Walter Schloss, a money manager who earned accolades from Warren E. Buffett for the steady returns that he achieved by applying lessons learned directly from the father of value investing, Benjamin Graham, has died. He was 95.
He died Feb. 19 at his home in Manhattan, according to his son, Edwin. The cause was leukemia.
From 1955 to 2002, by Mr. Schloss' estimate, his investments returned 16% annually on average after fees, compared with 10% for the S&P 500.
His firm, Walter J. Schloss Associates, became a partnership, Walter & Edwin Schloss Associates, when his son joined him in 1973. Mr. Schloss retired in 2002.
Mr. Buffett, a Graham disciple whose stewardship as chairman of Berkshire Hathaway Inc. has made him one of the world's richest men and most emulated investors, called Mr. Schloss a “superinvestor” in a 1984 speech at Columbia Business School.
Mr. Buffett again saluted Mr. Schloss as “one of the good guys of Wall Street” in his 2006 letter to Berkshire Hathaway shareholders.
“Walter Schloss was a very close friend for 61 years. He had an extraordinary investment record, but even more important, he set an example for integrity in investment management,” Mr. Buffett said last week in a statement. “Walter never made a dime off of his investors unless they themselves made significant money. He charged no fixed fee at all and merely shared in their profits,” Mr. Buffett said.
“His fiduciary sense was every bit the equal of his investment skills,” Mr. Buffett said.
BEGAN AS "RUNNER'
To Mr. Buffett, Mr. Schloss' record disproved the theory of an efficient market — one that, at any given moment, assigns a reasonably accurate price to a stock. If companies weren't routinely overvalued and undervalued, Mr. Buffett reasoned, long-term results such as Mr. Schloss' couldn't be achieved, except through inside information.
Mr. Schloss, who never attended college, began working on Wall Street in 1935 as a securities delivery “runner” at Carl M. Loeb & Co.
He said that Armand Erpf, the partner in charge of the statistical department, recommended that he read “Security Analysis” by Graham and David Dodd, published a year earlier. The book became a classic in the field.
The firm then paid for Mr. Schloss to take two courses with Mr. Graham sponsored by the
New York Stock Exchange Institute.
Mr. Schloss stayed in touch with Mr. Graham while serving four years in the U.S. Army during World War II, then went to work for him before striking out on his own.
The Schloss theory of investing, passed from father to son, involved minimal contact with analysts and company management, and maximum scrutiny of financial statements, with particular attention to footnotes.
FOCUS ON STATEMENTS
“The Schlosses would rather
trust their own analysis and their long-standing commitment to buying cheap stocks,” Bruce Greenwald, Judd Kahn, Paul Sonkin and Michael van Biema wrote in “Value Investing: From Graham to Buffett and Beyond” (Wiley, 2001).
“This approach leads them to focus almost exclusively on the published financial statements that public firms must produce each quarter. They start by looking at the balance sheet,” the authors wrote.
“Can they buy the company for less than the value of the assets, net of all debt? If so, the stock is a candidate for purchase,” the authors wrote.
An example was copper company Asarco Inc. The Schlosses bought shares in 1999 as the stock bottomed out at about $13. In November that year, Grupo Mexico SA de CV (GMEXICOB) bought Asarco for $2.25 billion in cash and assumed debt, paying almost $30 a share.
"GUTS TO BUY'
“Basically, we like to buy stocks which we feel are undervalued, and then we have to have the guts to buy more when they go down,” Mr. Schloss said at a 1998 conference sponsored by Grant's Interest Rate Observer. “And that's really the history of Ben Graham.”
In his 2006 letter to shareholders, Mr. Buffett wrote that Mr. Schloss took “no real risk, defined as permanent loss of capital,” and invested “in about 1,000 securities, mostly of a lackluster type. A few big winners did not account for his success.”
Edwin Schloss, now retired, said last week in an interview that his father's investing philosophy and longevity were probably related.
“A lot of money managers today worry about quarterly comparisons in earnings. They're up biting their fingernails until 5 in the morning,” Mr. Schloss said.
“My dad never worried about quarterly comparisons. He slept well.”
Walter Jerome Schloss was born on Aug. 28, 1916, in New York, the son of Jerome H. Schloss and the former Evelyn Gomprecht, according to a paid notice in The New York Times. He attended the Franklin School in Manhattan, now part of the Dwight School.
EARLY LESSONS
Mr. Schloss learned lessons about earning and saving from his father, whose radio factory warehouse burned down before a single unit was sold, and from his mother, who lost her family inheritance in the 1929 market crash, Alice Schroeder wrote in her book, “The Snowball: Warren Buffett and the Business of Life” (Bantam, 2008).
Mr. Schloss enlisted in the Army on Dec. 8, 1941, the day after Japan's surprise attack on Pearl Harbor, and served as a second lieutenant. He served in Iran as part of the Signal Corps, then moved to the Pentagon in Washington to complete his tour of duty.
During this period, he stayed in touch with Mr. Graham, who was looking for a securities analyst just as Mr. Schloss was finishing up his wartime service. Mr. Schloss joined Graham-Newman Corp. in 1946.
Mr. Schloss first met Mr. Buffett at an annual meeting of wholesaler Marshall Wells, which drew both investors because it was trading at a discount to net working capital, according to a 2008 article in Forbes magazine. When Mr. Buffett joined Graham-Newman, he and Mr. Schloss shared an office.
Although Mr. Buffett became a star inside the firm, Mr. Schloss was “pigeonholed as a journeyman employee who would never rise to partnership,” Ms. Schroeder, a Bloomberg News columnist, wrote in her book.
Mr. Schloss left Graham-Newman in 1955 and, with $100,000 from an initial 19 investors, began buying stocks on his own.
His wife, Louise, died in 2000. They also had a daughter, Stephanie.
In 2001, Mr. Schloss married the former Ann Pearson.
