The investor library

Walter Schloss

1916-2012 · Walter J. Schloss Associates · No meetings, no computer, forty-five years.

Overview

He never went to college, never visited a company, never spoke to a management team, never employed an analyst and never used a computer. He worked from published figures in a room borrowed from another firm, with his son, and compounded at about 15.3% a year net to his partners for forty-five years against roughly 10% for the market.

Which makes him the cleanest experiment in this library. He is the purest test of whether Graham's method works without judgement — no scuttlebutt, no management assessment, no industry insight, nothing that could be called an edge except reading the same public numbers as everyone else and being willing to buy what they revealed. If it worked for him, the method is the thing. And the shape of his last decade dates precisely when it stopped.

Background

Wall Street runner at eighteen, in 1934, when the market was a graveyard and nobody wanted the job. He asked to be moved to research and was told to take Benjamin Graham's evening classes at the New York Stock Exchange Institute instead. He did, and eventually went to work for Graham-Newman.

In 1955, when Graham wound down, Schloss started his own partnership with about $100,000 from nineteen investors. Buffett named him in "The Superinvestors of Graham-and-Doddsville" in 1984, which is the reason the record is public at all — Schloss himself never marketed, never wrote a book, and gave almost no interviews until he was in his eighties.

Style, and how it evolved

Buy below book value, and preferably below what the assets would fetch broken up. Low debt, and management owning stock. That is essentially the whole screen.

Never meet management. His reasoning was not that executives lie but that they are persuasive, and that a good story is exactly what makes an investor pay too much. Removing the meeting removed the temptation.

Enormous diversification. Around a hundred positions, sometimes more, because he accepted that he had no way to tell which of the cheap things were cheap for good reason.

Hold about four years, sell on reversion. No attempt to hold great businesses forever; he was not buying great businesses.

No leverage, ever.

The method barely evolved in fifty years, and that is the honest observation: the world changed around it. He closed the partnership in the early 2000s saying he could no longer find anything that qualified.

Performance

paid offa decisiona losswalked awaythe lifeshaded columns are the crashes — hover any mark

1955-2002: about 15.3% a year net to limited partners, against roughly 10% for the S&P 500 with dividends. ✓ Compounded across forty-seven years the gap is very large. He held around a thousand different stocks over the career and had, by his own account, very few disasters — the diversification saw to that.

The fee structure deserves as much attention as the return. He charged no management fee at all — only 25% of profits. He was paid when his partners made money and not otherwise, which in an industry built on asset-based fees is close to unique.

✓ documented, largely because Buffett published the figures

Case studies

The fee. No management fee, 25% of profits. It is not a trade, and it is the most instructive decision he made: it removed any incentive to gather assets, which removed any incentive to hold positions he did not believe in, which is how the portfolio stayed genuinely cheap for five decades. The mechanism: the compensation structure determined the investment behaviour, and almost nobody designs it that way round. ✓

1974. He bought heavily into the worst market since the Depression, from published figures, with no view on the economy and no meetings. The method required no macro opinion at all, which is precisely why it could be executed when opinions were useless. ✓

Closing in 2002. He stopped because the screen returned nothing — a discipline most managers never exercise, and the correct response to an opportunity set that has genuinely disappeared rather than temporarily narrowed. ✓

The other side of the record

A record this good is where scepticism is most worth spending, so:

The opportunity set is gone, and he said so himself. Companies trading below net asset value existed in quantity because screening was manual and coverage was thin. Both conditions ended. Closing the fund was the honest acknowledgement.

A hundred positions chosen on two published ratios is a factor, not a manager. What Schloss did by hand is now a systematic value strategy buyable for a few basis points. That is either the strongest vindication of his method or the complete elimination of the job, and it is genuinely both.

Survivorship among Graham's students is severe. Buffett's essay names the winners from a school that produced many practitioners. The ones who ran the same screen and did not compound for forty-five years did not get an essay.

The last decade of the record was materially weaker than the first three, and the approach spent long stretches out of favour that a fee-paying institutional client would not have sat through.

Four-year holds generate tax and turnover costs that the headline gross comparison tends to skip, though his net figure is the honest one and is the one used here.

Key lessons

• The balance sheet over the story. He bought what the assets said, and refused to hear anything else.
• Emotional distance is a feature. Not meeting management removed the single most reliable route to overpaying.
• Diversify when you cannot tell which one is right, which is most of the time, for most people, including him.
• Never use leverage. Forty-five years without it, through 1974 and 1987 and 2000.
• Align the fee, and the behaviour follows. No management fee meant no reason to gather assets, which meant no reason to compromise the screen.

Reading and links

• The Superinvestors of Graham-and-Doddsville — Buffett, 1984. Where the record was published, and still the primary source.
• Sixteen Factors Needed to Make Money in the Stock Market — Schloss's own one page. It is genuinely one page.
• His late interviews — 1989 and 2008. He gave very few, and they are plain-spoken to the point of bluntness.

Marked ✓ where documented. This is a profile of an investor, not a view on any security.

Profiles of investors, not views on any security, and not personal advice. Figures are marked ✓ where they are documented and ○ where they rest on secondary or private accounts — investing biography is heavily mythologised and the well-known numbers drift with each retelling. Capital is at risk.

Corrections and right of reply. Where a criticism is made of a named person it is stated as a specific measure over a stated period, attributed to its source, and separated from opinion. Assessments are opinion, honestly held, on facts believed accurate at the date shown. If anyone profiled here — or anyone acting for them — believes a fact is wrong, it will be corrected promptly and visibly, and a reply will be published alongside it on request.

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