Inside The Mind Of One Of The Greatest Gurus Of Value Investing
Walter Schloss: One of the Greatest Minds of Value Investing Everyone has heard of Warren Buffett and perhaps a few of you know some other names like Peter Lynch from Fidelity and John Templeton from the Franklin Templeton Funds, but I bet most of...
Summary
Walter Schloss: One of the Greatest Minds of Value InvestingEveryone has heard of Warren Buffett and perhaps a few of you know some other names like Peter Lynch from Fidelity and John Templeton from the Franklin Templeton Funds, but I bet most of you have never heard about the legendary stock-picker, Walter Schloss. Schloss was one of the world’s best investors of all time, despite never having even touched a computer or used the Internet. Schloss died in 2012 at the ripe old age of 95, so let’s find out some more about him and start at the beginning.Schloss never attended college, and at the young age of 18 he started out as a “runner” on Wall Street… a runner was someone who literally ran the orders from the brokerage firm to the trading floor. Then World War II struck and after Schloss served his time of duty he returned to his passion and went back to Wall Street. Schloss decided to educate himself on the business of stocks through courses offered by the New York Stock Exchange, and (get this!) was lucky to have legendary value investor Benjamin Graham as one of his teachers. Of course Ben Graham was the biggest influence on Warren Buffet and others and is considered the Father of Securities Analysis. Schloss excelled at this because he then went to work for the Graham-Newman partnership where he honed his investing skills. And, in 1955, he founded his own firm: Walter J. Schloss Associates - where he racked up one of the best records in investing history until his passing in 2012. When he decided to close his firm in the early 2000s, his record stood at a compound average annual return of 16% per year over a 40 year career – that’s pretty astounding! To put that in perspective, that’s the equivalent of turning $100,000 into $38 million over a 40-year span – pretty remarkable!Book Value and HonestySo how he achieved such spectacular returns was the result his investing style which was based on the value investing techniques developed Benjamin Graham. As Walter put it so simply, “we buy cheap stocks.” While the concept sounds overly-simple, what he really meant to say was “we buy stocks cheap”… and by cheap, he didn’t mean buying up the cheapest stocks in terms of price, but buying stocks that were selling well below their intrinsic or book value.In an interview he gave to Forbes many years ago, he said, “I focus on assets. If you don’t have a lot of debt, it’s worth something.” Aside from buying firms below book value, Schloss looked at the management of a company and whether they were overly greedy or honest. While he did not personally visit each company, he relied on his observations and analysis of how management ran the business over time… and that gave him a good prediction of whether the business would or would not prosper in the future.And, ultimately, he found the combination of honest management and buying at a large discount to book value turned out to be a very powerful combination.“Own It”While investing in stocks with honest management and a low price relative to book value was key to his success, he also understood the importance of adequately diversifying his holdings, stuffing over one hundred companies into his portfolio. In fact, if he saw a good opportunity, he just had to buy it. As he stated in an interview in 2003, “the important part is to have some money in the stock. If you don’t have any money in a stock you tend to forget about it.” And that is so true… so where he saw value, he added the company to his portfolio, and committed himself to following the company.Schloss was also firm in his convictions. In fact, as a contrarian, Schloss was also famously fine with Warren Buffett’s criticism that diversification was protection against ignorance. In fact, in one of his talks, Buffett went on to praise Schloss’s stubbornness, saying “He owns many more stocks than I do and is...
First published
02/03/2016
Genres
Duration
8 minutes
Parent Podcast
The Steve Pomeranz Show
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