While not as well known as fellow Columbia University value investors Warren Buffett and Benjamin Graham, Walter Schloss produced one of the best stock investing track records ever. And in a recent piece for Stockopedia, Rupert Hargreaves looks at how he did it.
Schloss, who worked under Graham at the Graham-Newman Corporation, is one of the highly successful investors that Buffett mentioned in a 1984 speech that later became an essay, “The Superinvestors of Graham-and-Doddsville”. He used a deep value approach to picking stocks “and sought to acquire as many companies trading at 1/3 net working capital as possible,” writes Hargreaves. Schloss also looked for stocks that traded at a discount to book value, traded at a low P/E multiple, had existed for more than ten years, had no long-term debt, were trading at or near its 52-week low, had a high insider ownership, and had a good dividend yield, he adds.
Schloss — who never went to college — estimated that his investments returned 16% per annum on average after fees vs. 10% for the S&P 500 from 1955-2002, according to Hargreaves, a remarkable run. Schloss explained how his own strategy differed from Buffett’s by saying he “went with a more passive approach to investing which may not be as profitable but if practised long enough [the compounding would achieve better than average returns]…I also liked the idea of owning a number of stocks. Warren Buffett is happy with owning a few stocks and he is right if he’s Warren but when you aren’t, you have to do it the way that’s comfortable for you and I like to sleep nights.”