Walter Schloss……value hunter
Source: Value Walk, Schloss Speech at CBS, Walter Schloss Memo
One better way to understand investment strategy is clone the best in markets. But the catch lies what to clone and what not to clone. If you see writings on media wall you fill find stuffs written on the great investors are mostly personal in nature…i.e. achievements, family life and so on. Is that sufficient, simple answer is no.
This is abstract profile of legendary investor Walter Schloss.
Walter Schloss passed away in 2012, he had a phenomenal success in investing where he compounded at almost 16% over 47 years.
Investment Philosophy of Walter Schloss
Schloss belong to Ben Graham school, most of his style are inspired from Graham.
- Discount to book value, low PE, existence for long time, no long term debt, owner promoter and good dividend yield.
Schloss believed that while some talent is needed, value investing can be taught, the only skill that is required is discipline. Schloss liked to test himself, controlling his emotions and waiting for a stock to fall further before buying, even though he liked the stock in the first place when it was at a higher price. This discipline and patience can be linked to his success; waiting for the perfect opportunity can be the key to successful value investing.
Words of Wisdom
Price is the most important factor to use in relation to value.
Try to establish the value of the company. Remember that a share of stock represents part of business and is not just a piece of paper.
Use the book value as a starting point and try to establish the value of the enterprise. Be sure that debt does not equal to 100% of equity.
Have patience, stocks do not go up immediately.
Don’t buy on tips or for a quick move. Let the professional do that if they can. Don’t sell on bad news.
Don’t be afraid to be a loner but be sure that you are correct in your judgment. You can’t be certain 100% but try to look for weakness in your thinking. Buy on a scale and sell on a scale up.
Have the courage of your convictions once you have made a decision.
Have a philosophy of investment and try to follow it. The above is a way that I have found successful.
Don’t be in too much of a hurry to sell. If the stock reaches a price that you think is a fair one, then you can sell but often because a stock goes up say 50%, people say sell it and button up your profit. Before selling try to reevaluate the company again and see where the stock sells in relation to its book value. Be aware of the level of the stock market. Are yields low and P-E ratios high. If the stock market historically high. Are people very optimistic etc?
When buying a stock, I find it helpful to buy near the low of the past few years. A stock may go as high as 125 and then decline to 60 and you think it attractive. 3 years before the stock sold at 20 which shows that there is some vulnerability in it.
Try to buy assets at a discount than to buy earnings. Earnings can change dramatically in a short time. Usually assets change slowly. One has to know how much more about a company if one buys earnings.
Listen to suggestions from people you respect. This doesn’t mean you have to accept them.
Remember it’s your money and generally it is harder to keep money than to make it. Once you lose a lot of money it is hard to make it back.
Try not to let your emotions affect your judgment. Fear and greed are probably the worst emotions to have in connection with the purchase and sale of stocks.
Remember the word compounding. For example, if you can make 12% a year and reinvest the money back, you will double your money in 6 yrs, taxes excluded. Remember the rule of 72. Your rate of return into 72 will tell you the number of years to double your money.
Prefer stocks over bonds. Bonds will limit your gains and inflation will reduce your purchasing power.
Be careful of leverage. It can go against you.
(Source: 1994, Walter Schloss Memo)
Conclusion: key theme is patience that’s what Walter Schloss says. It’s a strategy that takes time to develop understand and become accustomed to, but after first ten years, it should be easy. Walter Schloss personally for me is one of 19 gurus always I get inspired and adored.
By the way Walter never went to school!
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