Davis Advisors Streetwide Conference Call: part 3
On 29 September 2015, Davis Advisors hosted a conference call with a group of US-based financial advisers. From Davis Advisors were Chris Davis (CD), Chairman, Portfolio Manager and Research Analyst and Danton Goei (DG) – Portfolio Manager and Research Analyst. In this final of a three-part series, Chris Davis talks about the firm’s global perspective.
A global perspective
CD: All the industries that we cover and all the analysts that cover them, cover them on a global basis.
If there’s a beverage analyst, they’re not just looking at US beverage companies, but also looking at European and emerging market beverage companies in trying to build the entire global mosaic, because that’s how the world competes today.
We want to have a global perspective and we run a global fund to leverage off that global perspective. Those funds are run with the exact same philosophy as our US funds – long-term, bottom-up, looking for quality companies. They are run by the same team as well, of course, because we are all global analysts.
For years if you wanted exposure to the growth in Asia, a good way to do it was to own a bank like Hong Kong Shanghai, now HSBC. Increasingly, the local banks get better. Now you could invest in the Development Bank of Singapore.
Brazil is a frightening economy for a number of reasons, however we own the BOVESPA, which is the Brazilian Stock Exchange. Now BOVESPA itself has a big investment in Chicago’s CME Group. So there’s a bit of a hedge there.
We are always going to be very specific and very careful as we look. Another example, who would ever want to invest in Nigeria? It’s a frightening thought! And yet Heineken makes more money in Nigeria than the US.
As a result, we have a very thoughtful, holistic, risk-adjusted long-term perspective on emerging markets. We don’t see that as something you jump in and jump out of. You think about how the world is connected, how businesses earn their money, and how businesses operate.
When we see wholesales sell-offs and emerging market ETS getting killed, we look for dislocations and we look for those businesses that we have high confidence that are going to be there, whether they’re foreign businesses that are investing there, or whether they are domestic businesses with terrific dynamics.
We look for the more entrepreneurial and profit-driven companies; we think that we can add a lot of value there.
We used Amazon as an example of a ‘new blue chip’. We use the long-term valuation discipline to assess the business, we don’t bend it based on where companies are listed, or what ‘technology it’s in. We’re interested in cash and the durability of the business.
We study each industry on a global basis. We build portfolios based on the best opportunities across the globe. People tend to divide the world and say, ‘oh that’s an emerging markets company’, or ‘oh, that’s a new technology company, or ‘oh, that’s a low PE stock’.
We think there are enormous dangers to this type of over simplification. We aim to structure it the other way, by having one unified discipline that is applied across geographies, across industries, across market caps.
In a world where people are timid, where they’re frightened, where they’re nervous, that uncertainty creates the opportunity to buy the businesses more cheaply.
You don’t want to be sitting on the sidelines in cash. You have to be thoughtful about fixed income. You’ve got to be wary about fees.
But all in, you want a portfolio that should build wealth for a generation.