Christopher Davis: We’re Getting A Value Investors’ Dream Of Investment Opportunities

In his recent interview with Barron’s, Christopher Davis explained why he’s getting a value investors’ dream of investment opportunities. Here’s an excerpt from the interview:

Davis: You’re absolutely right. The best is to buy a great business at a cheap price. And what’s interesting is that our portfolios currently, the relative valuation discount is about as wide as it’s been in my career.

So I do think that we’re getting what I call the value investors’ dream of businesses that are growing at an above average rate, and yet are trading at a below average valuation. That is a rare combination.

And we have that in all of our major ETFs and strategies today where by being selective, on average, our earnings growth over the last five years for our companies has been higher than the indexes. And yet the P/Es, the valuations, are lower. So we love that combination, but you’re absolutely right. The best is a high-quality growing business at a very low price.

But if given the choice between an average business at a low price or a great business at a fair price, you should choose the latter. And so we do think that when you take a 10-, 20-, 30-, 40-, 50-year view of owning a business, that businesses that grow profitably are more valuable than businesses that don’t. Growth is a component of value. So we love owning businesses that have grown over long periods of time.

They just might not always be considered sexy growth. As I say, companies in financial services. Capital One has been a wonderful growth company since it was started by the current CEO. I mean, it’s amazing to think one of the largest banks in America is still run by the founder.

You can listen to the entire discussion here: