, it’s all stock picking. It’s run by my partner Danton. In our family, we always keep probably 15, 20% of assets in international. And that looked really stupid until two years ago, and it’s looking a little better. So I think those conventional things are likely to turn upside down.
[01:27:47] Barry Ritholtz: What’s the old joke? Being diversified means there’s always something to apologize for in your portfolio. That’s so true. All right, so let me jump to my favorite questions I ask all my guests, even though I would love to stay here and keep you chatting for another three hours. I know you have places to go and people to see. The first question I always ask — I kind of know the answer, but I’m gonna give you another swing at it. Who were your mentors who helped shape your career? And I kind of see four people already.
[01:28:22] Chris Davis: Well, you certainly got my dad, my grandfather, and Charlie. I think if I was gonna add another one, I would add Tom Gayner, the CEO of Markel. I just think — that sort of principled stewardship leadership, that servant leadership, a company that is built with an enormous durability and culture of stewardship in mind. We’ve served on boards together. He’s helped me through difficult times. I’ve done my best to help him through difficult times. It’s a great thing to go through life surrounded by people you admire. And of course, I get to work with people I admire. And that’s a big plus.
[01:29:00] Barry Ritholtz: Really, really interesting. Let’s talk about — I know you’re a fellow reader. What are some of your favorite books? What are you reading currently?
[01:29:10] Chris Davis: Well, I have too many favorite books to list, but I’ll give you three. I was, by the —
[01:29:14] Barry Ritholtz: By the way, people always tell me, oh, that’s my favorite question. I’m always looking for something new.
[01:29:18] Chris Davis: Well, I’ll give you the most recent one I read that I think is a good antidote to the AI phenomenon, or the AI hysteria, or the AI obsession — that’s a better word. It’s a book called “Alchemy.” The author is Rory Sutherland. I think that’s a very useful book to read right now.
[01:29:40] Barry Ritholtz: On marketing and advertising.
[01:29:43] Chris Davis: It’s really on the ways in which we maybe fetishize, if I said that right, rationality. When you look at human behavior, it’s very irrational, but it’s often irrational in predictable ways. And the more we say “what’s the rational solution to a problem” and expect people to obey that, the more we’re gonna keep getting crazy outcomes. People react to placebos, but we don’t study placebos. That’s the example he gives that I love: if you wanted to create a really spectacular competitor to Coca-Cola and you hired McKinsey, they would say, well, you should make something that tastes good, sell it a little cheaper, and make it ubiquitous. What you wouldn’t say is, make it more expensive, make it taste bad, and put it in a smaller can. And that’s Red Bull. And so there’s a lot to study in a case like that — how has that worked so well? So I think “Alchemy” is a useful one. Now, I think everybody should read, and then have their kids read, Morgan Housel’s two best books, which should be read as a single book: “The Psychology of Money” and “The Art of Spending.” They go together. I said, one is like the sequel to The Godfather — it’s Godfather Two. It’s not a different movie, it’s just —
[01:31:07] Barry Ritholtz: Continuation.
[01:31:09] Chris Davis: The culmination, in a way. And you —
[01:31:11] Barry Ritholtz: Could skip three.
[01:31:12] Chris Davis: Okay, that’s a —
[01:31:13] Barry Ritholtz: My father — three just doesn’t —
[01:31:15] Chris Davis: I agree. Not as good as the first two. I agree, I agree. And then for a third book — just the one that immediately comes to mind at the moment is “Americana.” It’s a book by — there are two books by the same name, I know, because Charlie had told me —
[01:31:34] Barry Ritholtz: 400 years —
[01:31:35] Chris Davis: Of American capitalism.
[01:31:36] Barry Ritholtz: I love that book. I had him on the podcast years ago.
[01:31:39] Chris Davis: Bhu Srinivasan. Yeah.
[01:31:40] Barry Ritholtz: Yes. Spectacular.
