In 1996, Walter Schloss gave a lecture at the Behavioral Economics Forum at the Harvard Faculty Club in Cambridge, Mass. The speech, entitled “Why We Invest The Way We Do”, is a summary on how Walter and Edwin Schloss approach value investing at their investment partnership. This speech can be found here:
Walter Schloss and Value Investing: “Why We Invest The Way We Do”
Here are my notes from the speech:
- Schloss does not approach investing as a science. His term “part art and part science with some boundaries.”
- Walter and Edwin Schloss are not behavioral economists – they just buy cheap stocks: “…it’s just bargain hunting.”
- As referenced before, Schloss decries the increased number of value investors in the field which makes finding value increasingly difficult
- Believes in significant diversification which he knows many of his counterparts at other investing firms do not necessarily subscribe to
- Ben Graham said: “We buy stocks like groceries not like perfume.”
- Does not disclose stock holdings: They do not want competition. What is interesting, and something I have not thought about before: By telling other investors that you are long XYZ company, and XYZ company begins to fall, you, by disclosing your position and thoughts, may have set an effective floor on the holding thereby making it more difficult for you to buy it at a lower price.
- Buying depressed stocks reduces their stress. Fantastic! Points to the fact that his low stress attitude has enabled him to manage the fund for 40 years.
- Looks to protect on the downside, “and, if we are lucky, something good may happen.” Reminds me of the quote: “Focus on the downside and the upside will take care of itself.”
- Again points out the problems with talking to management of ailing companies: “When we buy into a company that has problems, we find it difficult talking to management as they tend to be optimistic. ” Again points out that they are not the best judge of character so they are playing to their strengths here.
- Pays out their realized gains at the end of each year. Average holding period = 4 years.
- Incredible Quote: “We want to buy cheap stocks based on a small premium over book value, usually a depressed market price, a record that goes back at least 20 years…and one that doesn’t have much debt.”
- Second Incredible Quote: “Price is the key factor in the purchase of a stock compared to what we think the company is worth.”
- Does not manage large amounts of capital and so does not have the issues that big money managers have.
- “If you are honest, hardworking, reasonably intelligent and have good common sense, you can do well in the investment field as long as you are not too greedy and don’t get too emotional when things go against you.”
As always, another incredible cache of information from Walter Schloss on Value Investing.
