Selected American Shares — Success Under Stress
Kurt Brouwer May 28th, 2008
Chris Davis and Ken Feinberg, are the co-managers of Selected American Shares (SLASX), which is a mutual fund with a history that dates back to 1933. Davis and his father, Shelby Davis, became co-managers of the fund in 1994. Now, Shelby is semi-retired and Chris Davis and Ken Feinberg are in charge. This piece was written by Russ Kinnel, the Director of Mutual Fund Research, at Morningstar [emphasis in the original]:
Success Under Stress (Kiplinger’s Personal Finance, June 2008, Russel Kinnel)
When the markets get tough, the tough go shopping. That’s what Selected American Shares co-managers Chris Davis and Ken Feinberg are doing.
At Morningstar, we’ve long been fans of Selected American. Davis and Feinberg are in their forties, so they’ve seen a couple of brutal markets. But they have wisdom beyond those years.
Chris is the third generation of the Davis family to manage money, and he learned quite a few lessons from his father and grandfather. Davis and Feinberg are also big fans of Warren Buffett and Charlie Munger of Berkshire Hathaway. They try to put their lessons to use in times like these.
Quality counts. I talked with Davis soon after the books were closed on a dismal first quarter, in which the swoon by Bear Stearns highlighted another awful stretch for financial stocks. Yet despite Selected’s hefty financials stake (nearly a third of assets), the fund is currently ahead of Standard & Poor’s 500-stock index for 2008 because Davis and Feinberg are in some of the healthiest financials. What’s more, they own a pretty diverse group, from Progressive to Wells Fargo to Berkshire Hathaway.
In a downturn such as this one, the two fund managers like to double-check that their investments are on track and tap the knowledge of those who have seen more bear markets. They visited important companies that were already big holdings in the fund, such as Wells Fargo, Hewlett-Packard, Cisco Systems, JPMorgan and Merrill Lynch. They also visited some of the best investors around, beginning with Chris’s dad, Shelby Davis, a legendary Wall Street figure who preceded Chris at Selected American.
They then turned their attention to upgrading the quality of Selected American’s portfolio by putting more money behind its strongest holdings and trimming holdings they have less confidence in. This is something they have done in past selloffs, notably in 2002. That year, Davis snapped up some blue chips he hadn’t been able to buy cheaply enough for years — stocks such as AIG, Microsoft and Berkshire Hathaway.
This time out, Davis and Feinberg are adding to positions in steady growers with heavy overseas revenues — for instance, Johnson & Johnson. Among financials, they are adding more of AIG (symbol AIG) and Bank of New York Mellon (BK).
Holding shares of Progressive (PGR) even as the stock declined illustrates Davis and Feinberg’s approach with disappointing stocks. Rather than run for the hills, they take the time to do a thorough review. If the stock is still trading for much less than their estimate of its worth, they’ll stick around or even buy more. In mid April they gave GE a closer look after it reported weak earnings…
…Think twice. I suggest that you adopt a similar mind-set. Treat downturns as buying opportunities and take the time to evaluate your holdings thoroughly so that you aren’t acting out of fear.
For more on Selected American Shares and its willingness to step in when name brand companies fall on hard times see Davis Selected Advisors Buys Merrill Lynch Stake.
- Investing , Mutual Funds , Personal Finance
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