Walter Schloss, the money manager who earned accolades from Warren Buffett for the steady returns he achieved by applying lessons learned directly from the father of value investing, Benjamin Graham, has died. He was 95.
He died Sunday at his home in Manhattan, according to his son, Edwin. The cause was leukemia.
"Walter Schloss was a very close friend for 61 years," Buffett said Monday from his office in Omaha. "He had an extraordinary investment record, but even more important, he set an example for integrity in investment management. Walter never made a dime off of his investors unless they themselves made significant money.
"He charged no fixed fee at all and merely shared in their profits. His fiduciary sense was every bit the equal of his investment skills."
From 1955 to 2002, by Schloss's estimate, his investments returned 16 percent annually on average after fees, compared with 10 percent for the Standard & Poor's 500 Index. His firm, Walter J. Schloss Associates, became a partnership, Walter & Edwin Schloss Associates, when his son joined him in 1973.
"He was a true fundamentalist," Edwin Schloss, now retired, said Monday. "He did his fundamental analysis and was very concerned that he was buying something at a discount. Margin of safety was always essential."
Buffett, another Graham disciple, called Schloss a "superinvestor" in a 1984 speech at Columbia Business School. He again saluted Schloss as "one of the good guys of Wall Street" in his 2006 letter to shareholders of his Omaha-based Berkshire Hathaway Inc.
"Following a strategy that involved no real risk — defined as permanent loss of capital — Walter produced results over his 47 partnership years that dramatically surpassed those of the S&P 500," wrote Buffett. "It's particularly noteworthy that he built this record by investing in about 1,000 securities, mostly of a lackluster type. A few big winners did not account for his success."
To Buffett, Schloss' record disproved the theory of an efficient market — one that, at any given moment, assigns a reasonably accurate price to a stock. If companies weren't routinely overvalued and undervalued, Buffett reasoned, long-term results like Schloss' couldn't be achieved, except through inside information.
Schloss began working on Wall Street in 1935 as a securities-delivery "runner" at Carl M. Loeb & Co. He said Armand Erpf, the partner in charge of the statistical department, recommended that he read "Security Analysis" by Graham and David Dodd, published a year earlier. The book became a classic in the field. The firm then paid for Schloss to take two courses with Graham sponsored by the New York Stock Exchange Institute.
Schloss stayed in touch with Graham while serving four years in the U.S. Army during World War II, then went to work for Graham in 1946 — at one point sharing an office with Buffett — before striking out on his own in 1955.
The Schloss theory of investing, passed from father to son, involved minimal contact with analysts and company management and maximum scrutiny of financial statements, with particular attention to footnotes.
"The Schlosses would rather trust their own analysis and their long-standing commitment to buying cheap stocks," Bruce Greenwald, Judd Kahn, Paul Sonkin and Michael van Biema wrote in "Value Investing: From Graham to Buffett and Beyond," their 2001 book.
"This approach," the authors wrote, "leads them to focus almost exclusively on the published financial statements that public firms must produce each quarter. They start by looking at the balance sheet. Can they buy the company for less than the value of the assets, net of all debt? If so, the stock is a candidate for purchase."
An example was copper company Asarco Inc. The Schlosses bought shares in 1999 as the stock bottomed out around $13. In November of that year, Grupo Mexico SA bought Asarco for $2.25 billion in cash and assumed debt, paying almost $30 per share.
"Basically we like to buy stocks which we feel are undervalued, and then we have to have the guts to buy more when they go down," Schloss said at a 1998 conference sponsored by Grant's Interest Rate Observer. "And that's really the history of Ben Graham."
Edwin Schloss said he figured his father's investing philosophy and longevity were related: "A lot of money managers today worry about quarterly comparisons in earnings. They're up biting their fingernails until 5 in the morning. My dad never worried about quarterly comparisons. He slept well."
World-Herald staff writer Steve Jordon contributed to this report.
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