Walter Schloss is a role model for all aspiring value investors. He is the most influential investor to me personally based on his 5 decade long performance as well as his investing style. Schloss was a compounding machine that hit base hit after base hit. He was the Ted Williams of investing.

Read more of my thoughts on Walter Schloss here.

Below, you can also find my notes on his bio as well as many informative links to other articles that have been written on Schloss. He is likely my favorite investor to study and read about.

Bio Highlights:

  • Returns of 20% per year for 47 years (15.3% net to his investors, double the 7% return of the S&P during that period).
  • High school graduate without a college degree
  • First got a job on Wall Street at age 18 in 1934 as a runner. Wanted to learn investing and got a piece of key advice from a mentor: “Read Graham and Dodd’s Security Analysis, and that’s all you’ll need to know”
  • Later worked for Ben Graham at Graham-Newman, spending his time methodically looking for cheap stocks
  • After Graham decided to retire and close his fund, Schloss started his partnership with 19 partners and $100,000 of capital in 1955
  • Operated a solo-operation until his son Edwin later joined him. The two of them never had any other employees, despite managing 9 figures later in their career (in one of his later years, his firm made $19 million in profits against just $11,000 of expenses!)
  • Famous for being frugal, simple. He worked out of the same small one room office for the entire duration of his career. Never owned a computer, never used the internet.

Schloss Investment Philosophy:

  • Methodical, value based investor. Schloss and his son Edwin famously summed up their investment philosophy in one sentence: “We buy cheap stocks”
  • Followed a Graham style value approach to investing throughout his entire career
  • Schloss would use Value Line for info on companies, and would send for their annual reports to dig deeper
  • Rarely talked to management, choosing to invest only on the numbers. Specifically, he liked to look at the assets (book value) more than the income statement.
  • He liked to buy stocks at low price to book ratios, and when he did look at earnings, he liked low prices to normalized earnings
  • He liked stocks with long (15-20 year) histories and track records. He would study how earnings and asset values fluctuated over various cycles. He liked using the balance sheet because “asset values fluctuate more slowly than earnings do”
  • Diversified, cheap basket of stocks was his strategy for risk. He repeatedly said “I don’t like losing money”.
  • Schloss often owned 60 stocks or more at a time, sometimes as many as 100. Schloss occasionally would concentrate up to 10% or more of his fund on a stock that he really liked. But he mainly liked to own a lot of stocks because he claimed not to be a good judge of business trends or management capability (as opposed to Warren Buffett). So he needed to take a diversified approach so he could “sleep well”.
  • He owned his stocks for an average of 4 years

Schloss is one of my favorite investors of all time. I love his methodical, common sense approach to investing. He provides a road map for long term success. Buy value, diversify adequately (but not excessively), be patient. What I like most about Schloss is the way he ran his business. His typical office hours were 9am-4:30pm. He came in, looked through Value Line for cheap stocks and read annual reports. He has said that this passive style of investing has enabled him to live a low-stress life, and has allowed him to continue to invest as he got older. He said that while others had higher rates of returns at times, he was able to outlast them, and thus achieve a longer track record because his style of investing was enjoyable and easy to maintain. He contrasted his approach to that of Peter Lynch, who had to retire after 13 years of managing Magellan because he was spending so much time working and traveling, visiting companies, etc… Schloss’ style of investing could be replicated by most people, if they have the temperament and patience that Schloss had.

Schloss is not as widely acclaimed as most investors are with similar track records, but Schloss made a point to stay out of the spotlight throughout his career. Because of this, there is not a lot of material to study on Schloss’ investment ideas. But below are some key articles that I could locate that reveal how good Schloss was. Some of them were written or transcribed from Schloss’ own public appearances. They portray Schloss as a simple man that sticks to his strategy regardless of the noise around him. I strongly recommend studying Walter Schloss in as much detail as possible. He is an example that investing success can be achieved through a methodical application of simple, replicable investing principles.

Schloss Links (Many thanks to GrahamandDoddsville.net and ValueWalk.com for a few of these links):

Books containing more details on Schloss:

Quotes about Schloss:

Warren Buffett said in his famous “Superinvestors” address:

He knows how to identify securities that sell at considerably less than their value to a private owner… He simply says, if a business is worth a dollar and I can buy it for 40 cents, something good may happen to me. And he does it over and over and over again. He owns many more stocks than I do – and is far less interested in the underlying nature of the business; I don’t seem to have very much influence on Walter. That’s one of his strengths; no one has much influence on him.”

Buffett also later discussed Schloss’ simple approach:

“Walter did not go to business school, or for that matter, college. His office contained one file cabinet in 1956; the number mushroomed to four by 2002. Walter worked without a secretary, clerk or bookkeeper, his only associate being his son, Edwin…Walter and Edwin never came within a mile of inside information. Indeed, they used ‘outside’ information only sparingly, generally selecting securities by certain simple statistical methods Walter learned while working for Ben Graham.”

