walter schloss_ bio, books, investment philosophy, quotes etc
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Walter Schloss_ Bio, Books, Investment Philosophy, Quotes EtcTRANSCRIPT
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6/28/2015 Walter Schloss: Bio, Books, Investment Philosophy, Quotes etc
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Im not very good at judging people. So I found that it was much better to look at
the figures rather than people. I didnt go to many meetings unless they were
relatively nearby. I like the idea of company-paid dividends, because I think it makes
management a little more aware of stockholders, but we didnt really talk about it,
because we were small. I think if you were big, if you were a Fidelity, you wanted to
go out and talk to management. Theyd listen to you. I think its really easier to use
numbers when youre small. -- Walter Schloss
Walter Schloss: Background & bio
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6/28/2015 Walter Schloss: Bio, Books, Investment Philosophy, Quotes etc
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Walter Schloss is not nearly as well known as other investors such as Warren Buffett
but Schloss has gained a reputation as one of the best value investors ever.
Like Buffett, Schloss was a direct student of Benjamin Graham, and is one of the
Super Investors mentioned by Warren Buffett in his famous essay, The Super
Investors of Graham-And-Doddsville
(http://www.tilsonfunds.com/superinvestors.html) (required reading for all
ValueWalk readers -- it is free and can be found on the link above).
Schloss was born in 1916 and passed away during 2012 at the age of 95
(http://www.bloomberg.com/news/2012-02-20/walter-schloss-superinvestor-who-
earned-buffett-s-praise-dies-at-95.html). Schloss never went to college and at 18
years old, he worked as a runner for on Wall Street at Carl M. Loeb & Co. One day, a
partner of the company, Armand Erpf, recommended that Schloss read Security
Analysis by Graham and David Dodd, which had been published a year earlier. The
firm then paid for Schloss to take two courses with Graham.
Schloss eventually went to work for the Graham-Newton Partnership and during 1955
Schloss launched his own value fund.
He ran the fund until 2000. He also spent four years during his long career serving in
the U.S. army fighting in WWII.
Schloss was known for being very frugal. His total office expense was an estimated
$11,000 while his partnership generated a net profit of $19,000,000.
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Schloss stopped actively managing other peoples money in 2003. He then became a
treasurer for the Freedom House, a non-profit group devoted to furthering democracy
and human rights.
Buffett called Schloss a superinvestor in a 1984 speech at Columbia Business School
and Buffett saluted Schloss as one of the good guys of Wall Street in his 2006 letter
to Berkshire Hathaway shareholders.
Upon Schloss death, Buffett, who was a close friend for more than 60 years released
the following statement: He had an extraordinary investment record, but even more
important, he set an example for integrity in investment management. Walter never
made a dime off of his investors unless they themselves made significant money. He
charged no fixed fee at all and merely shared in their profits. His fiduciary sense was
every bit the equal of his investment skills.
Walter Schloss: Investment record
From 1955 to 2002, by Schloss estimate, his investments returned 16% per annum on
average after fees, compared with 10% for the S&P 500 over the period.
He took no fees unless the fund achieved a certain hurdle rate. Once the fund hit a
certain Hurdle rate Schloss took 25% of the profit. Schlosss fund was set up very
similar to Buffetts original partnership.
Below is a chart of returns from Schloss fund (unfortunately it only goes up until 1984
and does not cover 1984-2000).
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6/28/2015 Walter Schloss: Bio, Books, Investment Philosophy, Quotes etc
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(http://www.valuewalk.com/wp-content/uploads/2010/02/Schloss-
returns.jpg)
The chart below shows the performance of the Schloss partnership upto 2000,
compared to the S&P Industrial Index.
(http://www.valuewalk.com/wp-content/uploads/2010/02/Schloss-v-SP.png)
Walter Schloss: Investment philosophy
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6/28/2015 Walter Schloss: Bio, Books, Investment Philosophy, Quotes etc
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While not much has been written about Walter Schloss investment philosophy, here
are some facts that have stood out in writings about him.
Schloss stayed devoted to Grahams pure style of value investing and did not evolve
into more of a qualitative investor like Buffett.
Schloss bought many companies that Buffett would have described as cigar-butt
companies. Similar to Graham, Schloss sought to acquire as many companies trading at
a 1/3 net working capital as possible.
