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…