Walter Schloss’s background

Walter Schloss started his career working for Benjamin Graham, at the firm Graham & Newman.

Then, at 39, he started his own investment firm.

One of the most interesting things about Walter Schloss is that he worked alone, and later only with his son Edwin, for most of his career.

They kept their organization simple, using only a telephone and a few securities subscriptions.

They were always secretive about their holdings and rarely appeared for interviews or the like.

Despite this simplicity, Walter Schloss achieved an annual return of 15.3% over 45 years!

Walter Schloss’ strategies for value investing

Walter Schloss can be seen as a more focused version of Benjamin Graham.

Graham came up with the strategies, but Schloss used them better. Especially Net-Nets (buying companies at 2/3 of current assets – total liabilities), which means you can’t make a loss, because the company has more cash and inventory than liabilities.

• Schloss liked to hold up to 30 investments at a time to minimize the risk associated with each individual position.
• Each position was between 1-5% of the total portfolio
• He never talked to the management of companies, his purchases were mainly based on quantitative factors. In several interviews he mentions that he admired Peter Lynch’s ability to value companies based on their management team, but that he himself partly lacked that talent, and that he would never be able to travel around and talk to people.
• Walter Schloss only bought clearly undervalued companies, focusing on Net-Nets or companies whose share prices were unjustifiably low due to various problems.
• Starting from the Margin of Safety: In his own words: “[There] Should be a few points spread between market and estimated work-out despite percentage gain.”
• Then he sold when the stock went up to its minimum possible true value, or liquidated; this worked for him for over 50 years. But towards the end of his career he acknowledged that it became much more difficult due to faster dissemination of information through the Internet.
• Walter Schloss also found several quality companies and so-called “Tenbaggers”, including GEICO and Xerox (which he was not allowed to buy as an analyst at Graham & Newman). He then bought them on his own, but sold far too early. This is a common trait among value investors.

A funny quote about Walter Schloss:

Warren Buffett said:

“He knows how to identify securities that are selling at significantly less than their value to a private owner: And that’s all he does… He owns many more shares than I do and is much 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; nobody has much influence on him.”

 

Read on: About the strategies of 20 other famous value investors.