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Buy the Book: Print
The book is about decision-making where uncertainty exists in oil drilling but it translates to other business and investment decisions where the questions are: Should I invest money? How much should be risked? Should the risk be shared with others?
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Walter Schloss was a flexible investor. He’s the perfect example of someone who stayed true to his investment philosophy but adjusted his strategy to the changing times.
The changes Schloss made weren’t drastic like Warren Buffett though. Schloss knew his limits. His strategy changed slightly over decades because he had no choice. The opportunities disappeared.
In the late 1940s at Graham-Newman, under Ben Graham’s tutelage, he hunted for Graham’s net-nets — companies trading below net working capital or net current assets.
That strategy carried over to his own firm in the 1950s until the opportunities dried up. With net-net’s no longer prevalent, he relied more on book value. First, he looked for stocks trading at a third of book value, then book value or less, and finally, a slight premium to book value. Other factors were involved but he understood assets best.
Schloss’s gradual evolution over his 45-year investing career paid off. His limited partners benefited with a 15.7% annual return after fees.
A fee structure, by the way, that would make any fund managers squeamish. Schloss believed his pay should be tied to success. So he got 25% of realized gains. But if there were losses, his limited partners were made whole before he earned a cent. He only got paid when his partners made money.
Investors can learn a lot from Schloss’s six-decade-long career. Thankfully, he shared his experiences over the years. Continue Reading…
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John Moody’s 1906 classic is a guide to the hazards, mistakes, and lessons of investing in the early 1900s. It’s a detailed account of how much, and yet how little, investing has changed over the last century.
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The Berkshire Hathaway annual letter was released this past weekend. It was one of Warren Buffett’s shortest letters to date.
But it wasn’t without a few lessons. As usual, Buffett scattered several lessons and reminders for investors throughout. The lessons were just briefer than normal. Let’s dive in.
Buy Businesses, Not Pieces of Paper
Whatever our form of ownership, our goal is to have meaningful investments in businesses with both durable economic advantages and a first-class CEO. Please note particularly that we own stocks based upon our expectations about their long-term business performance and not because we view them as vehicles for timely market moves. That point is crucial: Charlie and I are not stock-pickers; we are business-pickers.
Buffett makes two important points. He’s not trying to profit off of short-term swings in the market. He knows market timing is a fool’s errand. Continue Reading…
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Every investment brings with it a range of potential outcomes. That range is wider or narrower depending on the investment. Somewhere in that range sits a most likely outcome. And knowing the most likely outcome helps with making investment decisions.
Of course, the most likely outcome isn’t guaranteed to happen. For example, if the most likely outcome has a 70% chance of success, it means there’s a 30% chance something else happens. So what if that something else happens?
As Peter Bernstein makes clear, in an old interview with Jason Zweig, knowing the consequences is the most important part of understanding risk: Continue Reading…
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Walter Schloss started as a runner on Wall Street in 1934. By 1940, he had taken a couple of courses taught by Ben Graham. Which led to him working under the master at Graham-Newman. Then Schloss started his own partnership in 1956 after Graham-Newman shut down.
Warren Buffett described Walter’s investing style this way:
Walter has diversified enormously, owning well over 100 stocks currently. He knows how to identify securities that sell at considerably less than their value to a private owner. And that’s all he does. He doesn’t worry about whether it’s January, he doesn’t worry about whether it’s Monday, he doesn’t worry about whether it’s an election year. He simply says, if a business is worth a dollar and I can buy it for 40 cents, something good may happen to me. And he does it over and over and over again. He owns many more stocks than I do — and is far less interested in the underlying nature of the business; I don’t seem to have very much influence on Walter. That’s one of his strengths; no one has much influence on him.
Schloss’s genius was that he knew himself well to build a strategy that fit himself perfectly. He knew what he understood (avoided what he didn’t understand), his risk tolerance, and his personality. And he kept it simple.
Continue Reading…
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