Walter Schloss was a great investor. “Why we invest the way we do” is a short lecture he delivered in 1996. In this lecture he writes about how he invests. There are many gems of wisdom from which we can learn the craft of investing:
Investing is not a science. It is part art and part science with some boundaries.
Our approach is not a behavioural science. It is bargain hunting. If there are many bargain hunters, then bargains will disappear.
We want to buy value. We buy a lot of securities and diversify a lot.
We are bargain hunters in the stock market. We buy stocks like groceries and not perfume. A stock well bought is half sold. We do not disclose holdings because we do not like competition. If a stock goes lower, we want to buy more.
We want to buy depressed stocks. We want to be contrarian. We do not want to lose money.We do not want to buy stocks that are doing well today. This reduces our stress.
Peter Lynch did his job for 10 years very well but then he became stressed and left. I have done this job for 40 years and my son has done this job 23 years and we are not stressed.
We look for ways to protect us on the downside and if lucky, something good may happen.
We are passive investors and do not speak to management.
Our average holding period is 4 years, not forever.
We want to buy cheap stocks, small premium over book value, depressed prices, a record that goes back over 20 years, and not much debt.
Price is the key factor in the purchase of a company compared to what we think the company is worth.
We don’t handle large sums of money.
It is important to know what you like and what you are good at and not worry that someone else can do better. If you are honest, hardworking, reasonably intelligent and have good common sense you can do well as long as you are not too greedy and don’t get too emotional when things go against you.