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Shelby Davis

Epitome of a value investor

I recently came across a relatively unknown value investor by the name of Shelby Davis. Shelby Davis started investing at 37 in 1947 with $50,000 and by the time of his death in 1994 at age 85 had amassed a wealth of $900 million. He had a narrow focus and specialised primarily in insurance companies and used leverage to buy into positions. His compound annual return over 48 years of investing was 23%!

The main reason I posted this is to highlight a story told by his grandson which I think is the epitome of a value investor (I also found it hilarious). While taking a walk in Manhattan with his grandfather, Chris asked his grandfather to buy him a $1 hotdog and Shelby’s response was:

“Do you realise if you invest that dollar wisely it will double every five years? By the time you reach my age, in 50 years, your dollar will be worth $1,024. Are you so hungry you need to eat a $1,000 hot dog?”

Delayed gratification and frugality is a virtue shared by all the great value investors that I have come across.

If you are interested in his story, there is a book called “The Davis Dynasty” by John Rothchild.

 

6 replies on “Epitome of a value investor”

Hi Darrell

I just stumbled on your site. Like yourself I am more a value investor but mixed with a growth investing. Its hard to find any sites dedicated to ASX outside of the big brokers. My name is Alan I have a site cthgpro.com I will let the guys and girls there know about your site. If you have time come over and say hello on the forum. I write a few articles when I get time I have a particular interest in the psychology of investing. Cheers Alan
Ps Keep up the good work!

Great website and excellent write-up on Capral. I wouldn’t be surprised to see some M&A from someone in a related industry that can use all those losses. I’ve only just started looking into the company but difficult to see a lot of downside risk at current price.

I also held CMI for awhile but sold out after the restructure was announced – mainly because I’ve been disappointed before by a small LIC with a controlling shareholder.

I’ve also just purchased the book you mentioned above (although note it is ‘The Davis Dynasty’ for those looking). I’ve been looking for a good read so thanks for the suggestion.

Regards
Paul

Thanks for your note Paul. Re: Capral, yes 100% agree that it would be super valuable to someone who can utilise it. The way I look at the potential future is this (1) Go broke – I make some money (2) Profit flatline (with same dividend) – I make some money as that would beat market’s current expectations (3) Profit up – I make alot of money (4) Bleed a slow death – may lose money here but then it would also be unlikely that Allan Gray would just sit idly and watch the asset values get bled away by management.

Re: CMI, you were smarter than me to sell before the restructure. I stupidly didn’t sell into the buyback but sold some after the the buyback. Still hold some though as valuations are very undemanding and although I don’t like the new LIC structure, the fund manager seems to like a lot of diversification (or what Buffett calls protection against ignorance) so I’m somewhat comforted by that.

Let me know what you think of the book. cheers !

I was involved with CMI at around 2011 and 2012. Sold out because I was frustrated by the controlling shareholder. Then all of a sudden this guy died and the share was revalued quickly. Still, this bunch will not do any good except for taking the company as a place to get their goodies. CMI has a decent business, but I doubt this will work out really well without a takeout offer.

I also sold my NZME recently for 0.805. Wondering if we have more overlapping on the portfolio!

Yes, some of the actions of the current majority shareholder is concerning. This is not a stock for the long term but I think valuation wise, it is very cheap.
I like NZME because of its potential to monetise its reach. In my view, it is only a matter of time before they put up some sort of paywall and they can also add value to some of their other websites by promoting them on their existing platforms. In fact they can promote anything internally due to their #1 position in print and radio.

Goto the portfolio returns tab to see other shares I own. Thanks for your comments.

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