Everybody has heard of Buffett. Every value investor knows Graham. But Walter Schloss is a man that for most of his life, despite putting up one of the all time great track records, spent most of his life under the radar. I suspect he liked it that way. Many value investors have extensively studied Schloss and his methods, but there are still many who have not heard of him, or haven’t read much about him. Schloss passed away last year at the age of 95.
This post will share my thoughts on the man and his methods, along with providing links to read more if you’re interested. This post is a static page on my blog, but I thought I’d reproduce it here as a blog post for the readers who haven’t read it.
Who is Walter Schloss?
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.
- 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: “Why We Invest the Way We Do“. This is a must read.
- Superinvestors of Graham and Doddsville: This piece will be featured in numerous spots on this blog. Schloss is one of Buffett’s featured “Superinvestors”.
- Why Walter Schloss is Such a Great Investor An excellent piece from Barron’s from 1985
- Schloss: “Factors Needed to Make Money in the Stock Market” Short list of 16 investment principles according to Schloss.
- Transcript of Schloss giving a seminar to Columbia Business School on the subject of Value Investing.
- Yes, You Can Beat the Market: A Fortune piece profiling the performance track records of Schloss, Bill Ruane, Charlie Munger, and Warren Buffett.
- 65 Years on Wall Street: An interview with Schloss by the Grant Interest Rate Observer
- Going Out on Top: A Profile of Walter and Edwin Schloss from 2003
- Schloss Notes on Investing From Schloss-Value-Investing Blog
- Video of Walter Schloss at the Ben Graham Centre for Value Investing (Outstanding video where Schloss discusses his investment philosophy)
Books containing more details on Schloss:
- Snowball: Warren Buffett and the Business of Life by Alice Schroeder
- Value Investing: From Graham to Buffett and Beyond by Bruce Greenwald
- Supermoney by Adam Smith
- Memoirs of Walter J. Schloss: A Personal and Family History by Walter Schloss (I have not read this, and can’t seem to locate a copy thus far)
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 career, it would be: Buy cheap stocks, make 20% per year, sleep well at night, enjoy life.