Finally, this is Buffett in Adam Smith’s book Supermoney:

He has no connections or access to useful information. Practically no one in Wall Street knows him and he is not fed any ideas. He looks up the numbers in the manuals and sends for the annual reports, and that’s about it.In introducing me to (Schloss) Warren had also, to my mind, described himself. ‘He never forgets that he is handling other people’s money, and this reinforces his normal strong aversion to loss.’ He has total integrity and a realistic picture of himself. Money is real to him and stocks are real – and from this flows an attraction to the ‘margin of safety’ principle.”

If I could briefly summarize Schloss investment style, it would be: Buy cheap stocks, make 20% per year, sleep well at night, enjoy life. 

9 Responses to Walter Schloss

  1. HLTiong says:

    In the era where most equate value investing to Warren Buffett who preaches paying fair price for attractive businesses, I think many people over-estimate their ability to assess a few things…

    It is difficult to assess good management, Warren can.
    It is difficult to identify competitive advantage, less so its sustainability, Warren can.
    It is difficult to know what’s a fair price to pay for a business that is expected to grow at X%. Warren can.

    I believe Walter Schloss’ main appeal to the common man on the street is that unlike the great Warren Buffett whom many deem as legendary and therefore an outlier, Walter’s down-to-earth nature and methodological approach gives many the belief that they can replicate his success too.

    http://reaching4financialfreedom.blogspot.com/2013/07/why-i-aspire-to-be-walter-schloss-not.html

    • John Huber says:

      Thanks for the comment. I agree… Schloss developed a replicable strategy that could be implemented by most individuals with the proper mindset.

  2. HNguyen says:

    Thanks for your sharing, Hubber. I’m big fan of Schloss and I really love his style of investing. I agree with Schloss that it’s very difficult for everyone to replicate Buffet’s thought and strategy because he is good at judgment of bussiness and management. Although I work as a security analyst, I dont like taking to managers, find insider information or evaluate qualitative factors. I read all of articles mentined above, and I think, “65 years on Wall Street” is the most important article and a must read as it summarizes Shloss’s strategy (Buy stocks on the way it down, focus on assets and book value instead of earnings, buy secondarty stocks or companies that have probems,…..).

    One thing I learn from the article is that Schloss didn’t project earnings, he seemed to less interested in forecast what’s going on in the next year. That’s completely diffent from Buffet (He discounts FCF to value a company). I wonder HOW TO SCHLOSS VALUE A COMPANY WITHOUT FORECAST CF OR ANYTHING LIKE THAT ?

    I consider myself as quantitavie investor. Can you share some books or papers should I learn to improve my knowledge. I currently read Intelligent Invesor and Security Analysis (2nd Edition) and I think, Schloss successfully transfered Graham’s ideas into practice.

    Sorry for my poor English.

    • John Huber says:

      Hi HNguyen,

      Thanks for reading. Yes, Schloss was a very quantitative investor–preferring to own a large basket of cheap stocks. He was basing his investment strategy on the general value investing theory that as a group, these cheap assets tend to do well. However, it’s difficult to determine which individual one will do well so to protect against errors and more importantly to ensure that the desired result is achieved, a basket approach is needed.

      As far as valuation techniques, Schloss really focused on assets. He analyzed the balance sheet and tried to buy stocks below book value. Initially, he was a true net-net investor in the tradition of Graham, but those bargains disappeared. Eventually, his son Edwin influenced him to begin looking at earnings more closely, but Walter was always interested in the balance sheet.

      As far as predicting the next year, I don’t think Buffett or Schloss did that. It’s very difficult to know what will happen in the short term. Buffett wants durable businesses that are building value over time that will likely have higher earnings in the future than they have now. Schloss just wanted to buy $1 worth of assets for 50 cents.

      Both can work, but neither one really relied on predictions of earnings over the next year. One relied on Mr. Market eventually getting the valuation correct, the other relied more on the internal results of the business over time (compounding value).

      As for books, I think Graham’s books are best. I wouldn’t spend too much more time on books (after you’ve read Graham, a few Buffett books, maybe Phil Fisher (even though you might be more quantitative, Fisher is a good read to understand the other side of the coin).

      I would spend more time reading annual reports and analyzing financial statements than reading books. You’ll advance your learning curve more quickly that way.

      If you want to be a great piano player, you must practice. You might read a few books on technique and maybe a biography of Liszt or Rachmaninoff, but the only way you’ll truly improve is by practicing.

      Anyhow, that’s how I think about it. I read a lot of books too, but the key is to dive in and start valuing these companies.

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