How One Man Beat The Stock Market For Forty Seven Years. And No, It’s Not Warren Buffett.

Walter Schloss was one of the greatest investors of the 20th century. Schloss averaged a 15.3% compound return over the course of four and a half decades, versus 10% for the S&P 500. Between 1956 and 1984, his partnership’s annual compounded rate was an astounding 21.3%. A $1,000 investment made with Schloss in 1955 would be worth over $1 million in 2002. We are talking about turning every one dollar in 1955, into one thousand dollars by 2002!

So, how did he do it?


He simply bought stocks selling for considerably less than their intrinsic value – the very definition of value investing.

He also didn’t play by Wall Street’s rules. He took the unorthodox route of ignoring news, ignoring tips, ignoring analysts and just sticking to what he knew worked and to what made sense to him. Schloss also never used a computer (he got price quotes from the newspaper) and he didn’t go to college.

He just kept it simple.

Many investors think that making money on stocks requires using sophisticated software, or having a 6th sense about the market so they can predict its moves, but Walter’s investment strategy was surprisingly simple. In fact, it’s so simple and so profitable that all investors should pay attention to his methods and philosophies.

The Mental Side Of Investing

Here’s Mr. Schloss:

When it comes to investing, my suggestion is to first understand your strengths and weaknesses, and then devise a simple strategy so that you can sleep at night.

I don’t like stress and prefer to avoid it, I never focus too much on market news and economic data. They always worry investors.

You have to invest the way that’s comfortable for you.

Try not to let your emotions affect your judgment. Fear and greed are probably the worst emotions to have in connection with the purchase and sale of stocks.

I think investing is an art, and we tried to be as logical and unemotional as possible. Because we understood that investors are usually affected by the market, we could take advantage of the market by being rational. As [Benjamin]  Graham said, ‘The market is there to serve you, not to guide you!’

I like Ben’s analogy that one should buy stocks the way you buy groceries not the way you buy perfume.

The ability to think clearly in the investment field without the emotions that are attached to it is not an easy undertaking. Fear and greed tend to affect one’s judgment.

The Mechanical Side Of Investing

That’s the “mental” side of Schloss’ approach. Here’s him talking about the “mechanical” side:

If a stock is cheap, I start buying. Somehow I find it difficult to buy a stock that has gone up.

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.

Basically, we try to buy value expressed in the differential between its price and what we think its worth.

Use book value as a starting point to try and establish the value of the enterprise.

Price is the most important factor to use in relation to value.

We basically followed the idea of buying companies selling below working-capital — at two thirds of working-capital.

Be sure that debt does not exceed 100% of the equity.

When I buy a stock that is depressed it hardly ever turns around immediately.

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.

What can we learn from Walter Schloss?

1. The Ben Graham way works. Ben Graham is the father of value investing – the very type of investing that Warren Buffett has used to beat the indexes for decades. Why look at other methods that don’t have a multi-decade history of working, when you can simply use the type of investing that made the investing legends successful?

2. Buying a stocks at less than its intrinsic value is a recipe for success. Just like you look for bargains when buying groceries, so should you when buying stocks. Like in real estate, you make your money in stock investing when you buy, not when you sell. Hint: The most opportune time to buy stocks at a bargain is at the height of pessimism in the markets (think large downturns and recessions). As Buffett says, “You pay a high price for a cheery consensus.”

3. You don’t need know to know and insider at the company, listen to analysts, or forecast whether the Fed will raise rates this month or not to be successful in investing.  All that is noise that distracts an investor from the things that really matter. All you need to do is buy stocks that are clearly selling for less than their conservatively estimated value to a private owner – and then wait. Walter Schloss proves that you don’t need fancy diplomas, a genius IQ, or numerous letters before or after your name to be successful in the stock market – you need only to have passion for your work and discipline over your own emotions.

Walter Schloss was one of the 9 “uperinvestors” that Warren Buffett wrote about in his legendary “The Superinvestors of Graham-and-Doddsville” article (a list that included Charlie Munger and Warren Buffett himself).

Walter Schloss was undoubtedly one of the great value investors of all time, and truly a “superinvestor”. If you’d like to be a “superinvestor” one day, become a student of value investing like Walter. Remember, all investing is intelligent. Otherwise it’s not investing, it’s just random speculation.

Be free. Nothing else is worth it.

Financial Freedom Monty Campbell

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Ready for more tips on how to achieve the free life? Check-out more articles from the blog archives below:

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