One of the Value Masters

We have been an active professional investor on Wall Street for over three decades. Our interest in investing began even earlier.

One of my very first focuses as a young investor was to learn from the great investors of the past.

Investing is a unique endeavor that provides us with excellent access to the wisdom of these investors from ten years ago or a hundred years ago. It is also unique because much of that wisdom is as helpful today as it was then.

In the past few weeks, we have discussed modern investors (Phillipe Laffont) and older investors (Jesse Livermore and A.W. Jones).

Today, we share the wisdom of a value investing legend – Walter Schloss.

Many of you likely have not heard of Schloss before. He began his career in 1934 and was an early student of value-investing legend Benjamin Graham. Eventually, he even went on to work for Graham.

In the mid-1950s, he left Graham and founded his own company. Over the next four and a half decades, he compounded at over a 15% annual return—well above the rate of the S&P 500.

He closed his fund in 2000 and died at 95 in 2012.

Here are some of his insights on investing….

“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!”

We hear this insight from many of our guests on the HX Podcast.

They emphasize figuring out what kind of investment style is best for you.

Some are comfortable with active trading and prefer it. Others are terrible at it and will destroy much value.

Some can hold through volatility and focus on the long term, while this is more difficult for others.

Be sure to figure out which type of investor you are so you don't get caught in the middle.

“Fear and greed tend to affect one's judgment.”

We have a helpful exercise with this insight.

The next time you feel either one of these emotions strongly – fear or greed – take a step back and think about taking the OPPOSITE action.

If you are fearful and worried about losing money, stop and think about what it would take you to buy into the situation.

If you feel like you can do nothing wrong, consider how it would feel to sell some instead and what the downside could be.

“Have patience. Stocks don’t go up immediately.”

This seems obvious, but it is one of the most challenging aspects for new investors.

Many enter the markets, take a position, and then get frustrated when they don't make money quickly.

Remember that almost every strategy, even trading strategies, takes time to pay off.

Be sure to know how long your strategy should take to play out and BE PATIENT.

“Earnings can change dramatically. Usually, assets change slowly.”

This is a subtle and essential insight.

In our long-term investing, we consider buying either GROWTH or ASSETS. We prefer to buy both.

GROWTH happens in earnings and can fluctuate over time.

ASSETS are enduring, and you can sleep much better at night if you own them.

When considering a company for a long-term investment, ask yourself if it has durable assets.

Something that will continue to hold real value regardless of the economic cycle.

If it does, that might make an excellent investment.

Again – we prefer to find BOTH, but given the choice, we will go with the ASSET.

“Don’t be in too much of a hurry to sell.”

This was one that my old partner Whitney Tilson used to talk about.

We both have had many times in our careers where we identified awesome growth companies but sold too soon.

A stock that goes up tenfold can change your investing future.

Remember, though, that for a stock to go up ten-fold, it must first double, triple, quadruple, etc.

Again – BE PATIENT and let your winners run.

We encourage you to look up more of Walter Schloss's wisdom and take advantage of his enduring insights!