Company selection criteria includes:

Financial strength and profitability

  • Strong balance sheet
  • Low cost structure
  • High returns on capital

Competitive advantages

  • Non-obsolescent products
  • Dominant or growing market share
  • Global presence and powerful brands

Experienced management

  • Proven track record
  • Significant alignment of interests
  • Intelligent allocation of capital

Valuation Methodology

Convert GAAP to owner-earnings

  • Adjust for one-time items
  • Adjust for maintenance capital spending
  • Adjust for pension and other expenses

Adjust enterprise value

  • Include debt and equity
  • Include pension liability
  • Review other assets and liabilities

Evaluate capital allocation

  • Return of capital through dividends and share repurchases
  • Growth capital spending
  • Acquisitions

Sell Discipline

  • Excessive valuation
  • Deteriorating fundamentals
  • Detrimental change in management or business focus
  • More compelling opportunities

Investment Process

Company Universe

We seek to purchase durable, well-managed businesses at value prices and hold them for the long term.

Identify Long-Term Trends

While we research companies on a case-by-case basis, we also attempt to define broader, long-term trends that influence the potential for certain companies to create value over the long term. Thus our method, while predominantly bottom-up, incorporates a top-down element as well.

Fundamental Research

Our investment management team conducts extensive research into company's financial strength and profitability, competitive advantages and management.

Interview Company Management

We interview a company's executive management teams, employees, clients, and competitors.

Valuation Process

Davis applies a proprietary method for calculating the intrinsic value of a business based on a company’s "owner earnings." Owner Earnings are determined by adjusting reported net income to more accurately reflect the true cash profits of a business. Positions are built when companies can be purchased at discounts to their intrinsic value.

Sell Discipline

We consider selling an investment on the basis of excessive valuations, deteriorating fundamentals, or a negative change in management or strategy.

 

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Equity markets are volatile and an investor may lose money. Past performance is not a guarantee of future results.