For the first time since 1940, the yield on the 3-month Treasury bill went negative this month. Investors eagerly bought up a negative 0.01% yield. That means that they would rather lock in a certain 90-day loss than risk anything in the stock market.

So in that kind of context, it’s not hard to understand why we see so many compelling valuations in the market. For the moment, I want to explore this idea of investors seemingly selling anything to raise cash or its near-equivalent, Treasury bills.

(All of this is great for the government, by the way, which can’t sell enough of ’em. The U.S. government basically locked in 0% financing for the first time ever. And the buyers of T-bills, dolts that they are, provided the financing.)

It’s still a breathtaking liquidation in the making. Essentially, people are looking to turn just about anything they can into cash. Once again, you have to go back to the 1930s to find anything comparable. I found some good nuggets in an old book about a great forgotten investor.

I was rummaging around some old books in my office the other day, cleaning some stuff out, and came across The Davis Dynasty by John Rothchild. I started to flip through it and remembered the tales of the world’s great investors. Much of the information below about the Great Depression comes from Rothchild’s book.

By 1931, the economy was shrinking like fresh spinach in a hot pot. Commodity prices fell to levels not seen since the 1870s. As today, companies cut back. Profits fell. Layoffs were common. Consumers cut back. Debts went into default. And the market tanked.

The Best Investor You’ve Never Heard Of

Art Loom was the creation of the Wasserman family. It sold rugs. The Wasserman family was one of the lucky ones to avoid the Crash of 1929. It kept its fortune in bonds. Joseph Wasserman once said, “The rug business is risky enough. I want to be conservative in savings.”

Fortunately, that capital would seed the start of one of history’s great — if largely forgotten — investors. His name was Shelby Cullom Davis.

The numbers, according to Rothchild, are amazing. Shelby Davis started investing in 1947, and was 38-year-old former freelance writer. Luckily, he married well. His initial stake of $50,000 came from his wife Kathryn Wasserman, daughter of a carpet mogul. Davis did well by them. By the time of his death in 1994, he multiplied that stake 18,000-fold. He turned $50,000 into $900 million.

Davis made the Forbes 400 list in 1988. He was the only one other than Warren Buffett who made the list by picking stocks for a living. Shelby Davis followed the old way of getting rich investing in stocks. He kept a long-term perspective through bull and bear markets and followed the basic tenets we talk about all the time here. He stuck with what he knew — in his case, mostly insurance stocks. He had a passion for investing and stuck with it even when times got tough.

I found his story inspirational. Stay with investing and don’t give up on stocks — especially now, when so many are so cheap.

Until Next Time,
Chris Mayer

December 23, 2008

Chris Mayer

Chris Mayer studied finance at the University of Maryland, graduating magna cum laude. He went on to earn his MBA while embarking on a decade-long career in corporate banking. Chris is the editor of Capital and Crisis and Mayer’s Special Situations, a monthly report that unearths unique and unconventional opportunities in smaller-cap stocks. In 2008, Chris authored Invest Like a Dealmaker: Secrets From a Former Banking Insider.

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