Walter Schloss
Because I don’t like stress and prefer to avoid it, I never focus too much on market news and economic data. They always worry investors! Besides, I am not good at market timing, so when people ask me what I think the market is doing, their guess is as good as mine.” Instead, he said, he concentrated primarily on the price of a stock and its value, an exercise he has greater confidence in.
When Schloss started his own fund, he established the rule that he would never disclose its investment holdings: “I did that for several reasons. First, I found that investors like to focus on losing stocks, and I’d become really stressed if they came crying and asking me about what had happened. Second, I found that if people knew what I was buying, then I’d get more competition.”
(Should be incorporated after a certain critical mass)
“My average holding period was about four to five years,” Schloss explained, “and so there was plenty of time for cheap stocks to get back to their true worth. Besides, they would be treated as long-term capital gains for tax purposes.” He fondly recalled Ben Graham once saying that “one should buy stocks the way you buy groceries and not the way you buy perfume,” noting that “I felt that I was a grocery store owner, holding stocks as my inventory. Sometimes these stocks paid dividends, and so they were worth the wait. Eventually, someone would come along and offer a good price for my inventory, and I would sell.”
Unlike many fund managers who like to talk to management and understand a company’s business, Schloss’s sole interest was in looking at the statistical side of a stock. Doing so meant “focusing on the downside and not losing money,” he explained. “When a stock trades below its working capital, the investor begins to get protection.”
Schloss elaborated: “I always like to find companies with no to low debt because debt complicates things. I also like to see whether management owns enough of the company’s stock to serve in its best interests. But you often have to keep track of management’s actions, digging into the footnotes of financial statements to see if they are honest people.
“When I buy a stock, I never visit or talk to management because I think that a company’s financial figures are good enough to tell the story. Besides, management always says something good about the company, which may affect my judgment. I know a lot of good investors who like to talk to management and visit companies, but that’s not me. I don’t like that kind of stress, and if I had had to run around visiting so many companies, I would have been dead after a few years!”
What is ultimately important, Schloss said, is to be comfortable with who you are and to make sure you can sleep at night because managing other people’s money is a heavy responsibility.
Schloss explained: “We changed our strategy a little, but remained true to Graham’s principle of downside protection. We looked for stocks that were selling below their book value. What we tried to do was to buy assets at a discount instead of buying earnings. Earnings can change quickly, but assets don’t, and so the new strategy worked well for a while.”
However, it was not long before even this new book value strategy and Graham’s way of investing simply became inapplicable in the modern world. For Schloss, it was difficult to judge whether the world had become smarter or riskier. Either way, retirement beckoned, and Schloss decided to close down the business in 2001 after more than 45 years of managing money.
He explained: “I had turned 85, and one day my son said to me, ‘Dad, I can’t find cheap stocks anymore!’ So I said, ‘Let’s go out of business!’ We liquidated the partnership and gave back the money to investors.” One thing Schloss learned in his long life was the importance of avoiding stress: “Finding cheap stocks became too stressful, and so it was time to stop looking.”
Because I don’t like stress and prefer to avoid it, I never focus too much on market news and economic data. They always worry investors! Besides, I am not good at market timing, so when people ask me what I think the market is doing, their guess is as good as mine.” Instead, he said, he concentrated primarily on the price of a stock and its value, an exercise he has greater confidence in.
When Schloss started his own fund, he established the rule that he would never disclose its investment holdings: “I did that for several reasons. First, I found that investors like to focus on losing stocks, and I’d become really stressed if they came crying and asking me about what had happened. Second, I found that if people knew what I was buying, then I’d get more competition.”
(Should be incorporated after a certain critical mass)
“My average holding period was about four to five years,” Schloss explained, “and so there was plenty of time for cheap stocks to get back to their true worth. Besides, they would be treated as long-term capital gains for tax purposes.” He fondly recalled Ben Graham once saying that “one should buy stocks the way you buy groceries and not the way you buy perfume,” noting that “I felt that I was a grocery store owner, holding stocks as my inventory. Sometimes these stocks paid dividends, and so they were worth the wait. Eventually, someone would come along and offer a good price for my inventory, and I would sell.”
Unlike many fund managers who like to talk to management and understand a company’s business, Schloss’s sole interest was in looking at the statistical side of a stock. Doing so meant “focusing on the downside and not losing money,” he explained. “When a stock trades below its working capital, the investor begins to get protection.”
Schloss elaborated: “I always like to find companies with no to low debt because debt complicates things. I also like to see whether management owns enough of the company’s stock to serve in its best interests. But you often have to keep track of management’s actions, digging into the footnotes of financial statements to see if they are honest people.
“When I buy a stock, I never visit or talk to management because I think that a company’s financial figures are good enough to tell the story. Besides, management always says something good about the company, which may affect my judgment. I know a lot of good investors who like to talk to management and visit companies, but that’s not me. I don’t like that kind of stress, and if I had had to run around visiting so many companies, I would have been dead after a few years!”
What is ultimately important, Schloss said, is to be comfortable with who you are and to make sure you can sleep at night because managing other people’s money is a heavy responsibility.
Schloss explained: “We changed our strategy a little, but remained true to Graham’s principle of downside protection. We looked for stocks that were selling below their book value. What we tried to do was to buy assets at a discount instead of buying earnings. Earnings can change quickly, but assets don’t, and so the new strategy worked well for a while.”
However, it was not long before even this new book value strategy and Graham’s way of investing simply became inapplicable in the modern world. For Schloss, it was difficult to judge whether the world had become smarter or riskier. Either way, retirement beckoned, and Schloss decided to close down the business in 2001 after more than 45 years of managing money.
He explained: “I had turned 85, and one day my son said to me, ‘Dad, I can’t find cheap stocks anymore!’ So I said, ‘Let’s go out of business!’ We liquidated the partnership and gave back the money to investors.” One thing Schloss learned in his long life was the importance of avoiding stress: “Finding cheap stocks became too stressful, and so it was time to stop looking.”
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