3 Important Investing Lessons From 45 Years Of Legendary Investing Success

When it comes to chalking up a legendary track record of investing success, there are few who can claim to be better than Walter Schloss.

For 45 years from 1956 to 2000, Schloss’s fund had generated a remarkable 15.3% compound annual return for its investors even as the broader U.S. market had made comparable gains of just 11.5%.

Given his accomplishments, there are bound to be great lessons for us to learn from. Here’s how Schloss went about writing his name into investing folklore.

1. Keeping things simple

What do you picture in your head if you were to visit a money manager? Rows of Bloomberg terminals? Scores of well-dressed analysts? TVs blaring the latest business news? Schloss had none of those.

His office was a small closet space that he rented from the investing firm Tweedy Browne; he worked only on weekdays from 9 am to 4:30 pm; and he conducted his research mostly with Moody’s Manuals, a publication that collects financial information about stocks, and companies’ annual reports.

This is how the book, Value Investing: From Graham to Buffett and Beyond, describes Schloss and his son Edwin’s investing style (Edwin had joined his father in 1973):

“Walter and Edwin Schloss are minimalists. Their office – Castle Schloss has one room – is spare; they don’t visit companies; they rarely speak to management; they don’t speak to analysts; and they don’t use the internet…

…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.”

Investing need not require complex and fancy investing models. Simple can win too, as Schloss had demonstrated for decades.

2. Buying cheap things

Schloss liked his companies cheap. More specifically, cheap meant that the company was selling for less than its book value (this was alluded to earlier with the phrase, “the value of the assets, net of all debt”).

Interestingly, Schloss did not pay much attention to things investors obsess over today, like the quality of management or the earnings power of a company. Instead, he stuck by cheapness.

One company in Singapore which may be of interest to Schloss at the moment would be Hongkong Land Holdings Limited (SGX: H78). At its current price of US$7.90, it’s valued at just 67% of its book value of US$11.76.

Hongkong Land’s an owner of prime commercial real estate primarily in Hong Kong and Singapore. In addition, it also engages in the development of high-end residential property across Asia with a focus on Singapore and China. Some 85% of its total assets of US$33.7 billion (as of 30 June 2015) come from its investment properties.

In Hong Kong, Hongkong Land’s portfolio consists of 12 pieces of iconic real estate – such as Jardine House and Chater House – within the territory’s Central area (Hong Kong’s Central Business District). Meanwhile, at the local front in Singapore, the firm’s the sole owner of One Raffles Link and a one-third owner of both One Raffles Quay and Marina Bay Financial Centre.

The firm’s had a strong history with either maintaining or growing its annual dividend over the past decade (see below) and has also seen the average office effective rent for its Central portfolio climb in each consecutive year from US$3.78 per square feet per month in 2005 to US$13.14 in 2014.

Year       Hongkong Land dividend per share
2004 US$0.07
2005 US$0.08
2006 US$0.10
2007 US$0.13
2008 US$0.13
2009 US$0.16
2010 US$0.16
2011 US$0.16
2012 US$0.17
2013 US$0.18
2014 US$0.19

Source: S&P Capital IQ

But with all that being said, investors would still have to note the possibility of the company’s assets being overvalued on its balance sheet. If that turns out to be so, Hongkong Land’s discount to its book value may vanish.

3. Staying diversified

There are many prominent value investors who swear by having concentrated portfolios. Schloss though, belonged to the opposite camp – there are times when he’d own 100 stocks or more.

It’s interesting to note that while Schloss and Warren Buffett, one of the true greats in the investing world, were good friends, Schloss had never invested in the concentrated manner which Buffett advocates. The reason? Here’s Schloss explaining in the book The Value Investors:

“I always held 50 to 100 stocks at any given time because it would have been very stressful if one particular stock had turned against me. Psychologically, I am just built different than Warren. I see that there are many people trying to be like Warren, but they should take note that he is not only a good analyst; he is a good judge of people and businesses. I know my limitations, so I’d rather invest in the way that I am most comfortable with.”

There’s a nice lesson here for investors: There are many roads to Rome and knowing which lane suits your strengths and weaknesses the most is way more important than picking the most gilded path.

One more thing about Schloss!

Schloss’s one of my favourite investors and I love sharing more about him. If you’d like to chat more about Schloss and all-things investing, come meet David Kuo and the rest of the Fool Singapore team on August 15! 

Please join us at Invest FAIR Singapore on 15 August. (Suntec Centre, Booth B-16). Come chat with us at our booth, and see our MAS-licensed Director, David Kuo, give his official SGX investor presentation.

You won't want to miss this! Add Invest FAIR Singapore to your calendar today.

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Chong Ser Jing doesn't own shares in any companies mentioned.