[01:31:41] Chris Davis: Spectacular. And it’s just really —
[01:31:43] Barry Ritholtz: I think people are just so unaware of the history of American capitalism. And that book just does a fantastic job laying out the success.
[01:31:54] Chris Davis: And it will help you as an investor if you think in chapters of that book. If you think about, okay, AI is unfolding — he talks about the interstate highways being built. Well, when the interstate highways were built, who made money? McDonald’s, Wendy’s. The railroads were built — who made money? It wasn’t the railroads. It was the factories, the ability to distribute. And who were the dead men walking? When the car was developed, there were 3,000 car companies. There were 371 publicly traded internet companies. That’s why picking the emerging winners in the early stages is tricky. Always hard. But think of the chapter, think of that whole arc — that’s a terrific book.
[01:32:42] Barry Ritholtz: What are you streaming these days? What’s keeping you entertained — Netflix, podcasts, whatever?
[01:32:48] Chris Davis: Well, anybody who knows me — I watch almost nothing. And I particularly don’t watch sports. I don’t know a lot about sports, with one exception. I love ice hockey. And I love ice hockey in part because we had a lot of family history. My mom’s family helped start the NHL and founded the Boston Bruins.
[01:33:13] Barry Ritholtz: Wait, what? Your mom’s family helped start —
[01:33:15] Chris Davis: The NHL, and founded the Bruins. And we owned the Bruins through my childhood. Can you imagine? My father, who’s probably been to eight hockey games in his life, has his name carved on the Stanley Cup twice, because Shelby Davis was the treasurer of the Boston Bruins. And so they won the cup twice. He got his day with the cup. But one of the things I love about it is that my grandfather, in explaining his love for it to me, said: every sport handicaps the athletes — you can’t use your hands, you can’t use your feet, you have to dribble, whatever it is. He said, hockey accentuates every human ability.
[01:34:01] Barry Ritholtz: Between the skates and the stick —
[01:34:02] Chris Davis: The skates, the stick, the pads, the oval rink, the ice. I mean, it’s just an amazing accelerator of human ability. And I guess the reason I think of it right at this moment — of course, we’re moving into the Stanley Cup playoffs, you were in the last two rounds — but it’s also because I think there’s a way to look at AI as accentuating human ability.
[01:34:26] Barry Ritholtz: It’s an accelerator, for sure.
[01:34:28] Chris Davis: It’s an accelerator. And what that could mean for healthcare — for healthcare inflation going negative. I mean, there are all sorts of —
[01:34:35] Barry Ritholtz: We’re already finding so many new molecules. If anything’s going to find a cure to a lot of cancers, it’s gonna be this.
[01:34:44] Chris Davis: And again, we have to recognize that, of course, like every technology, there are going to be negatives. There are gonna be delays. And as people get disillusioned, we could get a big swing the other way. So, equanimity. But again, going back to “Americana” and tying it to ice hockey — think of those long chapters.
[01:35:03] Barry Ritholtz: All right, our final two questions. What sort of advice would you give to a recent college grad interested in a career in investing?
[01:35:12] Chris Davis: Well, I would say learn everything you can about business, and ideally work in business. I met a guy down at Markel — they had their reunion just yesterday, I just flew back from Richmond yesterday. Their reunion is a great event. I recommend everybody go — just buy a share of Markel, go to the reunion. You’ll see something a lot like Berkshire. I love the value system there. But I met a guy who was an engineer at Altria, which is headquartered in Richmond. He owned a lot of Altria, he owned a lot of PMI, but he started investing for himself about 20, 25 years ago. He showed me his portfolio, including his cost basis. He’s built a wonderful record as an investor. And so, I don’t love all these kids going to Goldman Sachs and to private equity. I think private equity — it was a wonderful business to begin with, and I think it has absolutely lost the thread.
