Sixteen Investing Lessons From Walter Schloss by Vishal Khandelwal, Safal Niveshak

What do you call an investor who earned 16% per annum on average over a 47 year period – that’s a 1,070-bagger – and is not called Warren Buffett?

What if I told you that this investor…

  • Did not care about corporate earnings
  • Rarely spoke to managements and analysts
  • Did not watch the stock market during the day
  • Never owned a computer, and
  • Did not even go to college

…you would not say anything but just ask me to reveal his name fast, so as to re-confirm whether such a Super Investor has ever existed in the investment circles.

Well, before I tell you this man’s name, you must read what Buffett had to say about him…

…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. 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 him. That’s one of his strengths; no one has much influence on him.

Now, if you haven’t already read below to find out who I am talking about, let me now disclose the name of this man, whom Buffett termed a Super Investor in his famous essay, The Superinvestors of Graham-And-Doddsville.

The Name is Schloss…Walter Schloss

“Walter who?” you may wonder if you have not read much about the world’s best-ever investors.
Walter Schloss was an outlier among outliers, and yet you’ve probably never heard of him. Even I didn’t hear about him until a few years back, while I was in the process of discovering about value investing.

Walter Schloss graduated high school in 1934 during the Great Depression and got a job as a “runner” at a small brokerage firm. As a runner, his job was to run and deliver securities and paperwork by hand to various brokers on Wall Street.

The next year, in a stroke of luck, when he asked his senior for a better profile at the brokerage, he was asked to read a book called Security Analysis by Ben Graham.

After Schloss read Security Analysis, he wanted more, so he convinced his employer to pay for him to attend Graham’s classes. Subsequently, he started working during the daytime while studying at Ben Graham’s classes at night.

Schloss became an ardent follower of Graham, and even helped him write part of The Intelligent Investor. Anyways, this was when World War II broke out and Walter Schloss enlisted in the army for four years.

He however stayed in contact with Graham, which paid off when he got an offer to work for Graham’s partnership upon returning from the war in 1946…under the man who had once rejected Warren Buffett for a job.

So, if you wish to become a successful value investor yourself (who doesn’t?), and wonder which MBA to do or which brokerage to start your career with, you can take a leaf from Schloss’ books.

As he showed, you don’t need a prestigious degree or a great pedigree to start your work towards becoming a sensible, successful value investor.

Of course, Schloss had his stars extremely well-aligned in terms of getting to work alongside Graham and Buffett, but then remember that he started as just a ‘paperboy’ without a college degree, before working his way through investing stardom.

As a matter of fact, Walter Schloss left Graham-Newman in 1955 and, with US$ 100,000 from a few investors, began buying stocks on his own.

But Where is Walter Schloss Hiding?

You may wonder why there’s not much ever written about Schloss, despite the fact that his investment track record almost compares to Buffett’s and Graham’s?

Perhaps the reason is that Schloss’ investment philosophy was so simple that there isn’t much to say about it.

Schloss, as his friends including Buffett reveal, hated stress and tried to avoid it by keeping things simple.

“Investing should be fun and challenging, not stressful and worrying,” he once said.

His son Edwin, who worked for him for many years, said this in a memoir after Walter Schloss died in 2012 at the age of 95…

A lot of money managers today worry about quarterly comparisons in earnings. They’re up biting their fingernails until 5 in the morning. My dad never worried about quarterly comparisons. He slept well.

Investing Lessons from Walter Schloss

Keeping things simple and keeping stress away while investing are two of the several big lessons that Schloss has to teach us investors.

When it comes to analyzing stocks/businesses, a lot of people get stressed trying to perfect their analyses, and thus work extremely hard to seek a lot of information, most of which is useless.

But as Walter Schloss’ life and experience teaches, unless complexity can improve the explanation of something, it is better to proceed toward simpler theories.

While fund managers and other stock experts were breaking their heads with complex financial models and theories, Schloss stuck with the simple application of value investing that had been around for decades…at least since the time Graham was teaching. He multiplied his original capital 1,070 times over 47 years while handsomely beating the S&P 500 by simply comparing price to value.

Warren Buffett wrote this in his 1986 letter to shareholders…

When Walter and Edwin (his son) were asked in 1989 by Outstanding Investors Digest, “How would you summarize your approach?” Edwin replied, “We try to buy stocks cheap.”

So much for Modern Portfolio Theory, technical analysis, macroeconomic thoughts and complex algorithms.

Another big lesson Walter Schloss taught was the importance of paying right prices for stocks. He perfectly mastered Graham’s teaching that you must buy stocks like you buy groceries (you want them cheap), not the way you buy perfumes (expensive is better).

He also laid importance on buying good businesses when their stock prices fell from where he bought them the first time.

As he said in one of the very few conference speeches he gave…

…you have to have a stomach and be willing to take an unrealized loss. Don’t sell it but be willing to buy more when it goes down, which is contrary, really, to what people do in this business.

Schloss also stressed about the importance of independent thinking. When asked at the same conference that given the market sometimes knows more than the investors, how can one justify whether buying a falling stock would be a right decision or not, Walter Schloss replied…

You have to use your judgment and have the guts to follow it through and the fact that the market doesn’t like it doesn’t mean you are wrong. But, again, everybody has to make their own judgments on this. And that’s what makes the stock market very interesting because they don’t tell you what’s going to happen later.

Staying true to your own self and knowing our strengths and weaknesses was also what Schloss was great at.

He told this to students at a lecture in Columbia Business School in 1993…

Ben Graham didn’t visit managements because he thought the figures told the story. Peter Lynch visited literally thousands of companies and

1, 2  - View Full Page