Walter Schloss

Walter Schloss

Walter J. Schloss (1916–2012) was an American investor and fund manager. Rather than attend college, he started work as a runner on Wall Street at the age of 18 and took investment courses taught by the legendary Benjamin Graham at the New York Stock Exchange Institute.

He eventually went to work for Benjamin Graham at the Graham-Newman Partnership. In 1955, Schloss left to start his own investment firm, eventually managing money for his own investors. By maintaining a manageable asset size, Schloss averaged a 15.3% compound return over the course of 45 years versus 10% for the S&P 500.

When, in 2001, he could not find any cheap stocks to buy on the basis of an overvalued market, he decided to close the fund, a decision that proved to be rather prudent.

Warren Buffett named him one of the ‘Superinvestors of Graham-and-Doddsville’, who disproved the academic position that the market was efficient and that beating the S&P 500 was “pure chance”.

Summary

Schloss provides a roadmap for long-term success: buy value, diversify adequately (but not excessively) and be patient. His typical office hours were 9 am to 4:30 pm. He came in, looked through Value Line for cheap stocks and read annual reports. He said that this passive style of investing enabled him to live a low-stress life and allowed him to continue investing as he got older. He also 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 with that of Peter Lynch, who had to retire after 13 years of managing Magellan because he was spending so much time working and travelling, visiting companies, etc.

Investors with Schloss’ temperament and patience could easily replicate his formula for investing success.

Schloss is not as widely acclaimed as most investors with similar track records, as he made a point of staying out of the spotlight throughout his career. As a result, not much material on his investment ideas exists.

Success Formula Superinvestor

  1. MktCapM is >= US$ 300 million (basis year 2000) adjusted yearly
  2. Consider only stocks that are listed at least 10 years
  3. Price 1 Day ago within 15% of the 52 week low
  4. Take the top 1000 stocks with highest Number of Insiders owning shares
  5. Take the top 500 stocks with highest Current Dividend Yield %
  6. Take the top 250 stocks with lowest Latest Filing P/E ratio
  7. Take the top 125 stocks with lowest Latest Filing P/B ratio
  8. Take the top 75 stocks with lowest Latest Filing Long Term Debt

 

Note: As this strategy looks for high quality stocks that temporarily fell out of favor due to negative news, there is a limited benefit of timing the entry while waiting for positive Momentum (green traffic light). Hence this strategy can be executed ignoring the red traffic lights.

Hypothetical performance back-tested

Data source: Bloomberg, Calculations: meetinvest

Disclaimer

Hypothetical performance is not necessarily indicative of future results. No representation is being made that any action will achieve profits or losses similar to those displayed. The result may be overstated as neither transaction costs nor bid/ask spreads nor slippage have been considered. Output equally weighted with maximum 5% allocation per position and rebalanced monthly. Holdings are systematically replaced when the screening criteria are not met anymore. No additional buying or selling rules (technical analysis) have been employed.

Historical monthly relative performance

How to read this graph:
A green bar shows how much the guru strategy outperformed the benchmark index in a particular month. A red bar shows how much the guru strategy underperformed the benchmark index in a particular month.

Data source: Bloomberg, Calculations: meetinvest

Disclaimer

Hypothetical performance is not necessarily indicative of future results. No representation is being made that any action will achieve profits or losses similar to those displayed. The result may be overstated as neither transaction costs nor bid/ask spreads nor slippage have been considered. Output equally weighted with maximum 5% allocation per position and rebalanced monthly. Holdings are systematically replaced when the screening criteria are not met anymore. No additional buying or selling rules (technical analysis) have been employed.

Historical portfolio turnover

Data source: Bloomberg, Calculations: meetinvest

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