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What You Can Learn from the Greatest Investor You’ve Never Heard Of – Part 3

If you ask someone to give you some examples great investors, you might hear the likes of Buffett, Graham and Lynch being mentioned. But if you ask them whether they have heard of Shelby Cullom Davis,  the response is probably going to be “Shelby who?’’

So, 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 compound annual returns of 23% for 47 years, which would certainly qualify him as an investing superstar. His exploits are chronicled in John Rothchild’s The Davis Dynasty and there are some great lessons for private investors.

In Part 1, we looked at how Davis started investing at the age of 39, and why it is never too late to start if you have the right investing framework. In Part 2, we shared the story of how Davis beat the market by buying and holding his shares for decades. In today’s article, we will look at how Davis, an American, invested in Japan when no one else bothered, and why investing opportunities should not have geographical boundaries.

Lesson 3: The World is Your Oyster

In 1962, Davis made a voyage to Japan where he learnt about various Japanese insurers that had solid operations thanks to government support. Davis used what he had learnt about investing in the USA and applied his analysis to Japanese insurers.

At that time, investors in the USA only focused on domestic companies as they felt that investing in foreign shares were too risky. Davis however, saw value where no else could and bought four insurers for an estimated sum of US$2m. They were Tokio Marine & Fire, Sumitomo Marine & Fire, Taisho Marine and Fire and Yasuda Fire & Marine. Davis held onto these companies for more than 3 decades, and by 1992, they were collectively worth US$75m.

Davis was not the only one who dared to venture abroad. Sir John Templeton, an investing legend who achieved a 13.8% annual compound return for 50 years from 1954 to 2004, was also a renowned global stock picker. Even Warren Buffett invested in Korean companies in the early 2000s as he, along with Davis and Sir Templeton, recognised that great investing opportunities need not be bounded by geography.

Local investors should be well acquainted with Singapore Exchange (SGX: S68). The company operates the Mainboard (also known as the SGX) exchange as well as the Catalist exchange. These are the only two stock exchanges available in Singapore. Full-year turnover for the company increased from $275m in June 2005 to $644m by December 2012. Meanwhile, profit had more than doubled from $110m to $290m.

The company’s shares, which currently sport a yield of 3.5% and a PE of around 28, have increased by 370% from June 2005 to today.

Long-time shareholders in Singapore Exchange have done very well. But if they had looked over to the USA, they might have spotted tech giants such as Amazon Inc. (Nasdaq: AMZN) and Apple (Nasdaq: AAPL). The two companies have returned 640% and 1,000% respectively since Jun 2005.

Both companies were dominating their respective businesses – Amazon ruled the e-commerce space, while Apple was the undisputed king of MP3 players with its iPods. They were also led by very capable, imaginative and ambitious CEOs – Jeff Bezos is the head honcho of Amazon while Apple’s leader was Steve Jobs. Putting valuation concerns and geography aside, these two companies were proving to be great investment opportunities for people around the world.

Currency risk is often the main gripe for investors who are considering investing in foreign shares. But, in today’s globalised world, there are many businesses with substantial operations worldwide that face currency risks as well. This is especially true in Singapore given the small size of our domestic economy. For example, Sembcorp Industries (SGX: U96) earned about a fifth of its profits in 2012 from abroad.

Currency risk is just one of the many risks that investors will encounter and one of the best ways to mitigate them would be to find great companies with strong competitive positions and sound financials to invest in. At the Motley Fool, we are focused on looking for investing opportunities in great companies and the search should never be bounded by geography.

Foolish Bottom Line

This article marks the end of a short series on the lessons that Shelby Cullom Davis has taught us through his own experiences. In conclusion, I would like to summarise his lessons in one short sentence – Invest for the long haul with the right framework and never let age or geographic boundaries dictate your investing opportunities.

Motley Fool’s purpose is to help the world invest, better. 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 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.