Walter Schloss

Walter Schloss, the money manager who earned accolades from Warren Buffett (BRK/A) for the steady returns he achieved by applying lessons learned directly from the father of value investing, Benjamin Graham, has died. He was 95.

He died on Feb. 19 at his home in Manhattan, according to his son, Edwin. The cause was leukemia.

From 1955 to 2002, by Schloss’s estimate, his investments returned 16 percent annually on average after fees, compared with 10 percent for the Standard & Poor’s 500 Index. (SPX) His firm, Walter J. Schloss Associates, became a partnership, Walter & Edwin Schloss Associates, when his son joined him in 1973. Schloss retired in 2002.

Buffett, a Graham disciple whose stewardship of Berkshire Hathaway Inc. has made him one of the world’s richest men and most emulated investors, called Schloss a “superinvestor” in a 1984 speech at Columbia Business School. He again saluted Schloss as “one of the good guys of Wall Street” in his 2006 letter to Berkshire Hathaway shareholders.

“Walter Schloss was a very close friend for 61 years,” Buffett said yesterday in a 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.”

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America lost an investing icon over the weekend; although few individuals outside the small fraternity of Graham and Doddsville are privy to the unique brilliance which Walter Schloss possessed. That fact is almost as sad as his passing.

The genius of Mr. Schloss was rooted in simplicity and tempered with patience. But above all, his stunning success was a direct result of his fundamental sense of value and his practice of self-reliance. You see, Schloss never relied on anyone but himself to achieve his stellar results. He never cared what others were buying and he never lost heart if the overall market outperformed his holdings in the short term. In the long term, he waxed the overall market for decades and left virtually every other investment and fund manager in his wake.

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Walter Schloss – like Warren Buffett – was a student of Ben Graham. However, Schloss took a more arithmetical approach to investing. Schloss remained more quantitative than Warren Buffett. He was never quite comfortable with the Phil Fisher’s scuttlebutt approach. In this way, Schloss stuck closer to Ben Graham’s teachings than Warren Buffett did.

This is what Warren Buffett said of Walter Schloss in his 2006 letter to shareholders:

“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.”

And, finally, this is what Warren Buffett said of Walter Schloss in 1984:

“… 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.”