Charlie Munger once famously said that there are answers worth billions of dollars in a $30 history book. We are so busy reading the news and catching the latest trend that we miss out on a gold mine of lessons available from the lives of people who came before us. One such person is Shelby Davis.
Shelby Davis started his fund with the borrowed $50,000 from his wife and turned it into $900 million — 18,000 times of the initial capital by the time he died in 1994. Also, he didn’t start investing until he was 38 (1947), and he did this by investing in only one sector: insurance.
When we think of a multi bagger stocks, we think of tech stocks like Microsoft and Amazon. However, if we read the histories of highly successful investors like Warren Buffet, Shelby Davis, Peter Lynch, and John Templeton, we find one common theme. They all stayed away from tech stocks and stuck with boring sectors like insurance, banks, etc. Why is that? The world is always changing. Efficiency and innovation are always making companies go out of existence. Only a few survive, and It’s very difficult to make an accurate guess as which manufacturing or tech company will survive in the next 50 years. Shelby always preferred a business where their products or services don’t become obsolete.
I found a lot of commonalities between Shelby Davis and John Templeton. Both were extremely frugal. Both of them never borrowed for personal consumption. For them, borrowing for things like a car, house, etc. was an insult to money. John Templeton furnished his house with just $500. Shelby Davis would give a lecture to children on compounding if they wanted ice cream. Shelby’s wife and children once requested for a swimming pool, Shelby agreed on just one condition. The family will need to dig the hole for the swimming pool.
Shelby’s unbelievable investment performance was a result of long-time holding. Once he bought stock, he never sold it. A few winners in his portfolio took care of the rest of the losers. This is the same theme that Warren Buffet pointed out in his 2022 letters to shareholders. In the letter, he wrote:
“Our satisfactory results have been the product of about a dozen truly good decisions — that would be about one every five years — and a sometimes-forgotten advantage that favors long-term investors such as Berkshire.”
Some of the main points from the Davis checklist for portfolio building are as below:
A strong balance sheet
First class management with a proven record
Company does business abroad as well as at home
High insider ownership
Growing market share
Low cost producer
Company adept at acquiring competitors and making them profitable
Shelby Davis’ life is a great reminder that you don’t need to do extra ordinary things to get an extra ordinary result in investing, and it’s never too late to start.
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Originally published at https://devvrat.substack.com.
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