Walter Schloss and value investing

[7/10/11] Here is how Warren Buffett once described Walter's investment method:

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 that’s all he does. He doesn’t worry about whether it it’s January, he doesn’t worry about whether it’s Monday, he doesn’t worry about whether it’s 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.

Like all investors who do what’s supposedly impossible and beat the market, Walter Schloss had his rules. In 1994 he typed them up onto a single sheet of paper – 16 bullet point guidelines.

Factors needed to make money in the stock market:

# 1 - Price is the most important factor to use in relation to value.

# 2 - Try to establish the value of the company. Remember that a share of stock represents a part of a business and is not just a piece of paper.

# 3 - Use the book value as a starting point to try and establish the value of the enterprise. Be sure that debt does not equal 100% of the equity. (Capital and surplus for the common stock).

# 4 - Have patience. Stocks don’t go up immediately.

# 5 - Don’t buy on tips or for a quick move. Let the professionals do that, if they can. Don’t sell on bad news.

# 6 - Don’t be afraid to be a loner but be sure you are correct in your judgement. You can’t be 100% certain but try to look for weaknesses in your thinking. Buy on a scale and sell on a scale up.

# 7 - Have the courage of your convictions once you have made a decision.

# 8 - Have a philosophy of investment and try to follow it. The above is a way that I’ve found successful.

# 9 - Don’t be in too much of a hurry to sell. If the stock reaches a price that you think is a fair one, then you can sell but often because a stock a goes up say 50%, people say sell it and button up your profit. Before selling try to reevaluate the company again and see where the stock sells in relation to its book value. Be aware of the level of the stock market. Are yields low and P-E ratios high? Is the stock market historically high? Are people very optimistic etc?

# 10 - When buying a stock, I find it helpful to buy near the low of the past few years. A stock may go as high as 125 and then decline to 60 and you think it attractive. Three years before the stock sold at 20 which shows there is some vulnerability to it.

# 11 - Try to buy assets at a discount [rather] than to buy earnings. Earnings can change dramatically in a short time. Usually assets change slowly. One has to know much more about a company if one buys earnings.

# 12 - Listen to suggestions from people you respect. This does not mean you have to accept them. Remember it’s your money and generally it is harder to keep money than to make it. Once you lose a lot of money it is hard to make it back.

# 13 - Try not to let your emotions affect your judgement. Fear and greed are probably the worst emotions to have in connection with the purchase and sale of stocks.

# 14 - Remember the work of compounding. For example, if you can make 12% a year and reinvest the money back you will double your money in six years, taxes excluded. Remember the rule of 72. Your rate of return [divided] into 72 will tell you the number of years to double your money.

# 15 - Prefer stocks over bonds. Bonds will limit your gains and inflation will limit your purchasing power.

# 16 - Be careful of leverage. It can go against you.

It sounds simple but it is difficult to put in practice due to the difficulty to control emotions.

[7/8/15] Your Essential Guide to Walter Schloss Investing

“Basically we like to buy stocks which we feel are under-valued, and then we have to have the guts to buy more when they go down. And that’s really the history of Ben graham. That’s it.”

Warren and Walter met at a Marshell Wells shareholder meeting, while the company traded below net current asset value, and ended up sharing an office at Benjamin Graham’s investment firm in the 1950s.  At the time, Graham charged both with finding net net stocks and both ended up adopting that same strategy in their own private practices years later.

While Buffett eventually moved on to buying large well-protected firms in the 1970s, Walter Schloss was able to earn one of the most enviable records on Wall Street by sticking to Graham’s original framework. As Buffett put it in Superinvestors of Graham-and-Dodsville,

“…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.”

[10/2/15] The Profoundly Simple Wisdom of Walter Schloss on Producing Towering Returns

Schloss didn’t play by Wall Street rules. He took the unorthodox route of ignoring news and tips, sticking to cigar butts and holding thousands of stocks over his lifetime.

We’ve seen how small investors can beat the professionals on Wall Street by not playing by the same rules.

Walter Schloss was such a man.

Well he was a professional but not in the normal sense.


He didn’t play by Wall Street rules. He took the unorthodox route of ignoring news, ignoring tips, sticking to cigar butts and holding thousands of stocks over his lifetime.