"Market Monitor"-Chris Davis, Portfolio Manager of the Davis Selected American Shares
Friday, May 16, 2008SUSIE GHARIB: Our market monitor guest says that this is not a time of optimism in the economy and the markets. Joining us now, Chris Davis, portfolio manager of the Davis New York venture fund and Selected American shares. Chris, welcome back to NIGHTLY BUSINESS REPORT.
CHRIS DAVIS, PORTFOLIO MANAGER, DAVIS SELECTED AMERICAN SHARES: Thanks, Susie. It's good to be here.
GHARIB: Let's begin by getting your view on economic conditions. How would you describe them and how are they shaping your investment strategy?
DAVIS: Well, I'm not an economist and you know, I think there's so much time spent trying to predict things that are very difficult to predict. But based on talking to our companies, I would say that the economy is weak and probably in a recession and there's lots of reasons to think that it could be a little bit longer and more severe than people expect.
GHARIB: Now, you like these bumpy times. You say there's opportunities for investing. How is this difficult economic environment shaping your investment strategy?
DAVIS: Well, because, of course, where there's an enormous amount of pessimism. Consumer confidence, all of the statistics indicate so much pessimism and Warren Buffett famously said that he wants to invest in times of pessimism, not because he likes pessimism, but because he likes the prices it produces. We think we're seeing reasonably attractive prices on all sorts of businesses today.
GHARIB: Now that you've brought up Warren Buffett's names, I know Berkshire Hathaway (BRKA) is one of your big holdings and you say that you like to invest in it because it's one of the stalwarts in your portfolio. Tell us a little bit about your Berkshire Hathaway investment and why you like the stock.
DAVIS: I always say I'm reluctant to talk about any individual company, but if somebody was going to buy just one company, then Berkshire would be the one. It's got unmatched stewardship. It's got a business that's designed to be durable and sustained in all sorts of different environments. It's run with first-class stewardship and it's the only business I know that gets more valuable in times of dislocation because Warren can put some of that cash to work in an opportunistic way.
GHARIB: And it doesn't bother you that Berkshire Hathaway stock has been down most of 2008?
DAVIS: No, I would say that's just what attracts us. Low prices ought to make people more interested in buying companies rather than less.
GHARIB: Now what about General Electric (GE)? You say it also falls into that category of being a stalwart and that stock has also been stuck in a trading range for many years now.
DAVIS: Well, Susie, I use GE as an example. I could just as easily as picked a company like Johnson & Johnson. I think the idea is buying global leaders when they're attractively valued. If I think about GE in particular, what you've had is years of growing earnings and years of a falling valuation. I would say today the earnings quality is higher. I think we have a first-class manager running it. I think we've got a better underlying growth rate of the business and yet it trades at the lowest multiple almost that it's traded at in 20 years and you get a 4 percent, almost a 4 percent dividend while you wait.
GHARIB: Tell us about Costco (COST). That's another one on your list. DAVIS: Costco is a wonderfully well-run company and there are so many reasons to admire them in terms of the value that they create for their customers, their view, the way they treat their employees, their competitive advantages and low-cost structure. But I think in particular it's a reminder about the importance of patience because Costco has been a wonderful company for 15 years. Nothing has changed there. It's been run by the same management team. They keep executing. And yet for 10 years of those 15 years, the stock under performed. It's had a wonderful move in the last five and if you owned it for the entire period you did well. But it's an important reminder that sometimes the market is slow to recognize great companies.
GHARIB: We just have a little bit of time left. Tell us about Merrill Lynch (MER). Why do you find that attractive? Its stock has been sliced in half this past year.
DAVIS: Well, we always say you want to look where the headlines are worst for opportunities. And nowhere is there more blood in the streets than in the investment banking sector with the panic that surrounded the collapse of Bear Stearns. Merrill Lynch has a first-class new CEO, a durable, global franchise, that means something, 14,000 FAs (ph) and the ability to raise capital if they need it. So we think that it was time to put a marker on the table in that very controversial sector.
GHARIB: All right. Chris, do you own any of these stocks or do you have any other disclosures that you want to tell us about?
DAVIS: Well, we're large shareholders in the funds that we manage, so we eat our own cooking, so we own all of these companies.
GHARIB: All right, great. Chris, thank you so much for coming on the program. We really appreciate it.
DAVIS: Thank you, Susie.
GHARIB: Our market monitor guest, Chris Davis, portfolio manager of the Davis New York Venture fund and Selected American shares.
