Investment PhilosophySuperinvestorsWalter Schloss

Walter Schloss Discusses Investing Concepts and His Investing Approach

Walter Schloss is arguably my favorite investor to study/read about. I’ve got pages of notes on him in my investment diary and I’ll post more pieces about him as this blog develops. I’m always re-reading his notes as he provides a great road map to methodically building superior investment results, which is what this blog is all about.

Here are some of my notes that I was just re-reading from a lecture Schloss did at Columbia Business School back in the early ’90’s. Thanks to one of my favorite blogs Graham and Doddsville for the link. You can read more about Schloss at my Walter Schloss resource page.

  • Schloss says there are numerous ways to invest profitably, but you need to find a style that matches your personality.
  • He feels the best way for him to invest is by buying bargains.
  • He doesn’t visit management, conceding that it may improve results for the investors who are good at judging management effectiveness and analyzing the business’ prospects.
  • However, he feels that visiting management is very prohibitive for the small investor. It’s easier to invest “using just the numbers”.
  • He also feels that the lifestyle is better for a passive investment approach.
  • He made it sound like he decided on value investing after considering the other approaches, and realized that value investing best suited his personality and skillset.
  • He clearly states that others are now focused much more on “franchises” but he can’t do that, so he looks at value.
  • He mentions Warren Buffett and how he simply is the best investor in history, and it is difficult to replicate his style of investing.
  • He also feels that investing using a passive approach will allow the combination of good compounding and longevity (being able to do it for a long time) to beat the guy that runs around looking at companies and exhausts himself after a few years (Peter Lynch).
  • He thinks growth investing can work, but there is too much risk to lose money
  • Diversification is important because they are not looking at the company specifically, so they need to allow for mistakes
  • He owns 65-70 stocks. He likes to take a 5% position in a stock he likes and will occasionally get up to 10% if he really likes the position. This means he has many smaller (probably 1% or less) positions.
  • He makes small initial buys to just start tracking the company.
  • Don’t be in a rush to sell. He looks to hold stocks 3-4 years, figuring that’s how long it will take for them to reach their fair value. He’s very patient.
  • He likens his process to that of a grocery store or retailer. He buys something knowing he will resell it, hopefully at a profit. He doesn’t have the goal of “holding it forever”.
  • He ends the piece by summarizing his approach:
    • We look for stocks that are depressed.
    • Why are they depressed?
    • Are they selling below book value?
    • Is good will in book value?
    • What has been the high-low over the past 10 years?
    • Have they any cash flow?
    • Have they any net income?
    • How have they done over the last 10 years?
    • What is their debt level?
    • What kind of industry are they in?
    • What are their profit margins?
    • How are their competitors doing?
    • Is this company doing poorly compared to its competitors?

I really like Schloss and feel I can emulate his style of investing for the duration of my career. He uses nothing but Value Line, annual reports, and the WSJ for his price quotes. It is a simple process to replicate over and over again, and he works from 9-4:30 every day, promoting a great lifestyle and an investing career that has longevity (an underrated aspect of overall returns). 

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