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John Huber
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John Huber is the portfolio manager of Saber Capital Management, LLC, an investment firm that manages separate accounts for clients. Saber employs a value investing strategy with a primary goal of patiently compounding capital for the long-term. John also writes about investing at the blog... More
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Base Hit Investing
  • Who Is Walter Schloss? 8 comments
    Apr 17, 2013 7:37 AM

    Walter Schloss is a role model for all aspiring value investors. He is the most influential investor to me personally based on his 5 decade long performance as well as his investing style. Schloss was a compounding machine that hit base hit after base hit. He was the Ted Williams of investing.

    Bio Highlights:

    • Returns of 20% per year for 47 years (15.3% net to his investors, double the 7% return of the S&P during that period).
    • High school graduate without a college degree
    • First got a job on Wall Street at age 18 in 1934 as a runner. Wanted to learn investing and got a piece of key advice from a mentor: "Read Graham and Dodd's Security Analysis, and that's all you'll need to know"
    • Later worked for Ben Graham at Graham-Newman, spending his time methodically looking for cheap stocks
    • After Graham decided to retire and close his fund, Schloss started his partnership with 19 partners and $100,000 of capital in 1955
    • Operated a solo-operation until his son Edwin later joined him. The two of them never had any other employees, despite managing 9 figures later in their career (in one of his later years, his firm made $19 million in profits against just $11,000 of expenses!)
    • Famous for being frugal, simple. He worked out of the same small one room office for the entire duration of his career. Never owned a computer, never used the internet.

    Schloss Investment Philosophy:

    • Methodical, value based investor. Schloss and his son Edwin famously summed up their investment philosophy in one sentence: "We buy cheap stocks"
    • Followed a Graham style value approach to investing throughout his entire career
    • Schloss would use Value Line for info on companies, and would send for their annual reports to dig deeper
    • Rarely talked to management, choosing to invest only on the numbers. Specifically, he liked to look at the assets (book value) more than the income statement.
    • He liked to buy stocks at low price to book ratios, and when he did look at earnings, he liked low prices to normalized earnings
    • He liked stocks with long (15-20 year) histories and track records. He would study how earnings and asset values fluctuated over various cycles. He liked using the balance sheet because "asset values fluctuate more slowly than earnings do"
    • Diversified, cheap basket of stocks was his strategy for risk. He repeatedly said "I don't like losing money".
    • Schloss often owned 60 stocks or more at a time, sometimes as many as 100. Schloss occasionally would concentrate up to 10% or more of his fund on a stock that he really liked. But he mainly liked to own a lot of stocks because he claimed not to be a good judge of business trends or management capability (as opposed to Warren Buffett). So he needed to take a diversified approach so he could "sleep well".
    • He owned his stocks for an average of 4 years

    Schloss is one of my favorite investors of all time. I love his methodical, common sense approach to investing. He provides a road map for long term success. Buy value, diversify adequately (but not excessively), be patient. What I like most about Schloss is the way he ran his business. His typical office hours were 9am-4:30pm. He came in, looked through Value Line for cheap stocks and read annual reports. He has said that this passive style of investing has enabled him to live a low-stress life, and has allowed him to continue to invest as he got older. He said that while others had higher rates of returns at times, he was able to outlast them, and thus achieve a longer track record because his style of investing was enjoyable and easy to maintain. He contrasted his approach to that of Peter Lynch, who had to retire after 13 years of managing Magellan because he was spending so much time working and traveling, visiting companies, etc... Schloss' style of investing could be replicated by most people, if they have the temperament and patience that Schloss had.

    Schloss is not as widely acclaimed as most investors are with similar track records, but Schloss made a point to stay out of the spotlight throughout his career. Because of this, there is not a lot of material to study on Schloss' investment ideas. But below are some key articles that I could locate that reveal how good Schloss was. Some of them were written or transcribed from Schloss' own public appearances. They portray Schloss as a simple man that sticks to his strategy regardless of the noise around him. I strongly recommend studying Walter Schloss in as much detail as possible. He is an example that investing success can be achieved through a methodical application of simple, replicable investing principles.

    Schloss Links (Many thanks to GrahamandDoddsville.net and ValueWalk.com for a few of these links):

    Books containing more details on Schloss:


    Quotes about Schloss:

    Warren Buffett said in his famous "Superinvestors" address:

    "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."

    Buffett also later discussed Schloss' simple approach:

    "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."

    Finally, this is Buffett in Adam Smith's book Supermoney:

    "He has no connections or access to useful information. Practically no one 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.In introducing me to (Schloss) Warren had also, to my mind, described himself. 'He never forgets that he is handling other people's money, and this reinforces his normal strong aversion to loss.' He has total integrity and a realistic picture of himself. Money is real to him and stocks are real - and from this flows an attraction to the 'margin of safety' principle."

    If I could briefly summarize Schloss investment career, it would be: Buy cheap stocks, make 20% per year, sleep well at night, enjoy life.

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Comments (8)
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  • Tom Lloyd
    , contributor
    Comments (136) | Send Message
     
    Thanks for the fascinating story of Walter Schloss. You should write a book on him! Thanks for the links.
    21 Apr 2013, 09:50 AM Reply Like
  • John Huber
    , contributor
    Comments (155) | Send Message
     
    Author’s reply » Thanks Tom. Schloss is one of my favorite investors to read about. I appreciate the nice words...
    21 Apr 2013, 11:24 AM Reply Like
  • Kevin Humphreys
    , contributor
    Comments (3) | Send Message
     
    John--Thank you for this very interesting article on Mr. Schloss. I think he is a vastly underrated investor and I appreciate the time and effort you put into linking up all these resources on him.
    3 Jun 2013, 04:07 PM Reply Like
  • John Huber
    , contributor
    Comments (155) | Send Message
     
    Author’s reply » Thanks Kevin. I love reading about Schloss and I think many individual investors (and professionals as well) would benefit by studying. Glad you found it helpful...
    4 Jun 2013, 09:47 AM Reply Like
  • Jake Huneycutt
    , contributor
    Comments (1423) | Send Message
     
    Great blog, Kevin. I really appreciated all the resources you put together on Schloss; he's my favorite investor of all-time.
    18 Jun 2013, 07:00 AM Reply Like
  • John Huber
    , contributor
    Comments (155) | Send Message
     
    Author’s reply » Thanks Jake. I enjoy reading your research as well. And yes, Schloss is one of my favorite investors to study/read about. Incredible track record using a very simple, methodical process.
    18 Jun 2013, 11:52 AM Reply Like
  • Jake Huneycutt
    , contributor
    Comments (1423) | Send Message
     
    Btw, my apologies on your name, John. Think I looked above at Kevin's comment and had his name stuck in my head.
    18 Jun 2013, 12:05 PM Reply Like
  • John Huber
    , contributor
    Comments (155) | Send Message
     
    Author’s reply » I figured... no problem Jake.
    18 Jun 2013, 12:29 PM Reply Like
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