[Baking Typewriter] To a Grandson Asking for a Hot Dog: "Why Not Buy Stocks With That Money?"

John Rothchild's "The Davis Dynasty: Fifty Years of Successful Investing on Wall Street"
A Three-Generation Story of Wealth Built Through Long-Term Value Investing
Different Methods and Sectors, but Relentless Progress Like a Marathon
Perseve

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"I'm trapped on the 11th floor... Tears of retail investors who once cheered for Samsung at 100,000 won." As expected, as the KOSPI index, which had soared well above 4,000, suddenly plummeted, articles with such heartrending headlines began to appear. In the United States, as concerns over an artificial intelligence (AI) bubble emerged, investors quickly retreated from tech stocks. Gripped by the fear of losses, they cannot stop here. In the ashes left by greed, another seed of greed grows instead of the virtue of restraint. The premature conviction that "this boom is different from any in the past" once again nourishes that seed.

The book "The Davis Dynasty: Fifty Years of Successful Investing on Wall Street" by John Rothchild, a former financial columnist for The New York Times, could well be considered a textbook for those swayed by the market. The book chronicles the investment history of three generations-the legendary investor Shelby Davis, who was born in the early 20th century and became one of America's 400 wealthiest people through long-term value investing, his son, and his grandsons. In an era when people buy and sell stocks in less than 100 days-or even 100 hours-how will their story be received?

Though all three generations were devoted to stock investing, their strategies and preferred stocks were entirely different. The father (since both shared the same name, the father is referred to as "Davis" and the son as "Shelby") worked as a government employee in the insurance sector. After recognizing the profitability of the business, he began investing in insurance stocks. The revenue from monthly insurance premiums far exceeded the payouts from claims. Moreover, while paying sales bonuses to employees who sold insurance policies appeared as a short-term loss, it was a long-term gain due to the ongoing premiums. Most insurance companies were wary of letting outsiders (especially government agencies) know about such lucrative operations. Sensing this, Davis acquired shares in promising small insurance companies, profiting both from their growth and by selling his stake when these firms were acquired by larger companies. His initial investment of $50,000 grew to $900 million over several decades.

Shelby Davis II

Shelby, the son, took a different path. Starting his career as a stock analyst at a New York bank, he chose to write his own investment story rather than join his father's company. During the mutual fund craze of the 1960s, he invested in tech stocks and suffered massive losses. Later, as a manager at the New York Venture Fund, he struggled through severe bear markets. However, he found success with bank stocks. The grandsons, Andrew and Chris, unlike their father, joined their grandfather's company and demonstrated a keen sense for convertible bonds, a field their predecessors had been less active in.

At this point, one might wonder if the Davis family possesses a unique investment DNA. However, the guiding principle that accompanied the family's entire investment journey is quite ordinary: investing is like a marathon and must never be stopped, and one must persevere through adversity. Their experience showed that buying growth stocks at reasonable prices yields the magic of compound interest more reliably than any other investment vehicle. Their path was not one of unbroken success. They endured one Great Depression, seven bear markets, and nine recessions, but they never stopped investing. Rather than simply buying and holding stocks, they adjusted their portfolios according to circumstances. Even when 60% of their assets vanished during a downturn, they continued to buy stocks relentlessly, favoring those that generated steady, long-term profits, even if the gains were modest.

Living frugally and saving every penny to add to his investment capital, Davis did not leave a vast fortune to his descendants. Instead, he donated $5.3 million to his alma mater, Princeton University, and funded the construction of libraries at various places, including Lincoln Center. When his grandson said he wanted a $1 hot dog, Davis gave him a lecture: "You could turn that $1 into $1,000 in a few decades." He added, "I have no intention of leaving you a single penny. Instead, you will not be deprived of the joy of earning money on your own." Before learning the principles of long-term value investing, this passage offers us a chance to reflect on why we make money and what we should pass on to our children.