Schloss relied mostly on the Value Line Investment Survey for finding attractive
stocks.
Some value characteristics Schloss used:
Companies with real assets with little or no debt, providing a margin of safety in
case the company liquidates.
20% or more discount to book value. He calculated book value based of cash, fixed
assets, and other tangibles.
A good dividend yield.
Managements that own a lot of stock.
Honest management that does not overpay itself.
Do not be afraid to hold cash.
Buying after a dividend cut. Investors usually overreact to dividend cuts which
provides a golden opportunity to invest.
From the book Value Investing: From Graham to Buffett and Beyond:
...The Schlosses would rather trust their own analysis and their
longstanding commitment to buying cheap stocks...This
approach...leads them to focus almost exclusively on the published
financial statements that public firms must produce each quarter.
They start by looking at the balance sheet. Can they buy the
company for less than the value of the assets, net of all debt? If so,
the stock is a candidate for purchase...
According to Schloss himself:
...Basically we like to buy stocks which we feel are undervalued,
and then we have to have the guts to buy more when they go
down...And thats really the history of Ben Graham...
Still, even though Schloss was a value investor at heart, he had a talent for making
money in different ways. According to Fortune Magazine, Schloss shorted Yahoo and
Amazon before the dot-com crash which made him massive amounts of money.
According to Buffett:
...[Schloss took] no real risk, defined as permanent loss of capital
[and invested] in about 1,000 securities, mostly of a lackluster
type. A few big winners did not account for his success...
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6/28/2015 Walter Schloss: Bio, Books, Investment Philosophy, Quotes etc
http://www.valuewalk.com/walter-schloss/ 6/10
Heres an excerpt from a great Forbes article
(http://www.forbes.com/forbes/2008/0211/048.html) detailing Schloss investment
process:
...Schloss screens for companies ideally trading at discounts to
book value, with no or low debt, and managements that own
enough company stock to make them want to do the right thing by
shareholders. If he likes what he sees, he buys a little and calls the
company for financial statements and proxies. He reads these
documents, paying special attention to footnotes. One question he
tries to answer from the numbers: Is management honest
(meaning not overly greedy)? That matters to him more than
smarts. The folks running Hollinger International were smart but
greedynot good for investors
...Schloss doesnt profess to understand a companys operations
intimately and almost never talks to management. He doesnt think
much about timingam I buying at the low? selling at the high?or
momentum. He doesnt think about the economy. Typical work
hours when he was running his fund: 9:30 a.m. to 4:30 p.m., only a
half hour after the New York Stock Exchanges closing bell
Warren Buffett on Schloss
Heres an excerpt from Buffetts essay, The Super Investors of Graham-And-
Doddsville (http://en.wikipedia.org/wiki/The_Superinvestors_of_Graham-and-
Doddsville).
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6/28/2015 Walter Schloss: Bio, Books, Investment Philosophy, Quotes etc
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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 thats about it.
In introducing me to (Schloss) Warren had also, to my mind,
described himself. He never forgets that he is handling other
peoples 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.
Walter has diversified enormously, owning well over 100 stocks
currently. He knows how to identify securities that sell at
considerably less than their value to a private owner.And thats all
he does. He doesnt worry about whether it its January, he doesnt
worry about whether its Monday, he doesnt worry about whether
its an election year. 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 dont seem to have very much influence on
Walter. Thats one of his strengths; no one has much influence on
him.
Buffett in his 2006 Berkshire Hathaway Annual Letter had more to say about Schloss.
Below is the excerpt:
Let me end this section by telling you about one of the good guys of
Wall Street, my long-time friend Walter Schloss, who last year
turned 90. From 1956 to 2002, Walter managed a remarkably
successful investment partnership, from which he took not a dime
unless his investors made money. My admiration for Walter, it
should be noted, is not based on hindsight. A full fifty years ago,
Walter was my sole recommendation to a St. Louis family who
wanted an honest and able investment manager
Following a strategy that involved no real risk defined as
permanent loss of capital Walter produced results over his 47
partnership years that dramatically surpassed those of the S&P
500. Its particularly noteworthy that he built this record by
investing in about 1,000 securities, mostly of a lackluster type. A
few big winners did not account for his success. Its safe to say that
had millions of investment managers made trades by a) drawing
stock names from a hat; b) purchasing these stocks in comparable
amounts when Walter made a purchase; and then c) selling when
Walter sold his pick, the luckiest of them would not have come
close to equaling his record. There is simply no possibility that
what Walter achieved over 47 years was due to chance.
