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You Don't Have to Be a Genius to Make Money in the Stock Market

January 27, 2014 | About:

Walter Schloss opened his partnership in 1955. From January 1956 to January 2000 his partnership returned 15.3%. To put that in perspective, the S&P index returned 11.5% over that same 45-year period, and every dollar invested in 1956 had grown to $663 by the end of 2000 (including management fees).

Schloss, along with his son who joined the company in 1973, had defied Modern Investment Theory.

Another surprising feat that most mangers don’t share with Schloss is that he never went to college. By his own admission, “he wasn’t very bright man.” Working at Graham-Newman he wasn’t the golden child — that was reserved for Warren Buffett.  Essentially he was a 34-year-old secretary working at a “dead-end job” for Benjamin Graham.

At 39 he left Graham-Newman and started his own shop. He raised $100,000 (with $5,000 of his own money) and set off to become one of the most successful hedge fund mangers of all time.

How did he do it?

He stuck to what he knew: buying (and selling) cheap stocks. He got himself and his partners very rich by following a system — the system he learned while working with Ben Graham.

Schloss didn’t rely on computers, tickers or any other mechanism; he relied on nothing more than a trusty Value Line survey that he borrowed from the office building he worked in (he was too thrifty to buy a subscription for himself).

Schloss become one of the most successful investors of our time, not because he was the smartest man in the room, but because he was willing to give up buying on emotions and followed a system that was proven to work.

If you want to make money in the stock market, forget trying to be the smartest man in the room — instead focus on your investment system. The returns will take care of themselves.

About the author:

Jonathan Webb
I am a private investor who happens to enjoy sports, movies, and art.

Visit Jonathan Webb's Website


Rating: 3.7/5 (20 votes)

Comments

bcbanker
Bcbanker - 7 months ago

Once you find that your system is flawed, its often too late to turn back.

jonwebb
Jonwebb - 7 months ago

hey, bcbanker,

thats why we focus on value investing. Its Proven just shy of a 100 years that it works well over the long term.

AlbertaSunwapta
AlbertaSunwapta - 7 months ago

Funny, I believe Buffett mentioned using Value Line to find opportunities too.  I'd like to know more about Schloss's methodology.

^Jonweb, on the 100 year comment, Jeremy Grantham analysed stock performance in the early 1930s and, I believe (if I recall correctly), found that it was growth stocks that bettered the value stocks during this time. Source? You'd have to read his GMOLetters from about 2009 to 2011 as I can't recall in which letter he revealed these findings.  Nonetheless, it was a counterintuitive result that sure caught my attention!

jitesh
Jitesh premium member - 7 months ago

Hello Jonathan,

Do you know what the Schloss system was? How did he decide when to buy and sell?

If so, share it with all of us.

pravchaw
Pravchaw premium member - 7 months ago

Use the Walter Schloss screen in the all-in-one screener. It will provide you candidates you can explore further.

jonwebb
Jonwebb - 7 months ago

@jitesh,

for the most part, walter bought stocks based on less then book value and minimum debt. and he bought alot of stocks uppwards of 50 stocks. he was an assets guy.

here are his 16 points http://simplencheap.com/walter-schloss-and-his-16-golden-rules-for-making-money-in-the-stock-market/

good luck,

Jonathan

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