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A Eulogy for Walter Schloss

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Feb 21, 2012
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America lost an investing icon over the weekend; although few individuals outside the small fraternity of Graham and Doddsville are privy to the unique brilliance which Walter Schloss possessed. That fact is almost as sad as his passing.

The genius of Mr. Schloss was rooted in simplicity and tempered with patience. But above all, his stunning success was a direct result of his fundamental sense of value and his practice of self-reliance. You see, Schloss never relied on anyone but himself to achieve his stellar results. He never cared what others were buying and he never lost heart if the overall market outperformed his holdings in the short term. In the long term, he waxed the overall market for decades and left virtually every other investment and fund manager in his wake. He recorded an incredible 16% annual compound average over nearly a 40-year period for his clients, and that stellar performance was recorded after Schloss had deducted his fees.

Mr. Schloss received the only break he needed when Benjamin Graham hired him to work at Graham-Newman as a security analyst. Earlier in his life, Schloss had taken courses offered by Graham and had studied his investment classic, "Security Analysis." Although Schloss never earned a college degree, he developed an adept understanding of value investing, fully absorbing the concepts which were laid out by his mentor.

Schloss never lost his reverence for Benjamin Graham, either. When he conducted interviews in the latter part of his life he always referred to his mentor as Mr. Graham. He was able to relate points which Graham had made to him decades before as if the conversation had occurred yesterday. Schloss not only learned Graham's lessons about value investing he applied them on a daily basis with unwavering confidence.

Many of my readers are probably aware of my extreme admiration for Walter Schloss. I have modeled his philosophy in developing a successful investment strategy. Such concepts as evaluating the intrinsic value of a company by analyzing the tangible equity of a business come directly from the Schloss playbook. In his early days Schloss learned that a margin of safety existed in the form of tangible assets even when the earnings of a company appeared to be in steady decline. Non-tangible assets were referred to in that time as "water on the balance sheet" and Schloss understood that substance was generally safer than water.

Schloss rarely bought an equity unless it traded at a substantial discount to its tangible book value and he rarely purchased equities which were not being discarded by the market. He scoured the list of 52-week lows and discerned which companies were being discarded without merit. The idea that the market was always efficient was pure balderdash in the eyes of Schloss and his bread and butter was preying upon the mistakes of reactionary investors. The simple, albeit overused phrase, "buy low, sell high," was exactly what made Schloss an investing legend.

I believe that the greatest complement which could be paid to Mr. Schloss would be a simple one which in the words of Benjamin Graham would read something like this: Walter knew the difference between investment and speculation and he invariably chose investment rather than speculation in the best interest of his clients.

Rest well Mr. Schloss and thank you for your contribution to my life!
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