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6/28/2015 Walter Schloss: Bio, Books, Investment Philosophy, Quotes etc
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I first publicly discussed Walters remarkable record in 1984. At
that time efficient market theory (EMT) was the centerpiece of
investment instruction at most major business schools. This theory,
as then most commonly taught, held that the price of any stock at
any moment is not demonstrably mispriced, which means that no
investor can be expected to overperform the stock market
averages using only publicly-available information (though some
will do so by luck). When I talked about Walter 23 years ago, his
record forcefully contradicted this dogma.
And what did members of the academic community do when they
were exposed to this new and important evidence? Unfortunately,
they reacted in all-too-human fashion: Rather than opening their
minds, they closed their eyes. To my knowledge no business school
teaching EMT made any attempt to study Walters performance
and what it meant for the schools cherished theory.
Instead, the faculties of the schools went merrily on their way
presenting EMT as having the certainty of scripture. Typically, a
finance instructor who had the nerve to question EMT had about
as much chance of major promotion as Galileo had of being named
Pope.
Tens of thousands of students were therefore sent out into life
believing that on every day the price of every stock was right (or,
more accurately, not demonstrably wrong) and that attempts to
evaluate businesses that is, stocks were useless. Walter
meanwhile went on over performing, his job made easier by the
misguided instructions that had been given to those young minds.
After all, if you are in the shipping business, its helpful to have all of
your potential competitors be taught that the earth is flat.
Maybe it was a good thing for his investors that Walter didnt go to
college.
A quote from Buffett, origin unknown:
...He knows how to identify securities that sell at considerably less
than their value to a private owner: And thats all he does. He owns
many more stocks than I do and is far less interested in the
underlying nature of the business; I dont seem to have very much
influence on Walter. That is one of his strengths; no one has much
influence on him...
Walter Schloss: Quotes
You never really know a stock until you own it.
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6/28/2015 Walter Schloss: Bio, Books, Investment Philosophy, Quotes etc
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I worked for Benjamin Graham for 9 1/2 years, and Ben said he was going to retire
and move to California, I had to get another job, so one of the people who was a
stockholder of Graham Newman came to me and said, Walter, if you start a fund, I
will put some money in it. We ended up with $100,000. The structure was that I
would not get paid unless we realized gains. The kind of stocks I bought were not
growth stocks. Graham was really value-oriented. In those days he would buy
stocks that were selling below working capital. There were less of them, but they
were still around.
Walter Schloss: Books
Value Investing: From Graham to Buffett and Beyond
(http://www.amazon.com/gp/product/B000YIWF4C?ie=UTF8&tag=valueinves08c-
20&linkCode=as2&camp=1789&creative=9325&creativeASIN=B000YIWF4C) By Bruce
Greenwald
The Memoirs of Walter J. Schloss: A Personal and Family History
(http://www.amazon.com/gp/product/B000N490NQ?ie=UTF8&tag=valueinves08c-
20&linkCode=as2&camp=1789&creative=9325&creativeASIN=B000N490NQ) Walter
Schloss
A Modern Approach to Graham and Dodd Investing (Wiley Finance)
(http://www.amazon.com/gp/product/0471584150?ie=UTF8&tag=valueinves08c-
20&linkCode=as2&camp=1789&creative=9325&creativeASIN=0471584150) By Thomas
P. Au
Exclusive ValueWalk Walter Schloss Series
1. Part One: Introduction To The Master Of Deep Value
(http://www.valuewalk.com/2014/12/walter-schloss-part-one-introduction-master-
