Warren Buffett’s a world-famous investor today. But, he’s not the only investor in the world with a great long-term track record. There are many other fantastic practitioners of the investing craft that are largely unknown to the general public. One such figure would be the late Walter Schloss, who interestingly enough, was a long-time friend of Buffett. Schloss started managing money for others in 1955 and from 1956 to 2000, his fund had generated a phenomenal compound annual return of 15.3%. This number crushed the U.S. stock market’s 11.5% annualised return over the same period. I recently chanced upon an…
Warren Buffett’s a world-famous investor today. But, he’s not the only investor in the world with a great long-term track record. There are many other fantastic practitioners of the investing craft that are largely unknown to the general public.
One such figure would be the late Walter Schloss, who interestingly enough, was a long-time friend of Buffett. Schloss started managing money for others in 1955 and from 1956 to 2000, his fund had generated a phenomenal compound annual return of 15.3%. This number crushed the U.S. stock market’s 11.5% annualised return over the same period.
I recently chanced upon an old investing speech Schloss had given titled “Sixty-five years on Wall Street” during the Grant’s Interest Rate Observer Fall Investment Conference. It’s chockful of wisdom. Below are four highlights which can help improve our thinking as investors, along with my comments.
On changing with a market that evolves
Question: “Has your approach changed significantly?”
Schloss: “Yes, it’s changed because the market’s changed. I can’t buy any working capital stocks anymore so instead of saying well I can’t buy ‘em, I’m not going to play the game, you have to decide what you want to do.
And so we’ve decided that we want to buy stocks if we can that are depressed and are some book value and are not too, selling near to their lows instead of their highs and nobody likes them.
Well why don’t they like them? And then you might say there may be reasons why. It may simply be they don’t have any earnings and people love earnings. I mean that’s, you know, the next quarter that’s the big thing and of course we don’t think the net quarter is so important.”
The stock market changes over the years and what works in one period may not always do so in the future. My colleague Morgan Housel also brought across the point in March this year when he wrote that “if you don’t know that markets have evolved and some strategies are no longer valid, you’ll end up making terrible decisions.”
On knowing your own strengths
Question: “Tweedy Browne is very quantitative, and Buffett’s more qualitative. Where are you in that spectrum?”
Schloss: “I’m more in the Tweedy Browne side. Warren is brilliant, there’s nobody ever been like him and there never will be anybody like him. But we cannot be like him. You’ve got to satisfy yourself on what you want to do. Now, there are people that are clones of Warren Buffett. They’ll buy whatever Warren Buffett has. Fine. I don’t know, I don’t feel too comfortable doing that…”
Buffett’s such a great investor that he has inspired a whole legion of followers who aim to invest like him. The thing is, not everyone can invest like him. We all have to know our own strengths.
On the importance of being patient
Schloss: “We want to get long-term capital gains and when you buy a depressed company it’s not going to go up right after you buy it, believe me. It’ll go down. And therefore you have to wait a while for that thing to go around and it seems about, four years seems to be about the amount of time it takes. Some take longer.”
Investing is a game which requires patience. Even great companies – those that can compound their earnings at high rates for years – can see their stock sit there and do nothing for years. Healthcare services provider Raffles Medical Group Ltd (SGX: R01) is a great local example.
Raffles Medical was earning S$3.7 million in profit in March 1999 with its stock worth S$0.56 apiece. But by November 2008, despite a swelling of its profit to S$31.5 million, the company’s stock was actually still priced at S$0.55 each. It’s only with the passage of time that we see Raffles Medical Group’s stock climbing to a price of S$4.50 today (with its net income now at S$68.4 million), some 700% higher than where it was in March 1999.
On knowing your limitations
Question: “Buffett keeps talking about like a handful of thick bets. It sounds like you don’t do that.”
Schloss: “Oh, no, we can’t. Psychologically I can’t, and Warren as I say, is a brilliant, he’s not only a good analyst, but he’s a very good judge of businesses and he knows, I mean my gosh, he buys a company and the guy’s killing himself working for Warren. I would have thought he’d retire.
But Warren is a very good judge of people and he’s a very good judge of businesses. And what Warren does is fine. It’s just that it’s not our – we just really can’t do it that way and find five businesses that he understands, and most of them are financial businesses, and he’s very good at it. But you’ve got to know your limitations.”
This is a very similar point to what Schloss had made when he talked about the importance of knowing your own strengths. Knowing what we don’t know is an important aspect of investing – it can be dangerous when we think we know more than we do.
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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 owns shares in Raffles Medical Group.