Walter Schloss was a master of humility. In all my reading, he’s probably the most humble investor…and honest, straightforward, and simplistic.
He’s no Warren Buffett. He knew it. And he didn’t try to be him either.
What did he get for not emulating Buffett? Very little attention for one. Few people knew he existed until Buffett outed him in The Superinvestors of Graham and Doddsville in 1984.
He also built a decent track record for himself even though he fell a little short of Buffett’s (20.5% annually over the 45 years from 1956 to 2000).
The few interviews he sat for, he was always asked about Buffett and their association. And he always had a great answer for why he never invested like Buffett:
Warren is brilliant, there’s nobody ever been like him and there never will be anybody like him. But we cannot be like him. You’ve got to satisfy yourself on what you want to do. Now, there are people that are clones of Warren Buffett. They’ll buy whatever Warren Buffett has. Fine. I don’t know, I don’t feel too comfortable doing that and the other thing is this. We happen to run a partnership and each year we buy stocks and they go up, we sell them and then we try to buy something cheaper.
But there are people that have made a great deal of money with them. So, again, you have to invest the way that’s comfortable for you. And the way that’s comfortable for us is to buy stocks where we have a limited risk and we buy a lot of stocks. Well, Warren, as somebody said, owning a group of stocks is a defense against ignorance, which I actually think that’s to some extent true because we don’t go around visiting companies all the country and Peter Lynch did. He was killing himself. He was seeing 300 companies a year and he was running from one company to another and what’s that going to do?
We’re not set up that way. And Graham wasn’t. And Graham’s argument was that the directors of these companies are responsible for their success. If the company isn’t doing well, change the management, do things that make the company do a better job. And it takes longer that way. No company wants to lose money continually…They’ll either merge or they’ll change the management. So we do not spend a great deal of time talking to management or talking to our partners. We don’t want to talk to our partners at all.
He elaborated further on following Buffett with a highly concentrated portfolio:
Psychologically I can’t, and Warren as I say, is a brilliant, he’s not only a good analyst, but he’s a very good judge of businesses and he knows, I mean my gosh, he buys a company and the guy’s killing himself working for Warren. I would have thought he’d retire. But Warren is a very good judge of people and he’s a very good judge of businesses. And what Warren does is fine. It’s just that it’s not our — we just really can’t do it that way and find five businesses that he understands, and most of them are financial businesses, and he’s very good at it. But you’ve got to know your limitations.
Schloss’s investing style met at the intersection of his knowledge and comfort. He knew what he knew. More importantly, he knew what he didn’t know and avoided the things he knew he couldn’t do or was uncomfortable doing.
You won’t find a better lesson than that.
Circle of competence is often used to describe investing within the limits of your knowledge. Straying outside your circle lowers your chance of success.
Of course, the knowledge part can be improved. You can learn more. You can grow your circle. You can hone the edges of your circle.
Few people think about the comfort part in a similar way. Staying within your circle of comfort is just as important. Maybe more so.
Sixty-Five Years on Wall Street