The Davis Dynasty

Three Generations of Passion

And Success on Wall Street

by John Rothchild
John Wiley & Sons 2001
304 pages

Focus Take-Aways
Leadership
Next to Warren Buffett, Shelby Davis was the 20th centurys most successful investor.
Strategy
Sales & Marketing Unlike Warren Buffett, Shelby Davis isnt a household name.
Corporate Finance
Shelby Davis turned a 1947 investment of $50,000 into $900 million by the time
Human Resources
of his death in 1992.
Technology
Production & Logistics Davis invested almost exclusively in insurance stocks.
Small Business
Davis invested in U.S. and Japanese insurance companies.
Economics & Politics
Industries & Regions Before turning to full-time investing, Davis was a CBS radio reporter, a New York
Career Development state insurance department bureaucrat and an author.
Personal Finance
Shelby Davis, like Buffett, was frugal.
Self Improvement
Ideas & Trends Davis relied upon three principles: compounding interest, investing in growth
companies, and true long-term investing.
Davis made money not to spend it, but to use it to make more money.
Davis sons and grandsons continue the family investment business.

Rating (10 is best)

Overall Applicability Innovation Style

8 7 8 10

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 Relevance
What You Will Learn
In this Abstract you will learn: 1) The story of Shelby Davis, the only man beside Warren
Buffet to earn a spot on the Forbes list of wealthiest Americans by picking stocks, and
2) The basic tenets of Davis investment strategy.

Recommendation
John Rothchild has written a fascinating biography of one of Wall Streets most
successful and least-known investors, Shelby Davis, who turned a $50,000 initial
investment in 1947 into $900 million, almost exclusively by buying and selling insurance
stocks. Part character study, part Wall Street history, Rothchilds book reads like a novel,
with an accessible and witty narrative. Of special note is the concise summary of Davis
investment strategy, which rivals Buffettology in its simplicity and common sense.
In Rothchilds hands, Davis life becomes a fun read, no matter what your business
interests, and getAbstract.com recommends this book to all curious readers.

Abstract
Wall Street Fortune
Shelby Davis turned $50,000 into $900 million by investing mostly in insurance stocks.
Davis was a former radio writer, Republican campaign advisor, and New York State
Insurance Department bureaucrat when, in 1947, at age 40, he took the plunge. With no
MBA and no formal economics training, he quit his job to become a full-time prospector
Bear markets
didnt rattle Shelby
in the insurance sector. Friends and relatives were skeptical. This was before the mid-life
Davis any more crisis was invented Otherwise, they would have suspected Davis was having one.
than a fire sale
at Bloomingdales During the next 50 years, Davis turned his investment portfolio into one of the great
rattles the smart
shopper.
Wall Street fortunes before he died in 1994. For the entire time, through booms and
busts, bebop, the beatniks and the Beatles, Shelby Davis stuck with insurance stocks.
When prices for U.S. insurance companies were too high, he bought Japanese insurance
stocks. This proved to be a wise gamble. In the 1960s, his Japanese holdings took off
like pigeons near a firecracker. By the time he died in 1994, hed multiplied his original
investment 18,000 times.

Shelby Davis never became a household name. He did make the Forbes list of
About business wealthiest Americans in 1988. But his claim to fame had nothing to do with publicity
and finance, and everything to do with guts. Among the numerous Silicon Valley whizzes, corporate
Shelby Davis was raiders, real estate developers, investors, retailers, media czars, oil barons and bankers
congenitally opti-
mistic, an indis-
who routinely appear on the list, only one other person ever got there by picking stocks
pensable trait for in other peoples companies: Warren Buffett.
any shareholder.
Before Wall Street
Shelby Cullom Davis was born in 1907 in Peoria, Illinois. His mother was a descendent of a
passenger on the Mayflower. His namesake and great uncle, Shelby Cullom, was governor
of Illinois and served four terms in the U.S. House of Representatives and six terms in
the U.S. Senate. Daviss family lived a comfortable life in Peoria, thanks to his fathers
successful store. Davis and his brother both went to prep schools and to Princeton.
The Davis Dynasty Copyright 2001 getAbstract 2 of 5
 Daviss childhood prepared the worlds second-greatest stock picker for his career in
investing, in a backhanded sort of a way. From his earliest years, his fathers influence led
him to work hard, place his emphasis on self-sufficiency and stability, and think creatively.

