Davis Double Play
Definition
The Davis Double Play (戴维斯双击), named for Shelby Cullom Davis, is the effect where a stock’s price rises from two reinforcing forces at once: growing earnings and an expanding valuation multiple. Since Price = PE × EPS, when both PE and EPS climb together the price accelerates. Its mirror image is the Davis Double Kill (戴维斯双杀), where both contract together and the price collapses.
Core Ideas
The mechanism
Investors accept different PE levels at different market phases: ~10× in weak markets, ~20× in bull markets, 30×+ in euphoric ones. The double play exploits this:
- Double play (buy): in a depressed market, find stocks with both low PE and low EPS at an earnings inflection point. As the market recovers, EPS rises and the acceptable PE expands — a multiplicative gain.
- Double kill (avoid): in a euphoric market, buying high-PE stocks whose EPS is peaking; when sentiment turns, PE and EPS fall together.
Finding candidates
Requires both market-timing (judging the valuation cycle) and intrinsic-value work: seek profitable, financially healthy, well-managed firms; estimate intrinsic value (e.g. via acquisition price); buy when market price sits well below intrinsic value; hold patiently while earnings power persists.
Relationships
- CAN SLIM — another growth-oriented selection framework (earnings + market direction)
- Portfolio Risk Management — valuation-cycle awareness as risk control
- Trading & Finance
References
- 金融术语：戴维斯双击和戴维斯双杀 (雪球)