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24-01-2019, 02:15 PM
Many of you would know Warren Buffett as a billionaire investor and father of value investing. Over the past decade, many have written articles, books, interviews on Buffett’s approach to investing.
Due to Buffett’s overwhelming success and popularity, the work of other value managers becomes relatively unknown beyond the value camp. One investor in particular; a staunch practitioner of Graham’s version of conservative value investing and did not evolve into more of a qualitative investor like Buffett.
Worked with Buffett at Graham Newman Partnership as a Securities Analyst, Walter Schloss went on to manage an investment partnership from 1955 to 2002 which returned 16% per annum after fees, beating the 10% annual return generated by the S&P 500 in the same period. (Visual performance illustration in my blog here)
Walter Schloss was one of the “superinvestors” that Buffett talked about in “The Superinvestors of Graham and Doddsville”, a paragraph taken from the essay briefly describes his approach to investing:
“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’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 again. He owns many 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.”
Just like Buffett in his early days, Walter Schloss was a classic deep value investor with an emphasis on asset-backed valuations.
Walter’s strategy was to look for stocks that were discounted to its book value, low debt levels, and high insider ownership. He would also be looking for beaten-down stocks that are trading near its 52 weeks lows, trading at low P/E multiples and ideally stocks that have been around for 10 years.
In 1994, Walter Schloss revealed and shared his insights on stock picking to serve as a guide to newer investors or those without in-depth knowledge of the value investing process. He listed 16 factors that one needs to make money in the stock market.
Walter Schloss's 16 Factors for Investing Success (full list here)
Walter ensures that his portfolio is well diversified up to 100 stocks and a single position in a company never accounted for more than 20% of his portfolio. He believed that investing should be stress-free and not worry, it should be fun and challenging. His advice was to understand one’s strength and weaknesses and develop a simple strategy to suit an individual’s tolerance for risk.
Schloss’s strategy may be simplistic, but they were fundamental in building one of the greatest track records in the history of stock investing. Walter Schloss had a one-room office that was located inside the offices of Tweedy Brown, a much larger investment manager. He never used a computer or a fancy Bloomberg terminal to find his investment ideas. He didn’t rely on complicated algorithms or complex quantitative finance theories. He didn’t talk to corporate management as he preferred to focus on the numbers and data when evaluating a company for investment.
Walter Schloss’s approach to investing is certainly a good stepping stone in achieving consistent and sustainable returns. We as retail investors are more like Walter Schloss than Warren Buffett, Walter wasn’t blessed with good business acumen or a good judge of people but he excelled through discipline and patience. Importantly, we should understand our personalities better than anyone else and take advantage of our strengths.
You can read the full post here.
Due to Buffett’s overwhelming success and popularity, the work of other value managers becomes relatively unknown beyond the value camp. One investor in particular; a staunch practitioner of Graham’s version of conservative value investing and did not evolve into more of a qualitative investor like Buffett.
Worked with Buffett at Graham Newman Partnership as a Securities Analyst, Walter Schloss went on to manage an investment partnership from 1955 to 2002 which returned 16% per annum after fees, beating the 10% annual return generated by the S&P 500 in the same period. (Visual performance illustration in my blog here)
Walter Schloss was one of the “superinvestors” that Buffett talked about in “The Superinvestors of Graham and Doddsville”, a paragraph taken from the essay briefly describes his approach to investing:
“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’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 again. He owns many 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.”
Just like Buffett in his early days, Walter Schloss was a classic deep value investor with an emphasis on asset-backed valuations.
Walter’s strategy was to look for stocks that were discounted to its book value, low debt levels, and high insider ownership. He would also be looking for beaten-down stocks that are trading near its 52 weeks lows, trading at low P/E multiples and ideally stocks that have been around for 10 years.
In 1994, Walter Schloss revealed and shared his insights on stock picking to serve as a guide to newer investors or those without in-depth knowledge of the value investing process. He listed 16 factors that one needs to make money in the stock market.
Walter Schloss's 16 Factors for Investing Success (full list here)
Walter ensures that his portfolio is well diversified up to 100 stocks and a single position in a company never accounted for more than 20% of his portfolio. He believed that investing should be stress-free and not worry, it should be fun and challenging. His advice was to understand one’s strength and weaknesses and develop a simple strategy to suit an individual’s tolerance for risk.
Schloss’s strategy may be simplistic, but they were fundamental in building one of the greatest track records in the history of stock investing. Walter Schloss had a one-room office that was located inside the offices of Tweedy Brown, a much larger investment manager. He never used a computer or a fancy Bloomberg terminal to find his investment ideas. He didn’t rely on complicated algorithms or complex quantitative finance theories. He didn’t talk to corporate management as he preferred to focus on the numbers and data when evaluating a company for investment.
Walter Schloss’s approach to investing is certainly a good stepping stone in achieving consistent and sustainable returns. We as retail investors are more like Walter Schloss than Warren Buffett, Walter wasn’t blessed with good business acumen or a good judge of people but he excelled through discipline and patience. Importantly, we should understand our personalities better than anyone else and take advantage of our strengths.
You can read the full post here.