As brokerage Davis served as the managing editor of the college newspaper while at Princeton and
houses would later
joined a social club, but he preferred to socialize with a less starchy crowd. He shared the
say during pros-
perous times, past Bohemian disdain for conspicuous consumption. His fathers frugality had rubbed off
performance is no and later would pay off, as the habit of living beneath his means freed his capital to make
guarantee of future the most of itself. As a student he had no interest in economics or finance. He majored in
success, but at
the end of the history, graduating in 1929.
worst decade in
modern history, A year after graduation, on a trip to Europe, he met his future wife, the woman who
Shelby Davis real- would provide the initial capital for his lifetime of investing: Kathryn Wasserman, a
ized that past per-
formance was no Wellesley graduate and daughter of a Philadelphia carpet and textile baron. She, too,
guarantee of future had studied history, and both looked forward to careers in international affairs. They
failure. returned to New York and both pursued graduate degrees at Columbia. They married in
a civil ceremony in New York in 1932, then headed to Europe on an ocean liner, planning
to pursue doctorates at the University of Geneva.

In the ships main dining room, the couple met Frederick William Wile, a CBS radio
correspondent on his way to cover a world disarmament conference that the couple was
also planning to attend. On the spot, Wile hired Davis as his assistant in Geneva, for
$25 a week. While his wife attended sessions, Davis worked in Wiles makeshift studio,
scheduling interviews and babysitting the guests until they went on the air. During the
Shelby Davis live broadcasts, he stood next to Wile at the mike. To uphold the dignity of broadcasting,
didnt care about both wore tuxedos, even though this was radio and the listeners couldnt see them.
bond gyrations. He
stuck with insur- After the conference, Wile returned to the U.S., but Davis stayed on the CBS payroll
ance stocks, espe-
cially the small, as a roving radio reporter in Europe, interviewing Amelia Earhart in Paris as his first
aggressive variety, assignment. For two-and-a-half years, Davis traveled Europe for CBS radio, while earning
and by 1954, his Ph.D. in political science and publishing two books, including his doctoral thesis.
seven years of
self-employment
made him a mil- In 1934, each with their Ph.D., the Davies returned to New York. Davis wrote freelance
lionaire. articles and a book about the French military while Kathryn did research for the Council
on Foreign Relations. Unable to earn enough during the gloomy Depression era economy,
Davis accepted an offer for a full-time job he hadnt planned for. It took a sick economy
to involve Davis in Wall Street. Otherwise, he had the credentials and the smarts to land
a career in journalism. But with no leads and no firm prospects in the media, he accepted
his brother-in-laws offer to become a stock analyst. That term hadnt been invented
yet; Daviss title was statistician. The couple moved to Philadelphia where Kathryns
brothers investment firm was located.

With no leads and

The Investor
no firm prospects The Davies rented an apartment in the city and often went to Kathryns parents house
in the media, Davis in the well-to-do suburban of Germantown for the familys traditional elegant Sunday
accepted his brunches. Kathryns brother, Bill, Daviss new boss, was a fixture at these gatherings.
brother-in-laws
offer to become a Where Davis was socially reserved, his brother-in-law was boisterous. Where Davis was
stock analyst. curious, Bill was cavalier. Where Davis was economical, Bill was grandiose. Nephew
Louis Levy recalls that, Bill made money to spend money. Davis made money to make
more money.

