Walter Schloss might be one of Benjamin Graham’s lesser-known disciples, but to Warren Buffett, perhaps Graham’s most famous disciple, Schloss is a “superinvestor.” In The Superinvestors of Graham-and-Doddsville, an article based on a speech Buffett gave at Columbia Business School on May 17, 1984 and appearing in Hermes, the Columbia Business School magazine, Buffett said of Schloss:
Walter never went to college, but took a course from Ben Graham at night at the New York Institute of Finance. Walter left Graham-Newman in 1955 and achieved the record shown here over 28 years.
Here is what ‘Adam Smith’ – after I told him about Walter – wrote about him in Supermoney (1972):
He has now connections or access to useful information. Practically no on 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 that’s about it.
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 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.
This is Schloss’ record, extracted from Buffett’s article (click to go the article for the full-size table on page 7):
Over 28 1/4 years between 1955 and the first quarter of 1984 (when Buffett wrote the article), WJS Limited Partners returned 5,678.8% and in the WJS Partnership returned an astonishing 23,104.7%. Annualised, that’s 16.1% in WJS Limited Partners and 21.3% in the WJS Partnership. Both dwarf the S&P’s gain of 887.2% or 8.4% annually over the same period.
Fast forward 24 years to a February 2008 Forbes article titled, Experience:
Although he stopped running others’ money in 2003–by his account, he averaged a 16% total return after fees during five decades as a stand-alone investment manager, versus 10% for the S&P 500–Schloss today oversees his own multimillion-dollar portfolio with the zeal of a guy a third his age.
The Experience article highlights a few things about Schloss that we really like (mostly because they coincide with Greenbackd’s views on investing). First, he’s an asset investor:
“Most people say, ‘What is it going to earn next year?’ I focus on assets. If you don’t have a lot of debt, it’s worth something.”
Schloss had earlier discussed his preference for assets over earnings at the New York Society of Security Analysts (NYSSA) dedication of the Value Investing Archives in November 2007 (from the article NYSAA Value Investing Archive Dedication: Walter Schloss by Peter Lindmark):
“We try to buy stocks cheap.” His investment philosophy is based on equities which are quantitatively cheap and he often holds over 100 securities. Although he expounds that, “Each one is different. I don’t think you can generalize……But I think you just have to look at each situation on its own merits and decide whether it’s worth more than its asking price.” He prefers to buy assets rather than earnings. “Assets seem to change less than earnings.”
Second, as Buffett pointed out in his article, he’s not particularly interested in the nature of the business:
Schloss doesn’t profess to understand a company’s operations intimately and almost never talks to management. He doesn’t think much about timing–am I buying at the low? selling at the high?–or momentum.
Lindmark’s article also notes Schloss’ disinterest in the underlying business:
Mr. Graham simply did not care, and tried to purchase securities strictly on a quantitative basis. Mr. Schloss advocated buying decent companies with temporary problems. He stated, ” Warren understands businesses – I don’t. We’re buying in a way that we don’t have to be too smart about the business….”
Finally, we have to admit that we admire Schloss’ gentlemanly approach to running his business:
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 Exchange’s closing bell.
You can see Schloss speaking here at the Ben Graham Center For Value Investing, Richard Ivey School of Business. Our favorite line:
If this doesn’t work, we can always liquidate it and get our money back.