How Shelby Davis Made $900 Million Investing In Insurance Stocks Starting At Age 37

How Shelby Davis Made $900 Million Investing In Insurance Stocks Starting At Age 37

How Shelby Davis Made $900 Million Investing In Insurance Stocks Starting At Age 37 by Sure Dividend

Get The Full Series in PDF

Get the entire 10-part series on Charlie Munger in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues.

Warren Buffett, Benjamin Graham, and George Soros are all household-name investors (well, in some households anyway).  Shelby Davis does not enjoy the same recognition, but perhaps he should.

Play Quizzes 4

Shelby Davis did not start investing in the stock market until he was 37.  Still, he managed to amass a $900 million fortune and join the Forbes 400 list of wealthiest individuals.

Shelby Davis & Insurance Stocks

Shelby Davis started investing in earnest in 1947 when he was 37.  He invested almost exclusively in insurance stocks for much of his career.  Shelby Davis recognized that insurance is an excellent industry in which to invest for several reasons.

How Value Investors Can Win With Tech And “Fallen” Growth Stocks

Valuation Present ValueMany value investors have given up on their strategy over the last 15 years amid concerns that value investing no longer worked. However, some made small adjustments to their strategy but remained value investors to the core. Now all of the value investors who held fast to their investment philosophy are being rewarded as value Read More

First, insurance is arguably the slowest changing industry of all.  There are incremental improvements that can be made as technology changes, but by-in-large, insurers do not face product obsolescence or industry threatening disruptive technologies.  Insurers are insulated from the most damaging effects of creative destruction.

Insurance companies cannot differentiate (very much, anyway) based on their product offerings.  There is only so many ways you can package insurance products.  Competitors can easily copy any successful pricing innovations or new plans.  This makes insurance a commodity business.  It also puts a high premium on managerial talent.  The best insurance managers are conservative and write policies where claims are fully covered by premium income.  A quality insurance manager will keep costs as low as possible while growing by writing profitable policies.

The real income generator for insurance stocks is their large investment portfolios.  Insurers take the money they receive in premiums and invest it in stocks and bonds.  Insurers with intelligent capital allocation policies and excellent investment managers will be much more profitable than insurers with weak investment skill.  Insurance companies that write profitable policies essentially get the funds for their investment portfolios for free.

The largest and most successful insurer over the last several decades is Warren Buffett’s Berkshire Hathaway.  Berkshire Hathaway has benefited by writing profitable policies and having some of the best investors at the helm (including Warren Buffett himself).  Berkshire Hathaway was one of Shelby Davis’ most successful investments.

Value Stocks

Shelby Davis did not invest in all insurers.  He looked specifically for well-managed insurers with a history of growth.  Additionally, he looked for undervalued insurers.  Shelby Davis was an avid Benjamin Graham reader.  Benjamin Graham is the father of modern value investing.  In 1947, Shelby Davis was elected President of Benjamin Graham’s stock analysis organization.  Shelby Davis was very much a value investor.

As a value investor, Shelby Davis looked for insurance companies trading at low price-to-earnings ratios.  He looked for companies that would increase his wealth by both growing earnings and benefitting from rising price-to-earnings ratios.

Finding undervalued insurers was not difficult in the 1940’s.  Wall Street had long ignored the industry.  Insurers attempted to under-report or obscure their earnings to appear less profitable and avoid regulation.  This had the negative effect of making these stocks appear less-than-worthwhile to Wall Street.  Shelby Davis’ deep analysis of the industry helped uncover the value in insurers.  To this day, however, many insurers trade at price-to-earnings ratios lower than most other industries.

Long-Term Investing

Shelby Davis invested in high quality, well managed insurers that were trading at a discount to fair value.  He did not dart in and out of his favorite insurers.  Shelby Davis held many of his largest investments through his entire investment career.  He practiced the same type of buy-and-hold investing that Warren Buffett preaches.

Buying and holding has advantages over constantly switching stocks.  Buy and hold investors reduce frictional costs such as:  taxes, brokerage fees, and slippage from trading.  By minimizing frictional costs, buy and hold investors allow their money to compound year-in-and-year-out in their most profitable investments, building wealth over time.


