1 Warren Buffett-Style Investor You’ve Never Heard Of

Sometimes the best lessons come from those who do very little teaching at all.

Jun 9, 2014 at 7:00AM


It's hard not to smile with a record like Buffett.

I'm convinced there are only three types of people on Wall Street:

1) People who are loud, but very good. (Warren Buffett)

2) People who are loud, but haven't done so well. (Bill Ackman is a recent example)

3) People who make no noise, receive no attention, but become obscenely rich.

Today, I want to talk about number three -- an investor you've never heard of. His name was Walter Schloss.

Now, there was nothing special about Mr. Schloss. In fact, his start on Wall Street began as a runner, moving documents from firm to firm. He was, then, the very definition of a paper pusher.

But Schloss had something few have -- a desire to learn and apply what he knew. He never went to college. Rather, he sought out simple financial training from one night class, and leisurely reading. He leveraged that knowledge, and his interest in investing, to continue further.

Later in life, Schloss would open his own investment partnership, and, over a period spanning 28 years, he would compound his investors' capital at a rate of 16.1% per year. Good? No. That's great. The S&P 500 returned only 8.4% during that time.

In just 28 years, his initial investors would see their original, $100,000 investment turn into $6.5 million after fees.

How he became great
Warren Buffett later wrote that Schloss was able to avoid many of the distractions on Wall Street. "That's one of his strengths: no one has much influence on him."

But there's more to it than that. Schloss had only a handful of principles guiding his investing:

1. He was frugal
Frugal investors tend to be excellent investors, if only because they value money more so than others. Losing money is a disease frugal investors fear like the plague. In fact, it's said that in one year, his fund took in $19 million in management fees, but expenses were only $11,000. How many million-dollar firms out there today have lavish offices and a leased jet? Probably all of them.

2. He held on
While most stocks are held for only a few hours, or even a few seconds, Walter Schloss had patience. His average holding period was four years. Four years. That's not a long time -- think back to how the years between your freshman and senior years flew by. But, by Wall Street standards, it's an eternity.

3. He rarely spoke to insiders
Walter Schloss was no fan of speaking to a company's management. Like Ben Graham, he believed management had an incentive to stretch or otherwise cover up the truth behind any business, making it appear better than it actually was.

Today, Wall Street is built on the foundation of access, even though it might not be good for investors. In a study of Wall Street analysts, nearly 40% noted that they had felt pressure to forecast higher earnings for companies so as not to lose access to management. Yet, for all their brown-nosing, analysts are in a preferential position to receive polished information.

4. He bought cheap
Schloss and Warren Buffett worked at the same Wall Street firm under Ben Graham, where the two would patiently look for cheap stocks based on price-to-book ratios. The idea was that if you could buy $1 of assets for $0.50, you didn't have to worry about earnings, so long as they were positive.

Buffett would later turn away, and later dismiss this technique for Berkshire Hathaway (NYSE:BRK-A) (NYSE:BRK-B), but Walter Schloss stands as evidence that it is a workable strategy. Studies have shown that it has outperformed in every stock market, from the United States to Germany to France.

5. He bought on the way down
Conviction is easy to fake, and very difficult to have. Schloss never feared buying more of a stock he liked as it dropped in value. Later, he noted that he preferred making initial investments in a plunging stock, "We like to buy stocks on the way down. A lot of people don't like that approach but I'm comfortable buying on the way down."

I don't think it's an accident that Schloss preferred to hold stocks for 4 years, and that he was comfortable buying a stock on the way down. This is a critical advantage. While others are busy buying and selling, Schloss was busy understanding the investments he owned. It allowed him to confidently buy more of a cheaper business he understood well.

The last word
Walter Schloss exemplifies every trait of a good investor. He understood what he knew, and more importantly, what he didn't know. And he had a simple process, one which gave him the confidence to buy stocks that others merely looked over.

If there's one thing that investors can learn from Schloss, it's that investing doesn't have to be hard. In fact, some of the best investors in the world -- Buffett, Munger, and of course, Walter Schloss -- kept it simple. (Not a single investor in the previous sentence has even used a computer to pick stocks. Ponder that.) 

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Jordan Wathen has no position in any stocks mentioned. The Motley Fool recommends Berkshire Hathaway. The Motley Fool owns shares of Berkshire Hathaway. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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