Lunch with…Peter Sackmann, Davis Advisors
Peter Sackmann, Director and 17 year veteran of Davis Advisors and member of its Portfolio Review Committee, recently shared his wisdom and insights on global investment with Pan-Tribal and a select number of financial advisers. Here are some highlights from the lunchtime discussion.
Davis Advisors
To set the scene, Peter talked about Davis Advisors and the factors that keep him – and other investment professionals – loyal to the firm. (After all, the average length of tenure for the Davis investment team is close to 12 years).
His key points:
- Davis Advisors represents three generations of investors and take a generational approach to building wealth – the original philosophy is still upheld today
- The Davis organisation takes a careful and considered approach to investing – when they make an investment, it’s with a long-term point of view – they see themselves as “fiduciaries and stewards of client capital”
- The culture and philosophy are consistent throughout the business – whether among investment teams in New York or back office teams in Tucson Arizona
- Davis – and its team – are significant co-investors in each of the investment strategies that they manage, closely aligning their interests with those of their investors. Peter noted that at Davis employees “eat their own cooking” – which sets the organisation apart from the vast number of investment managers with very little to no skin in the game
- Compensation practices at Davis also reinforce a true culture of stewardship. Over rolling five year periods, if portfolio managers beat their benchmark, the managers are rewarded in units of the respective fund(s) they manage, resulting over time in larger and larger ownership in the strategies the firm offers to clients.
Pan-Tribal Asset Management
Peter also took a few minutes to talk about the reasons that Davis agreed to work with Colin Woods and Pan-Tribal – after all, Pan-Tribal certainly wasn’t the first asset manager to knock on their door. According to Peter, Colin put Davis Advisors through one of the most thorough due diligence reviews. Peter’s description was that Colin really “kicked our tyres and gave us a good grilling”.
Pan-Tribal put not only the investment and research teams through a rigorous due diligence process, but also the Arizona-based back office.
Davis also asked Colin how Pan-Tribal intended to seed the new Australia-based global fund and was duly impressed to learn that the founders of Pan-Tribal would seed the fund with their own capital representing a very large percentage of their own net worth. “Pan-Tribal, in other words, was co-investing, just like Davis does.”
Davis and global equities
In the 1990s, Davis recognised the move toward globalisation and started global stock coverage at a time when many US-based managers were still quite parochial. The Davis global strategy was launched at the end of 2004 with Davis family, employee and director capital and has grown to roughly $800 million, not only from outside client mandates but also through performance and the firm’s ongoing contributions to the strategy.
Davis combines bottom-up research with a thorough understanding of long-term secular tailwinds, including the emerging global middle class, demographics and ongoing technological advances.
“More companies die of indigestion than starvation”
The Davis investment approach seeks to identify good management teams and to avoid those corporates that lack capital allocation discipline – often making poor acquisitions, damaging mergers or bad reinvestment decisions. With a team of 12 investment professionals in the New York office, Davis analysts typically operate in working teams of two and at times up to four, depending on the complexity of the company.
For example, a company like Google will be looked at from multiple perspectives – as a technology company, as a major player in the media sector and as an employer with a deep engineering culture.
Davis devotes substantial time and resources, in other words, to ensure that the output of its research process is rigorous and truly represents the underlying complexities associated with each company.
The Davis Investment Discipline adheres to:
- An unwavering focus on business fundamentals
- In-depth, independent research
- A strong valuation disciplineRigorous competitive analysis
- A long-term time horizon that enables Davis to take advantage of short-term dislocations in the market.
In addition, Peter noted, “We look for managers who are doers, not bluffers; people who possess energy, intelligence and integrity; and who have built proven track records of acting responsibly on behalf of shareholders.”
“Price is what you pay, value is what you get”
Davis focuses on those companies with competitive moats and good valuations. Companies with competitive moats often are low cost providers with scale advantages, brands, a dominant market share position and so forth.
Examples include:
- Heineken, one of the only players in the beer market that has created a global premium brand for its products that means the same thing in all parts of the world and which commands greater pricing power than most of the competition
- Google, which has 90% share of the online search market in Europe and roughly 65% share worldwide dominates this lucrative business in most regions
- Luxury brands manufacturers such as Compagnie Financière Richemont, which owns the Cartier brand of watches and commands a premium selling its goods to very high net worth consumers from all parts of the world
- Amazon.com, a global leader in on-line retailing with an exceptionally lean cost structure and long-term growth opportunities around the world.
Value is company, not sector, specific – hence the deep dive that the Davis research and investment teams take into every company.
Peter reinforced that Davis believes:
- It is important to buy companies not stocks
- The intrinsic value of a business may differ at times from the value implied by its stock price
- Fundamentals based, bottom-up research can be used to estimate a company’s intrinsic value
- Long-term ownership of the shares of well-managed, high return on capital businesses should produce above-average investment results if purchased at value prices.
This material includes candid statements and observations regarding investment strategies, individual securities, and economic and market conditions; however, there is no guarantee that these statements, opinions or forecasts will prove to be correct. These comments may also include the expression of opinions that are speculative in nature and should not be relied on as statements of fact.
Pan-Tribal Global Equity Fund’s investment objective is long-term growth of capital. There can be no assurance that the Fund will achieve its objective. There is a risk investors may lose some or all of their initial investment. The Product Disclosure Statement includes additional information regarding the risks of an investment in the Fund.
The information provided in this material should not be considered a recommendation to buy, sell, or hold any particular security.