The $1,000 Hot Dog

Does your personality determine your investing style? The fact that it just might is illustrated by this story:

Shelby Davis, Sr. was taking a walk with his grandson, Chris Davis, in Manhattan. Chris asked granddad whether he would buy him a $1 hot dog. Davis Sr. pounced on his grandson with an object lesson in thrift and compound interest.

Did grandson Chris realize that $1, invested wisely, would double in value in five years? Furthermore, did he realize that this $1, compounded over 50 years, when Chris would be his grandfather’s age, would become worth over $1,000?

Grandfather Davis asked: “Are you so hungry you need to eat a $1,000 hot dog?”

— Michael C. Taylor

The hot dog anecdote is one of endless examples highlighting that value investors tend to focus about long-term earnings rather than short-term payoffs. They tend to be frugal and abstemious and are the Cotton Mathers of the investment world.

You can read Michael Taylor's take on the hot dog story in his newsletter, Bankers Anonymous.

For the whole fascinating history of the Davis family of investors, read The Davis Dynasty: Fifty Years of Successful Investing on Wall Street, by John Rothchild. The author also co-wrote Peter Lynch’s blockbusters, One Up on Wall Street, Beating the Street, and Learn to Earn.

Post Script: Grandfather Davis was assuming an annual compound return of about 15%, which was entirely realistic given his investing track record.

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