13: Chris Davis: Value Investing and a Legacy of Stewardship

Meet Chris

Chris comes from a lineage of very successful investors beginning with his grandfather who was investing in the 1940s in the 1950s. Chris is a portfolio manager at Davis Advisors, a firm started by his father in the 1960s. Chris is also a director of the Coca Cola Company and Berkshire Hathaway.

Values & Perspectives in Investing

While Chris represents the third generation of investors in his family, he has really found his own success in building a long career of beating the market. The values and perspectives instilled in him by his family have made a great impact on him and his career. 

Both his father and grandfather were passionate about investing and businesses—successful investing was really about understanding businesses and those businesses are really just people and their ideas. His father and grandfather both had a spirit of excitement and curiosity around investing that was contagious, which ultimately led to their success and in turn, Chris’ success.

Stock Certificates Can Be Powerful Symbols

For some investors, physical stock certificates may create nostalgia, curiosity, or even a reminder that shares represent true fractional ownership of a business. At Davis Advisors Christ captures these effects and leverages them into a living monument of previous investment mistakes. Indeed, at Davis Advisors, Chris has been careful to collect and display on a wall what he deems as the firm’s more important investment decision failures. Investment mistakes are common across all skill levels, but as he reasons (correctly in our view), they can become less common if the firm understands their nature and what led to them so that avoidable mistakes become better avoided in the future. The first steps is actually admitting to your mistakes, and the second step is understanding their nature. Many investors and firms can never get past the first step. When Chris began as a manager with Davis Advisors, he became obsessed with the idea that you have to study mistakes in order to get better. The best way to do that is through prompting a conversation through displaying the actual stock certificates. This meant framing the stock certificates of their mistakes, hanging them on the wall, and including a plaque that codifies a transferable lesson from that mistake. That wall currently holds about 25 certificates; lessons learned.

Great decisions can have bad outcomes and poor decisions can have good outcomes; but how will your post-mortem analysis distinguish between circumstance and skill? The answer is careful reconciliation of process versus outcome. There are mistakes of all categories: judgment, process, omission, commission, among others, and yet these mistakes can be shrouded in a positive outcome (i.e., strong return). Quality decisions require weighing probabilities of success or failure, and also have a deep understanding of your own portfolio and what should be rationally allocated to each investment decision.

Corporate Culture Will Manifest in the Business

The old saying is that culture eats strategy for breakfast—Chris is a believer in this phrase. While profits and numbers are traditional measurements of success, when it comes to providing goods or services to the market, measurement should focus on customer outcomes. Profits are not necessarily a good measure of whether a firm is delivering value to the end client. A more comprehensive view of external liabilities may help clarify this analysis. For instance firms that sell goods or services damaging to their customer’s health or the environment have a suspect culture and liabilties that extend beyond what is stated on the balance sheet. Conversely, firms that target outcomes that improve their customers lives beyond the measured transaction, often the result of a culture, may have created assets that extend beyond the view of the balance sheet (i.e., Goodwill).

Philosophy & Theology

Growing up, Chris gained financial experience through both his father and his grandfather’s practices, which exposed Chris to the concept of seeking the truth thrgouh his work as an analyst. Nevertheless, Chris was compelled to pursue a larger calling in his formal stu and earned a joint degree in both Philosophy and Theology from two different colleges at the University of St. Andrews. He does not consider himself a deeply faithful person, but he is a lover of the Episcopal Church and the impactful role the church plays in so many communities.

After his initial work with the Chuch and various forms of outreach, Chris returned to investing full time as another way to help people. At first Chris was somewhat conflicted until a conversation he had with Markel’s CEO, Tom Gayner changed his mind forever. Chris said he had chosen a low calling profession by going to work in the investment business. Tom stopped him in his tracks and said, “Chris, stewardship is a biblical profession.”

Chris cites this as a turning point in his life, when he realized that stewardship was completely synchronized with his role as an investor. It was a mindset shift. He recasted his investment career as a way to help people improve their lives.

Doing Good beats Virtue Signaling, and Time Horizon is Paramount

In the 1980’s there was a movement whose tagline was “Show the world you care,” which ultimately was a vain showcasing that we would now refer to as virtue signaling. Rather than trying to show the world you care, go out and actually do good. 

Now in relation to looking at companies to invest in and the values of those companies, we have to consider the long-term investment. If we're going to own a piece of a company (for a long time or theoretically forever), when we buy it, our return is going to be driven by the returns of the underlying business far more than any change in the relative valuation of that business. Viewed through that lens, you must consider the sustainability of the business. A company without deeply rooted values will not prove sustainable in the long term.

The history of capitalism shows that companies tend to succeed by offering something better to their customers and treating their workers well. Optimizing shareholder value is the right strategy but, shareholder must reconcile with long term social utility. Those dynamics will reconcile if you stretch out the time horizon. Chris believes that If every investor was required to own their investment for 20 years, the ESG movement would disappear.

Connect With Chris

Website: https://www.davisadvisors.com/

The information presented in this podcast or available on the website is not intended as and shall not be construed as financial advice. This podcast is produced for entertainment value. Investing is inherently risky. And I encourage you to seek financial advice from a professional who is aware of the facts and circumstances of your individual situation.

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