Welcome to another edition of the Guru Gems Newsletter, where we unearth investment wisdom from the world’s long-term investing masters.
In case you missed previous editions:
#1 Cloning the world’s best investors (start here if you are a new subscriber)
#4 A Magic Formula (latest deep-dive - Joel Greenblatt)
Follow me on X @guru_gems for more investing insights
My goal is to build a portfolio of 8-12 stocks (the ‘Gems’) that will hopefully outperform the index in the long run.
Here is what you can expect in today’s newsletter:
Guru in the spotlight: Christopher Davis
The Davis Investment Discipline unpacked
Should we add Restaurant Brands International to our portfolio?
Let’s dive in…
Guru in the spotlight: Christopher Davis
Our Guru today perfectly fits the profile of a long-term investing master. Christopher Davis is the Chairman of Davis Advisors, an investment management firm founded by his father in 1969. He represents the third generation of an investing dynasty and has built a reputation as one of the most thoughtful and disciplined investors of our time.
Even more impressive is that, since 2021, Chris Davis serves on the board of directors of Berkshire Hathaway — which is testament to how respected he is by the investment community.
Let’s take a look at his approach and how it can help in my search for Guru Gems.
The Davis Investment Discipline
The Davis approach is based on a few timeless principles. At its core:
“We look for companies with durable competitive advantages, coupled with competent and honest management that are priced at a discount to their intrinsic value.”
This sounds very much like what we’ve learned from Terry Smith, Warren Buffett, and Joel Greenblatt — but Davis brings his own flavor, especially in his willingness to sometimes take contrarian positions and hold through years of underperformance if his thesis remains intact.
Chris Davis has often said that true investing is about owning part of a business — stocks are not pieces of paper like lottery tickets. At Davis Advisors, the average holding period for a stock is over five years, and many positions stretch far longer (their main position Capital One Financial has been in portfolio for more than 10 years)
On the Davis Advisors website we find the ‘Davis Research Methodology’ document, which explains how Davis Advisors’ approach focuses on two basic questions:
🧠 1/ “What kind of businesses do we want to own over the long term?”
To find the right business, Davis Advisors focus on three main attributes:
Financial strength: financially sound companies with recurring cash flows and high returns on capital* are preferred, especially those with the resilience to weather economic downturns
Competitive advantages: firms with sustainable competitive advantages—or "moats"—such as strong brands, economies of scale, or proprietary technology
Superior management: leadership with a long-term strategic vision, smart capital allocation skills, and alignment with shareholder interests
*High returns on capital…remember Joel Greenblatt’s Magic Formula?
💲 2/ “How much should we pay for those businesses?”
Their valuation approach emphasizes understanding the true worth of a business rather than relying on common metrics like the price-to-earnings (P/E) ratio. Davis uses Enterprise Value (EV) and a cash-based metric called ‘Owner Earnings’ to assess a company’s intrinsic value.
This allows them to calculate an ‘owner earnings yield’ (which is owner earnings / EV) to compare investment opportunities much like bond yields—favoring businesses that offer high yields relative to risk-free rates.
Investments are sold only if the valuation becomes excessive, fundamentals deteriorate, management loses credibility, or if better opportunities arise.
Serving up returns
One of Davis’ newest positions based on the recent 13F filings, is Restaurant Brands International Inc. (Ticker: QSR).
QSR might not be a household name, but its brands certainly are. The company owns and operates some of the world's most recognized quick-service restaurant chains:
🍔 Burger King
☕ Tim Hortons
🍗 Popeyes
🚒 Firehouse Subs
This is definitely not a flashy AI stock nor a high-growth SaaS business. But it is an example of what Davis would call a “durable, well-managed business with solid financials”.
Let’s explore why QSR made it into his portfolio — and whether it should be added to the Guru Gems portfolio.
To buy or not to buy
As always, we’ll evaluate this candidate using our Terry Smith-inspired framework:
1/ Buy good companies
QSR Strengths
Brand Power: QSR owns some of the most recognizable quick-service restaurant brands globally. Tim Hortons dominates in Canada, while Burger King and Popeyes have strong international footprints.
Asset-Light Model: 100% franchised model = low capital intensity, high return on capital. (Magic Formula!) The company collects royalty fees from franchisees and avoids much of the operating complexity of running restaurants itself.
Strong Free Cash Flow: QSR consistently generates significant free cash flow, thanks to its predictable royalty streams and lean cost structure.
Turnaround Potential at Burger King: QSR launched a $400M initiative in 2022 (“Reclaim the Flame”) and additional investments in 2024 (“Fuel the Flame”) to revitalize Burger King in the U.S., addressing operational inefficiencies and modernizing restaurants.
QSR Weaknesses & Risks
Highly competitive market: Fierce competition coming from established players like McDonald's and Yum! Brands (KFC, Taco Bell, …), as well as emerging regional chains.
U.S. Market Softness: Burger King and Popeyes in the U.S. have experienced negative comparable sales, indicating challenges in this key domestic market.
Macroeconomic Headwinds: Consumer spending, inflation, and interest rates can significantly impact the QSR industry.
Debt Load: Debt levels are quite high (~4.8x EBITDA). While not uncommon in asset-light franchise models, this is definitely something to monitor.
2/ Don’t Overpay
Let’s look at valuation:
QSR currently trades at around 19x forward earnings
Compared to peers like McDonald’s, Yum! brands and Domino’s Pizza, QSR looks modestly undervalued, especially considering its growth potential from international expansion and turnaround efforts.
Source: Finchat.io QSR’s EV/EBITDA is at 15.4 which is only 3% below its 6yr average as shown on the chart below.
3/ Final Decision
To make my final decision, I’ll also look at other superinvestors that have QSR in portfolio and the recent changes during Q1 (positions on 31 March 2025).
Bill Ackman, who runs a relatively concentrated portfolio, has a significant position in QSR. Ackman first bought QSR in 2014(!) and has kept the position ever since - though with significant trimming and increases during this period
Seth Klarman, a famous value investor and author of ‘Margin of Safety’, also holds a significant position which he increased by more than 33% during Q1
As discussed, Chris Davis initiated a new position last quarter and while 1.3% may seem small, on a total portfolio size of $17B, the total value size of QSR is approximately as large as Klarman’s 7.4% position.
With these 3 superinvestors’ conviction in the stock and many of QSR’s strengths as discussed above, I believe QSR is a gem.
I am not convinced, however, that the current price ($71) has a large enough ‘margin of safety’ to consider this a bargain. QSR traded as low as $60 during Q1, which is probably when Chris Davis would have stepped in and Seth Klarman added to his position.
Decision: I am not adding QSR to the Guru Gems portfolio (yet)
I am definitely adding it to my watchlist and a significant dip in share price without a fundamental change in the long-term outlook could present a more attractive entry point.
That’s it for this week’s edition! As always, thank you for reading and following along on this journey.
Until next week!
Learn more about the Gurus
If you are new to investing or curious to learn more about investing Gurus, I would highly recommend William Green's book Richer, Wiser, Happier. It's a fantastic book about how the world's greatest investors win in markets and life. There is also a podcast under the same name (the episodes are featured on The Investor’s Podcast Network). Here is the episode with Chris Davis: