Thread by @safalniveshak

Walter Schloss was an outlier among outliers, and yet most investors probably never heard of him. Even I didn’t hear about him until a few years back, while I was in the process of discovering about #valueinvesting.

Schloss graduated high school in 1934 during the Great Depression and got a job as a “runner” at a small brokerage firm. As a runner, his job was to run and deliver securities and paperwork by hand to various brokers on Wall Street.

The next year, in a stroke of luck, when he asked his senior for a better profile at the brokerage, he was asked to read a book called Security Analysis by Ben Graham.

After Schloss read Security Analysis, he wanted more.

So he convinced his employer to pay for him to attend Graham’s classes. Subsequently, he started working during the daytime while studying at Ben Graham’s classes at night.

Schloss became an ardent follower of Graham, and even helped him write part of The Intelligent Investor.

This was when WWII broke out and Schloss enlisted in the army for four years.

He stayed in contact with Graham, which paid off when he got an offer to work for his partnership upon returning from the war in 1946…under the man who had once rejected Warren Buffett for a job.

If you wish to become a successful value investor (who doesn’t?), and wonder which MBA to do or which brokerage to start your career with, you can take a leaf from Schloss’ books.

As he showed, you don’t need a prestigious degree or a great pedigree to start your work towards becoming a sensible, successful value investor.

Of course, Schloss had his stars extremely well-aligned in terms of getting to work alongside Graham and Buffett..

...but then remember that he started as just a ‘paperboy’ without a college degree, before working his way through investing stardom.

As a matter of fact, Schloss left Graham-Newman in 1955 and, with US$ 100,000 from a few investors, began buying stocks on his own.

In a career spanning over 47 years, he earned 16% per annum on average. That’s a 1,070-bagger. And to achieve this, Schloss -

- did not care about corporate earnings
- rarely spoke to managements and analysts, and
- did not watch the stock market during the day.

I have learned a lot of lessons from Schloss, but here are a few of the most important.

1. Keep things simple and keeping stress away while investing.

When it comes to analyzing stocks, lot of people work extremely hard to seek a lot of information, most of which is useless.

But as Schloss’ life and experience teaches, unless complexity can improve the explanation of something, it is better to proceed toward simpler theories.

Warren Buffett wrote this in his 2006 letter to shareholders -

When Walter and Edwin (his son) were asked in 1989 by Outstanding Investors Digest, “How would you summarize your approach?” Edwin replied, “We try to buy stocks cheap.”

So much for Modern Portfolio Theory, technical analysis, macroeconomic thoughts and complex algorithms.

2. Another big lesson Schloss taught was the importance of paying right prices for stocks. He perfectly mastered Graham’s teaching that you must buy stocks like you buy groceries (you want them cheap), not the way you buy perfumes (expensive is better).

3. He laid importance on buying good businesses when their prices fell.

"…you have to have a stomach and be willing to take an unrealized loss. Don’t sell it but be willing to buy more when it goes down, which is contrary, really, to what people do in this business."

4. Schloss also stressed about the importance of independent thinking. When asked that given the market sometimes knows more than the investors, how can one justify whether buying a falling stock would be a right decision or not, Schloss replied…

"Use your judgment and have the guts to follow it through. If the market doesn’t like it doesn’t mean you are wrong. Everybody has to make their own judgments. And that’s what makes the stock market very interesting because they don’t tell you what’s going to happen later."

5. Schloss stuck to a strict set of rules when he was making his investment decisions, and invested purely on balance sheet analysis and valuation metrics that he knew and understood. He never visited managements and if he couldn’t understand something, he would just stay away.

As a guide for us, he put together a list of 16 timeless principles for becoming a better investor. These principles were published by Schloss on a one-page note in March 1994 titled – Factors needed to make money in the stock market.

Here is a summary of Schloss’ investment approach as he practiced over 47 long years…

While it might be difficult to practice Schloss’ approach (especially of buying things very cheap) in the current times of most quality businesses lacking margin of safety, there still are many lessons that we can learn from this master of deep value approach to investing.

Schloss was truly a Super Investor, who deserved a greater limelight than he received.

But then, thanks to being in the shadows, he was and still must be sleeping peacefully.

That's what great investing is all about...sleeping peacefully.

If you like ideas like this, you might enjoy my newsletter, Journal of #Investing Wisdom.

In few minutes every week, you can learn frameworks of the world’s best investors so you can pick your own wealth creating stocks.

Join 90k+ subscribers here - safalniveshak.com/newsletter/