In 1994, Walter and Edwin Schloss Associates LP wrote an article describing the factors needed to make money in the stock market. The following are 16 points that are very important. Below is a quick summary followed by brief comments.
1. Price is the most important factor to use in relation with value.
2. Try to establish the value of the company. Remember that a share of stock represents a part of a business and is not just a piece of paper.
3. Use book value as a starting point to try and establish the value of the enterprise.
4. Have patience. Stocks don't go up immediately.
5. Don't buy on tips or for a quick move.
6. Don't be afraid to be a loner, but be sure that you are correct in your judgement.
7. Have the courage of your convictions once you have made a decision.
8. Have a philosophy of investment and try to follow it.
9. Don't be in too much of a hurry to sell.
10. When buying a stock, I find it helpful to buy near the low of the past few years.
11. Try to buy assets at a discount than to buy earnings.
12. Listen to suggestions from people you respect.
13. Try not to let your emotions affect your judgement.
14. Remember the work compounding. Remember the rule of 72.
15. Prefer stocks over bonds.
16. Be careful of leverage. It can go against you.
We need to remember that Schloss stuck to the Ben Graham value investing style throughout his career. He paid extreme attention to assets, generally invested in low P/B stocks and overlooked prospects or earnings. His record speaks for itself, and this set of rules are a reflection of the great discipline that he followed. Being patient and allowing compound interest to work are great pieces of advice that we can follow to obtain the most out of our investments.
He also discusses the emotional side of investing, which is in my view, sometimes the hardest part. If we are unafraid to stick to our convictions, being alone and avoid greed and fear, we should be fine. While the advice seems fairly simple, it requires not only strict discipline, but also a great amount of control of our emotions.
What do you think?
