Most investor’s definitions of value are too narrow. Merely looking at Price to Earnings ratios (P/E) or Price to book (P/B) misses key components of what makes a stock cheap.
So argues Chris Davis, Chairman and CEO of Davis Selected Advisors. The firm has over $25 billion in mutual funds, ETFs, and separately managed accounts.
Take Google as an example: When GEICO first began using the search company for client acquisitions, new client leads cost about $2 each via advertising on search engine. The next nearest customer acquisition vehicle for the insurer? Late-night cable television, at a cost of $30 per client. That enormous differential explained why Google was poised to take so much market share in the advertising space from traditional media outlets. It also suggested that using the traditional P/E ratio to determine how cheap or expensive Google was provided a distorted and inaccurate picture.
We discuss the firm’s early days, when it was running separately managed accounts (SMAs) in 1969, and moved into mutual funds after being asked to do so by several clients. Four decades later, similar requests from client led the firm into ETFs. The firm’s four main strategies included Concentrated versions of US, International, Global, and Financials funds.
Davis also sits on the Board of Directors of Coca Cola, and is Vice Chairman of the American Museum of Natural History.
His favorite books can be seen here; A transcript of our conversation is available here.
You can stream/download the full conversation, including the podcast extras on Apple iTunes, Overcast, Spotify, Google, Bloomberg, and Stitcher. All of our earlier podcasts on your favorite pod hosts can be found here.
Next week, we geek out on cars with Hannah Elliot, reviewer of supercars for Bloomberg.