In the excellent paper Buffett’s Alpha, Frazzini, Kabiller, and Pedersen show that Warren Buffett’s great wealth has come from investing in high quality value stocks and applying low-cost leverage.  Shelby Davis followed a very similar path to wealth, except he focused almost exclusively on insurance stocks.

Shelby Davis used leverage to boost his returns.  He purchased a seat on the New York Stock Exchange which gave him access to lower margin rates than the typical investors.  He used the maximum allowable amount of margin (slightly over 50%).  The interest payments on his margin were tax deductable, which helped him save money on taxes.

The combination of high quality insurers, low valuations, and leverage gave Shelby Davis very strong returns over a multi-decade period.  He generated a 20%+ compound annual growth rate over his investing career.  Leverage boosted his returns out of the teens and into the 20%+ range.

Final Thoughts

Shelby Davis started investing relatively late in life.  Still, he amassed a fortune worth nearly $1 billion.  Shelby Davis invested in high quality insurers trading at low prices and held them for the long-run.  He used a sensible amount of leverage to boost his compound annual growth rate and more quickly build his wealth.

I believe that investing in high quality businesses trading at fair or better prices in possible for everyone.  Using leverage to boost returns may not be the best course of action for everyone, however.  Leverage causes higher drawdowns that may unsettle investors who are not sure of themselves.  Additionally, margin calls can force selling at the worst possible time.

Warren Buffett and Shelby Davis have very similar investing styles and compound annual growth rates.  Both employed about the same amount of leverage (1.5x) to their investments.  Warren Buffett is the more well known of the two because he started investing earlier, which has given him a far larger net worth.  His folksy Americana wisdom and well-thought-out public persona add to his fame, whereas Shelby Davis was known almost exclusively in insurance circles.

Dividend Aristocrat Insurers

There are currently 3 Dividend Aristocrat insurance companies.  Two of the three (Chubb & AFLAC) have regularly ranked in the Top 20 using The 8 Rules of Dividend Investing.  The links below show detailed analysis of the 3 Dividend Aristocrat insurers.

  • Chubb (CB)
  • Cincinnati Financial (CINF)

Additional Resources

  • The Davis Dynasty by John Rothchild available for purchase on Amazon
  • Warren Buffett’s Alpha by Frazzini, Kabiller, and Pedersen
  • Understanding Insurance Float on Aleph Blog

Updated on

Sure Dividend is designed specifically to simplify the process of investing in high quality businesses with shareholder friendly managements for individual investors. Sure Dividend takes a quantitative approach to this task, while providing qualitative analysis backed up by fundamentals. The Sure Dividend approach uses The 8 Rules of Dividend Investing to simplify the process of investing in high quality dividend growth stocks.
Previous article NASA Delays Test Of Flying Saucer Due To Sea Conditions
Next article Hypersonic Planes Could Fly London – New York In 1 Hour

No posts to display


  1. Benjamin Graham – also known as The Dean of Wall Street and The Father of Value Investing – was a scholar and financial analyst who mentored legendary investors such as Warren Buffett, William J. Ruane, Irving Kahn and Walter J. Schloss.

    Buffett describes Graham’s book – The Intelligent Investor – as “by far the best book about investing ever written” (in its preface).

    Graham’s first recommended strategy – for casual investors – was to invest in Index stocks.
    For more serious investors, Graham recommended three different categories of stocks – Defensive, Enterprising and NCAV – and 17 qualitative and quantitative rules for identifying them.
    For advanced investors, Graham described various special situations or “workouts”.

    The first requires almost no analysis, and is easily accomplished today with a good S&P500 Index fund.
    The last requires more than the average level of ability and experience. Such stocks are also not amenable to impartial algorithmic analysis, and require a case-specific approach.

    But Defensive, Enterprising and NCAV stocks can be reliably detected by today’s data-mining software, and offer a great avenue for accurate automated analysis and profitable investment.

    Warren Buffett once gave a speech at Columbia Business School explaining how Graham’s record of creating exceptional investors (such as Buffett himself) is unquestionable, and how Graham’s principles are everlasting. The speech is now known as “The Superinvestors of Graham-and-Doddsville”.

Comments are closed.