Walter Schloss
WATCHWalter & Edwin Schloss Associates
The purest Graham disciple in history — 47 years of 15.3% annualized returns buying diversified baskets of cheap stocks with perfect integrity, but his statistical, non-concentrated approach and death limit direct applicability.
Small-Cap / Micro-Cap Specialists
Score Breakdown
Investment Philosophy & Portfolio Style
Philosophy
Walter Schloss was perhaps the most faithful practitioner of Benjamin Graham's original deep-value methodology. His approach was distilled in his famous '16 Factors Needed to Make Money in the Stock Market': (1) Price is the most important factor — buy below value. (2) Try to establish the value of the company by looking at the assets. (3) Use book value as a starting point. (4) Have patience — stocks don't go up immediately. (5) Don't buy on tips or for quick moves. (6) Don't sell on bad news. (7) Don't be afraid to be a loner. (8) Be sure of your reasoning. (9) Have a philosophy and try to follow it. (10) Don't be in too much of a hurry to sell. (11) Buy near the low of the past few years. (12) Buy assets at a discount rather than trying to buy earnings. (13) Listen to suggestions but make your own decisions. (14) Don't let emotions affect your judgment. (15) Try to buy assets at a discount — be persistent. (16) Don't panic in bad markets. His approach was almost purely statistical/quantitative: buy stocks trading below book value (or better, below net current asset value), hold diversified baskets of these cheap stocks, and wait for mean reversion. He explicitly did NOT meet with management, did NOT visit companies, did NOT analyze competitive dynamics or moats in depth. He simply looked at balance sheets, identified cheap stocks, and bought them. This was Graham in its purest, most mechanical form.
Portfolio Style
Highly diversified — Schloss typically held 80-100+ stocks at any time, sometimes more. Individual position sizes were small, usually 1-3% of the portfolio. He bought stocks across all sectors and industries, with no particular sector expertise. The only common thread was cheapness relative to book value or asset value. He preferred stocks making new lows, trading near multi-year lows, with low price-to-book ratios. He did not use leverage, did not short, and charged very modest fees (no management fee — just 25% of profits above a hurdle rate, later reduced). Turnover was moderate to low — he would hold stocks for 2-4 years on average, waiting for them to return to fair value. He reinvested dividends and compounded capital steadily. The approach was almost the opposite of concentrated, quality-focused investing — it was diversified, statistical, and purely price-driven.
Background
Born 1916 in New York City. Did not attend college. Took Benjamin Graham's investment course at the New York Institute of Finance in 1934 and worked directly for Graham at Graham-Newman Corporation from 1934 to 1955 alongside Warren Buffett. After Graham retired and closed the fund, Schloss started his own investment partnership, Walter J. Schloss Associates, in 1955 with $100,000 in capital. His son Edwin joined the firm, and it became Walter & Edwin Schloss Associates. Operated out of a single room, with no computer, no Bloomberg terminal, no analysts — just Value Line sheets and annual reports. Ran the partnership for 47 years until closing in 2002, when Schloss was 85 years old. He was featured by Warren Buffett in the famous 1984 essay 'The Superinvestors of Graham-and-Doddsville' as one of the Graham disciples who disproved the efficient market hypothesis. Passed away in 2012 at age 95. One of the purest practitioners of Graham's original investment philosophy ever documented.
Track Record
Outstanding over nearly 5 decades. From 1956 to 2002 (47 years), Walter Schloss Associates compounded at approximately 15.3% per year gross (compared to about 11.5% for the S&P 500 over the same period). An original $1,000 invested in 1955 would have grown to approximately $662,000, compared to about $130,000 for the S&P 500 — roughly 5x better compounding over the full period. He achieved this with only 6 losing years in 47 (a remarkable consistency rate). Net of his modest performance fees (25% of profits), investors still earned well above the market. The partnership had no down year worse than -10%, demonstrating the downside protection inherent in buying diversified baskets of cheap stocks. Buffett featured Schloss in his 'Superinvestors' essay as compelling evidence that value investing works. Schloss's track record is one of the longest and most consistent documented records of market outperformance in investing history.
Notable Holdings
Schloss bought what were often called 'cigar butts' — companies that were cheap on a statistical basis but often lacked exciting growth prospects. These included industrial companies, manufacturers, retailers, and financial companies trading below book value. Specific names from various accounts include companies like Southdown (cement), Cleveland-Cliffs, various small banks and insurers, and industrial companies in cyclical downturns. He avoided technology stocks almost entirely because they lacked the tangible book value he used as his primary valuation metric. His portfolio at any given time was a cross-section of the cheapest stocks in America by price-to-book metrics.
Transparency & Integrity
Transparency(Score: 5/10)
Medium. Schloss was a private person who ran a small partnership. He did not write extensive investor letters or publish research. His partnership agreements and annual performance figures have been published and verified (including by Buffett). His '16 Factors' list is publicly available. He gave a few interviews later in life (including to Outstanding Investor Digest) where he explained his approach clearly. His method was extremely simple and transparent in the sense that anyone could understand and replicate it — the transparency was in the method rather than in specific position disclosure. After closing the partnership in 2002, the historical record has been well-documented. However, real-time position tracking was never available.
Integrity(Score: 10/10)
Exceptionally high — among the highest of any documented investor. Schloss charged no management fee for most of his career — only 25% of profits above a hurdle rate. This meant that in years he lost money, he earned nothing. This is the most aligned fee structure possible: he only made money when his investors made money. He invested his own capital alongside partners. He operated from a single room with minimal overhead, never expanding the firm, never hiring analysts, never empire-building. He was described by Buffett and other contemporaries as one of the most honest and humble people in the investment business. He never promoted himself, never appeared on CNBC, never sought publicity. He lived modestly and let his track record speak for itself over nearly 50 years. No scandals, no ethical issues, no regulatory problems whatsoever. He represents the platinum standard of investor integrity.
Relevance to Us
Moderate relevance with important caveats. Schloss's philosophy aligns well with our 'floor price' concept — buying below asset value is essentially buying with a high-confidence floor. His obsession with balance sheet cheapness, his refusal to use leverage, and his long-only orientation match our approach. His incredible track record validates the concept that downside protection (buying cheap) leads to good long-term returns. However, several important differences exist: (1) Schloss was maximally diversified (80-100+ stocks), we want concentration. (2) He bought purely on statistical cheapness without understanding the business deeply — we want deep business understanding. (3) He completely ignored business quality, competitive dynamics, and growth potential — we care about these. (4) His approach would miss every great technology company because they lack heavy tangible book value. (5) He is deceased, so no positions to follow. (6) His 'cigar butt' approach has become much harder in modern markets with better information dissemination. Best used as a philosophical touchstone for the power of buying cheap and the importance of simplicity and integrity.