deep-value/)
2. Part two: Discipline and Consistency (http://www.valuewalk.com/2014/12/walter-
schloss-investing-process/)
3. Part three: The Magic Of Compounding (http://www.valuewalk.com/2015/01/walter-
schloss-investment-style/)
4. Part four: 16 Factors Needed to Make Money in the Market
(http://www.valuewalk.com/2015/01/walter-schloss-16-principles/)
5. Part five: Making Money Out of Junk (http://www.valuewalk.com/2015/01/walter-
schloss-part-five-making-money-junk/)
6. Part six: The Right Stuff (http://www.valuewalk.com/2015/01/walter-schloss-part-six-
right-stuff/)
7. Part seven: Learning From The Master (http://www.valuewalk.com/2015/01/walter-
schloss-investments/)
8. Part eight: Graham-Newman (http://www.valuewalk.com/2015/01/walter-schloss-
graham-newman/)
Walter Schloss: Articles
The Superinvestors of Graham and Doddsville by Warren Buffett
(http://csinvesting.org/wp-content/uploads/2014/10/The-Superinvestors-of-Graham-
and-Doddsville-by-Warren-Buffett.pdf)
Schloss_May_8_2008 (http://csinvesting.org/wp-
content/uploads/2014/10/Schloss_May_8_2008.pdf)
schloss_lecture (http://csinvesting.org/wp-
content/uploads/2014/10/schloss_lecture.pdf)
Profit_Guru_Walter_Schloss_interview (http://csinvesting.org/wp-
content/uploads/2014/10/Profit_Guru_Walter_Schloss_interview.pdf)
graham_reminiscence (http://csinvesting.org/wp-
content/uploads/2014/10/graham_reminiscence.pdf)
14136584-walter-schloss-barrons-19851 (http://csinvesting.org/wp-
content/uploads/2014/10/14136584-walter-schloss-barrons-19851.pdf)
16 Investing Rules from Walter Schloss (http://csinvesting.org/wp-
content/uploads/2014/10/16-Investing-Rules-from-Walter-Schloss.docx)
Walter Schloss OID Interview (http://csinvesting.org/wp-
content/uploads/2014/10/Walter-Schloss-OID-Interview.pdf)
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Factors to Make Money in Stocks (1994)
(http://valuehunter.files.wordpress.com/2009/03/schloss_factors.pdf)
Criteria for Liquidations Where Money is Held by Company
(http://www.grahamanddoddsville.net/wordpress/Files/Gurus/Walter%20Schloss/Criteria%2520for%2520Liquidation%2520-
%2520Schloss.pdf)
Seminar in Value Investing (1993)
(http://valuehunter.files.wordpress.com/2009/03/schloss_lecture.pdf)
Benjamin Graham and Security Analysis: A Reminiscence (1999)
(http://valuehunter.files.wordpress.com/2009/04/graham_reminiscence.pdf)
Profiles in Investing: Walter and Edwin Schloss
(http://www.grahamanddoddsville.net/wordpress/Files/Gurus/Walter%20Schloss/Bottom%20Line%20April%2017%20-
%20Walter%20Schloss.pdf)
Sixty-Five Years on Wall Street
(http://www.grahamanddoddsville.net/wordpress/Files/Gurus/Walter%20Schloss/Schloss-
Sixty-Five-Years.pdf)
Columbia Business School Upper Level Seminar in Value Investing
(http://www.grahamanddoddsville.net/wordpress/Files/Gurus/Walter%20Schloss/Schloss%2520Seminar%2520at%2520CBC.pdf)
Factors Needed to Make Money in the Stock Market
(http://www.grahamanddoddsville.net/wordpress/Files/Gurus/Walter%20Schloss/Factors%2520needed%2520to%2520make%2520money%2520in%2520stocks%2520-
%2520Schloss.pdf)
The Right Stuff Why Walter Schloss is Such A Great Investor
(http://www.grahamanddoddsville.net/wordpress/Files/Gurus/Walter%20Schloss/Walter%20Schloss%20-
%20The%20Right%20Stuff%20-%20Barrons%20-%2002-25-85.pdf)
INVESTING YES, YOU CAN BEAT THE MARKET WITH VALUE
(http://money.cnn.com/magazines/fortune/fortune_archive/1995/04/03/224106/index.htm)
Depression Survivors Weigh In (http://theguruinvestor.com/2009/04/07/a-
superinvestor-and-other-depression-survivors-weigh-in/)
At 91, the man Warren Buffett famously dubbed a superinvestor is still picking
unloved stocks. (http://www.forbes.com/forbes/2008/0211/048.html)
Walter Schloss: Videos
Lecture by Schloss given in 2008
(http://www.bengrahaminvesting.ca/Resources/Video_Presentations/Guest_Speakers/2008/Schloss_2008.htm).
The Best of Value Investing - Part 5 (https://www.youtube.com/watch?v=v-
7e_97icWY&feature=youtu.be)