Among the famous investors of Graham-and-Doddsville that Warren Buffett refers to as ‘super-investors’, the most conservative yet in no small measure less successful was Walter Schloss. He was perhaps the closest to what was commonly referred to as ‘cigar-butt’ investing, and someone who perhaps followed the bargain hunting principles in stock picking perfectly and over the longest period of time with highly successful results.
“Over the entire 45-year period from 1956-2000, Schloss and his son Edwin, who joined him in 1973, have provided their investors a compounded return of 15.3% per year…Every dollar a fortunate investor entrusted with Schloss at the start of 1956 has grown to $662 by the end of 2000, including all charges for management. A dollar investing in the S&P Index would have been worth $118.”*
A lot has been said about the legend and his style of investing – a very simple style based on buying depressed stocks trading close to book value, of companies with some record of reasonable performance and with little or no debt. His famous lack of interaction with management because “I am not a good judge of people” and dependence on buying something that is so cheap that “something good will happen” are largely responsible for his success. The sheer conviction and high degree of comfort that Schloss had on this approach that he consistently followed with his son for over 40 years to give results surpassing most traditional investors is almost ascetic.
“Their office – Castle Schloss has one room – is spare; they don’t visit companies; they rarely speak to management; they don’t speak to analysts; and they don’t use the Internet. Not wanting to be swayed to do something they shouldn’t, they limit their conversation. There is an abundance of articulate and intelligent people in the investment world, most of whom can cite persuasive reasons for buying this stock or that bond. The Schlosses would rather trust their own analysis and their long standing commitment to buying cheap stocks. This approach leads them to focus almost exclusively on the public financial statements that public firms must produce each quarter.”*
* from the book “Value Investing: From Graham to Buffett and beyond” by Greenwald
Their approach to investing is something that any individual investor with conviction in it can follow with reasonable effort and study – with no need to predict the future or understand businesses beyond a point; but with only a single objective of weeding out companies to find price less than value.
Here is a valuable document that Walter Schloss shared a few years ago, when asked about how he goes about making his investing choices – a clear and simple set of golden rules of the Walter Schloss style of truly conservative investing.