Many individual investors may not be familiar with the investment guru that Warren Buffett calls a “super investor.” Walter Schloss studied under Ben Graham in 1935 and started his own fund in 1955. Schloss’ son joined the fund
in 1973 and subsequently renamed it Walter & Edwin Schloss Associates. During the 1956 to 2000 period, the fund earned a compounded annual rate of return of 15.7%, compared to the market’s return of 11.2% annu-ally over the same period.
Gates Capital Management's Excess Cash Flow (ECF) Value Funds have returned 14.5% net over the past 25 years, and in 2021, the fund manager continued to outperform. Due to an "absence of large mistakes" during the year, coupled with an "attractive environment for corporate events," the group's flagship ECF Value Fund, L.P returned 32.7% last Read More
Walter Schloss did not go to college and got his start doing clerical work for the financial firm Loeb Rhoades. He was encouraged to read Ben Graham’s famous “Security Analysis” book and took two courses taught by Graham.
In 2001, Walter’s son Edwin could not find any cheap stocks to buy, so the two closed the fund. Deciding the market was overvalued would prove to be a prudent move. Walter Schloss is now retired, but much can be gleaned from his investing philosophy and style.
During a video conference with a number of analysts, Schloss summed up his investing style by saying, “I would rather buy the things the way they are, rather than the way you think they may be at a later date.”
Adam Smith wrote about Schloss in his 1972 book “Supermoney” and said, “He has no connections or ac-cess to useful information…He looks up the numbers in the manuals and sends for the annual reports.”
In addition to reading financial reports from the company, he sub-scribed to Value Line and used its investment research tools and reports to make buy and sell decisions.
Warren Buffett highlighted Schloss’ investing style in an article written for the Columbia Business School Magazine called “The Superinvestors of Graham-and-Doddsville.” Buf-
fett said that Schloss “doesn’t worry about whether it’s January…whether it’s Monday…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.”
Finding Value Companies the Schloss Way
A disciple of Graham and his value investing technique, Schloss looked for stocks that were hitting new lows and those trading at a price lower than their book value per share. Schloss looked for companies having temporary problems, as these might be selling at a discount to their actual value. He avoided companies with debt and preferred that management own a solid portion of its own stock. He also liked stocks with a long his-tory (10 years or more) and avoided investing in foreign companies.
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