What You Can Learn from the Greatest Investor You’ve Never Heard Of – Part 2

Meet Shelby Cullom Davis – the best investor you’ve never heard of who turned US$50,000 in 1947 into US$900 million by the time he passed away in 1994. Davis achieved a compounded annual return of 23% for 47 years, results that would make anyone an investing superstar. In the first part of our series, we looked at how Davis started investing at 39 and why it is never too late to start if you have the right investing framework. In this week’s article, we’ll look at how Davis achieved his massive returns by practicing the one thing that’s frowned upon by most of the financial industry – inactivity.

Lesson 2: A long term buy-and-hold strategy works

In The Davis Dynasty, John Rothchild wrote that the bulk of Davis’s wealth was built upon a few stocks that he had owned and held on from the 1960s till 1992. Notable examples included a US$641,000 purchase of Japanese insurer Tokio Marine & Fire in 1962 that grew to US$33m and his shares of American insurer American International Group (worth US$72m in 1992) that he began purchasing in 1969.

Davis watched unmoved as his portfolio shrunk from US$50m to US$20m in the 1970s bear market in the USA. Instead of selling out, Davis recognised opportunity and bought shares of undervalued companies very aggressively while holding on to the stalwarts he had purchased in the 1960s. Davis knew that the companies he had invested in were still making profits and growing their businesses and saw no reason to sell as their value would be far greater in the future.

Davis’s experience is a great reminder that a long-term buy-and-hold approach to investing (which is favoured here at The Motley Fool Singapore) will work if the right companies are chosen. Davis’s focus was on companies with excellent management, good returns on capital and a strong balance sheet. These are also qualities that another excellent stock picker with a long-term focus, Warren Buffett, has been known to favour.

While investing for the long-haul lacks the excitement of a fast gamble and can sometimes be downright gut-wrenching when the markets tank, it can provide excellent returns for investors who adopt that approach. Investors in companies like Boustead Singapore Limited (SGX: F9D), Vicom Limited (SGX: V01) and Sembcorp Industries (SGX: U96) have all received brilliant returns if they have held on to them through bull and bear for the past 10 years. The infrastructure-engineering firm, Boustead has provided a truly massive return of 3275% from 11 March 2003 to 11 March 2013. In the same time frame, investors in commercial and vehicle tester Vicom, have seen their shares increase by 802% while marine engineering, water and energy group Sembcorp Industries had a ‘lacklustre’ performance with a 530% return.

While there is never a sure thing in investing, having a good investing framework (which naturally includes a time horizon measured in years or decades, not months or weeks) will increase your chances of success greatly.

Stay tuned next week for the last article in this series as we share yet another lesson from Davis’s story – investing without geographical boundaries. Click here now for your FREE subscription to Take Stock Singapore, The Motley Fool’s free investing newsletter. Written by David Kuo, Take Stock Singapore tells you exactly what’s happening in today’s markets, and shows how you can GROW your wealth in the years ahead. 

The Motley Fool’s purpose is to help the world invest, better.   The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Contributor Chong Ser Jing doesn’t own shares in any companies mentioned.