The Davis Dynasty Copyright 2001 getAbstract 3 of 5

 The two couldnt have been more different. In his role as statistician and field man
for Bills investment firms new Delaware Fund, Davis traveled the country, visiting
companies, looking for stocks with promise. Davis impressed his brother-in-law with his
While the stock financial savvy. Someday, Bill told his sister Kathryn, your husband will be richer
market slumbered, than I am.
World War II det-
onated an indus-
In 1937, Shelby Davis quit his brother-in-laws firm and returned to writing, this time
trial boom, just as
Davis had focusing on economics. Focusing on the causes of the Great Depression what
predicted in his prolonged it, and how a recovery might play out he wrote the 1939 book, America
book. Once the Faces The Forties. The book did well, and even attracted the attention of Thomas E.
U.S. entered the
fray, stocks rallied, Dewey, governor of New York and Republican Presidential hopeful. Dewey was so
as the Dow more impressed with Davis that he enlisted him as a speechwriter and economic advisor.
than doubled from
1942-46. In 1941, Davis bought a seat on the New York Stock Exchange, not because he had any real
use for it, but because he couldnt resist the $33,000 price tag. An identical seat had fetched
$625,000 in 1929. To Davis, it was like finding a valuable antique at a garage sale.
In 1944, Dewey had returned to New York governors mansion and repaid Davis for
his campaign work by naming him deputy superintendent of the states insurance
department. This chance appointment introduced him to the industry that would make
his fortune. The history buff turned his attentions to learning everything there was to
know about the insurance industry, past and present. Although he hadnt worked as an
War in Korea analyst for ten years, he kept up with market developments. When he left his job for the
spooked investors
in 1950, but Davis
stock market in 1947, he was ready.
was unfazed, and
Mr. Markets Using $50,000 in seed capital from Kathryn, Shelby Davis began building his
losses were portfolio of insurance stocks. His strategy throughout the years would remain the
quickly recouped. same, relying on three principles: compounding, investing in growth companies, and
true long-term investing. Davis opened an office near Wall Street, a modest room with
twin desks and two phones. Kathryn answered the phones. Between 1947 and 1948,
he crisscrossed the country several times, pounding the table for insurance stocks,
making the pitch to foundations, pension funds and wealthy individuals. He figured
that whoever bought shares on his recommendation would let him handle the trades
and hed pocket the commissions.
Meanwhile, Davis early stock picks were merrily compounding. Hed started his
fledgling company with $100,000 in assets ($50,000 cash plus the seat on the NYSE,
Investors who had
no idea of the pri- valued at $50,000), and by the end of year one, his net worth was pegged at $234,790.
vate worth of their
holdings were sus- The Millionaire
ceptible to being In 1952, Shelby Davis became a millionaire, at least on paper. During the 1950s, without
scared out of
them. Their only
fanfare, life insurers grew their earnings at a pace later associated with computers, data
measure of value processing, pharmaceuticals, and celebrated retailers like McDonalds and Wal-Mart.
was the stock The math was inspirational. In 1950, insurance companies sold for four times earnings.
price, so the more Ten years later, they sold for 15-20 times earnings, while their earnings had quadrupled.
the prices
dropped, the more
they were inclined
Davis continued his frugal ways. He never borrowed for personal consumption to
to sell. Davis was him, going into hock for a new car or refrigerator was an insult to money. On the other
panic proof. hand, going into hock to make more money was a chance he eagerly took.
The bull market of the 1950s continued into the turbulent 1960s. Over the years, Davis
bought when insurers were cheap, and when small companies were acquired by bigger

The Davis Dynasty Copyright 2001 getAbstract 4 of 5

 companies, Davis reaped a windfall. He caught the post-war boom in home, auto and life
insurance stocks. He avoided investing in chronic underachievers. He branched out and
invested in Japanese insurance companies, aggressive, low-cost compounding machines.
Davis was a com-
plex character. He
In 1969, he was named ambassador to Switzerland, and he and Kathryn left for Bern,
was a maverick
who liked to drop returning from his post in 1975. By now, his son Shelby was firmly ensconced in the
names. He was family investing business. In 1987, when stocks crashed, the elder Davis took advantage
chummy with the of the low prices and went on a buying spree. The following year, he made the Forbes
lunch-pail crowd,
but behind his hail- list of richest Americans with his $427 million portfolio. By 1992, his son Andrew and
fellow-well-met grandson Chris had become forces in the family investment business. In 1994, the elder
lurked a confirmed Shelby Davis died, leaving nearly $900 million in trust for conservative causes. His sons,
snob who spent
hours studying the
Shelby and Andrew, and grandson, Chris, continue the family investments.
family black books
of genealogy and The Davis Strategy
reveling in his
genetic linkage to
The Davis strategy results from five decades of trial, error and refinement, working
Jamestown and its way through father, son and grandson. The basic tenets remain the same as those
Plymouth. established in the 40s by Shelby the elder:

1) Avoid cheap stocks.

2) Avoid expensive stocks.
On Wall Street,
he cultivated ana-
3) Buy moderately priced stocks in companies that grow moderately fast.
lysts and knew 4) Wait until the price is right.
their opinions, but
didnt value them 5) Dont fight progress.
and never acted
on them. He was a 6) Invest in a theme.
loner who avoided
trends and ignored 7) Let your winners ride.
group think.
8) Bet on superior management.
9) Ignore the rear-view mirror Dont focus on the past.
10) Stay the course.

About The Author

John Rothchild wrote the blockbusters One Up On Wall Street, Beating the Street, and
Learn to Earn (with Peter Lynch). He is the sole author of The Bear Book, A Fool
and His Money and Going for Broke. A former editor of The Washington Monthly,
and Fortune Magazine, Rothchild has written for Harpers, Rolling Stone, Esquire and
other magazines. He has appeared on the Today Show, The Nightly Business Report
and CNBC.

Buzz-Words
Compounding / Growth Companies / Long-term investing

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