[01:36:16] Barry Ritholtz: And the size. It’s just ramped up and —
[01:36:18] Chris Davis: Got so big, and they’re all selling to themselves. And they’re trying to get the widows and orphans in there so that they can unload, have some final sale — just like they did with MLPs and the oil and gas partnerships in the eighties. And I really hate it. There are people within the world of private equity that I admire, that have built stunning records, but most of what’s happening at this scale is just stealing money from pension plans —
[01:36:49] Barry Ritholtz: 401(k)s, endowments —
[01:36:50] Chris Davis: 401(k)s, and it’s going into penthouses and Ferraris. Where are the customers’ yachts? Look at the returns over the last 10 years of the average state pension plan. Then look at the breakdown of assets, and you realize that all of the drag on their returns is alternatives.
[01:37:08] Barry Ritholtz: Amazing. Final question. What do you know about the world of investing today that might have been useful back in the late eighties, early nineties, when you were first getting started?
[01:37:21] Chris Davis: Every investor, if they’re honest, will say that their biggest mistakes were what they sold. And so I would say that I’ve always put all my money in the funds, and I think that’s the right alignment. But I realize now, which I didn’t realize then, that there are some real differences — which is that, in the funds, we have to really think about diversification. If each time I bought a stock in the funds I had bought it in my own name, instead of putting my money in the funds and buying, I probably would’ve just left it alone for the last 30 years, and it would’ve done very well. So — I first bought Amazon in 2002.
[01:38:05] Barry Ritholtz: Good timing.
[01:38:06] Chris Davis: Yeah. But I sold it in 2004.
[01:38:08] Barry Ritholtz: Bad sale.
[01:38:09] Chris Davis: Thank you.
[01:38:10] Barry Ritholtz: I could tell you the same story with —
[01:38:12] Chris Davis: Apple.
[01:38:13] Barry Ritholtz: It was $15, with 13 in cash. Tripled my money. I was a genius. That was like 10,000% ago.
[01:38:21] Chris Davis: I know. We did the same thing in Apple. We viewed it as a real estate play. We said, if you mark the real estate to market and add it to the cash, it was free. It was an 80-cent dollar. And then when it went to $2, we were like, whoa, too rich for our blood. So I do think that I’m trying to really learn and think about how I can improve results over the next 20 years by being more willing to hold. And what does that mean in terms of position size? What does it mean in terms of volatility? What does it mean in terms of client expectation? Would I feel the same if a client has $25,000 with us as I would if it was just my own money? Because I can absorb a bigger loss, and I can absorb more volatility. So that’s something I’m still trying to process. But God, I love the business. And, like my grandfather, if I could die at my desk at a very old age — I do have the best job on earth. I get to study success. I get to work with people I admire. I go and visit companies to focus on that elusive idea of culture. I get to meet the incredible people that have built our society, that have built businesses. And we have a country that loves to tear down the heroes. We admire the guy on the way up, but once they succeed, we somehow decide they’re a villain. I don’t think that’s constructive. I think it’s a strange thing for us to admire athletes and not admire Jeff Bezos for what he created and how it has served all of us every day. We all use Amazon and it serves us. Every day we delight in seeing our kids on Instagram or using Google Maps. And the idea that we continue to vilify our heroes, instead of judging people by their biggest accomplishment, not their weakest moment.
[01:40:15] Barry Ritholtz: Chris, thank you so much for being so generous with your time. This has been absolutely delightful. We have been speaking with Chris Davis. He is the chairman and portfolio manager at Davis Advisors. If you enjoy this conversation, well, check out any of the 641 we’ve done over the past 12 years. You can find those at iTunes, Spotify, YouTube, Bloomberg, wherever you get your favorite podcast. I would be remiss if I didn’t thank the crack team that helps put these conversations together each week. Alexis Noriega is my video producer. Sean Russo is my researcher. Anna Luke is my podcast producer. I’m Barry Ritholtz. You’ve been listening to Masters in Business on Bloomberg Radio.
~~~
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