When you think of the greatest investors, your mind probably goes to Warren Buffett. But Buffett himself pointed to a small group of "Superinvestors" who all learned from the same master, Benjamin Graham.
One of the most successful, yet least-known, of this group was Walter J. Schloss.
Schloss was a true investing original. He ran his partnership, Walter & Edwin Schloss Associates, from 1956 to 2000. He didn't have a college degree, he rarely (if ever) spoke to a company's management, and he didn't use complex models. He worked by reading stock manuals and annual reports.
The result? Over those 45 years, he earned a compounded annual rate of return of 15.7%, compared to 11.2% for the S&P 500. He was, as one 1973 Forbes article put it, a master of "Making Money Out of Junk."
The Schloss Philosophy: Buying "Cheap Stocks"
Schloss wasn't interested in "glamour, earnings growth, or management." He was interested in one thing: CHEAP STOCKS.
His philosophy, learned directly from his mentor Ben Graham, was beautifully simple: "Buy companies as their stock prices are falling, and sell them as their prices increase."
He was a deep-value, contrarian investor. He looked for "struggling firms that most investors overlook." He believed the best way to find value was to have a "strong stomach" and buy a company that was having problems.
The cornerstone of his entire strategy was the Price-to-Book Value (P/B) ratio.
Book value is the theoretical liquidation value of a company, what would be left if it sold all its assets and paid off all its debts. Schloss wanted to buy stocks for less than this liquidation value.
As he said, "I have nothing against earnings... but I find it more comfortable and satisfying to look at book value." He even looked for stocks trading at less than their "working capital" (current assets minus current liabilities). He believed that if a company's fundamentals were sound, the stock price would eventually rise.
The Walter Schloss Playbook: A Practical Screening Guide
This is where it gets actionable for us. While Schloss was a "bottom-up" picker, his criteria (as analyzed by the American Association of Individual Investors) provide a powerful screen for finding "Schloss-style" stocks.
Here are the key rules he followed:
Price Less Than Book Value: This was the non-negotiable starting point.
Price Near its 52-Week Low: He wanted to buy things that were "on sale" and deeply out of favor. This signaled a potential bargain.
No Long-Term Debt: This was a critical sign of financial health. Schloss wanted companies with clean balance sheets that could survive their "problems" without going bankrupt.
Good Insider Ownership: He wanted management to have skin in the game. He looked for companies where insiders owned a significant percentage of the shares, aligning their interests with other shareholders.
Long Price History: He liked companies with at least a 10-year history. This proved they had some resilience and had been traded on an exchange long enough to have reliable data.
Exclude Financial Stocks: He specifically excluded banks and other financial institutions. He found their book values could be unreliable and "toxic" assets could be hidden (a lesson many learned the hard way in 2008).
Exchange-Listed (No ADRs): He stuck to U.S. exchanges (like the NYSE or AMEX). He found foreign stocks (ADRs) too difficult to compare due to different accounting rules.
Diversify Heavily! This is perhaps the most important rule. Schloss didn't believe "any one will be a winner." He famously said, "If you buy 15 or 20 of them..." At any given time, he would hold up to 100 different stocks.
The Schloss Mindset: The Psychological Edge
His strategy wasn't just mechanical; it was deeply psychological.
Patience: He would hold stocks for years, often aiming for a 50% profit before selling. He knew you had to be willing to "wait 20 years for stock prices to go up again."
Emotional Control: He "tried to keep emotions out of decisions by using simple rules." He knew people "psychologically like to lose money" (i.e., they panic sell), but that "people who are reasonable in their investments do all right."
Humility: He didn't try to predict the market. "I have no opinion about the market," he once said.
Sell and Move On: "Once you sell a stock, forget about it." Unlike Buffett, Schloss was not a "buy-and-hold-forever" investor. He was a classic "buy-cheap-and-sell-dear" investor. When a stock reached its value, he sold and moved on to the next bargain.
Why Walter Schloss Matters Today
Walter Schloss is the ultimate proof that you don't need to be a Wall Street wizard to succeed. You don't need complex models, inside access, or a crystal ball.
You need a simple, sound strategy, a strong stomach to buy what others are selling, and the discipline to stick with it.
His legacy is a timeless blueprint for true value investing: find cheap, unloved, and financially sound companies, buy a basket of them, and wait patiently.