The Columbia University School of Business is synonymous with value investing. It's where Benjamin Graham, the father of value investing taught and developed the style of investing we now know as deep-value investing during the 1920s.
In 1984, in honour of the 50th anniversary of the publication of Benjamin Graham and David Dodd's book, Security Analysis, the University invited Warren Buffett (undoubtedly Graham's most successful student) to speak to students. Buffett's speech became the driving force behind his now famous essay, 'The Superinvestors of Graham-and-Doddsville'.
Walter Schloss
One of Buffett's 'Superinvestors' was Walter Schloss, who learned his trade under the stewardship of Benjamin Graham.
Schloss never went to college. In fact, his financial education was limited to an evening class with Graham, which he enrolled on after reading 'The Intelligent Investor'. Soon after taking the class, Schloss went to work for Graham at the Graham-Newman partnership. He left the partnership during 1955 and the rest, as they say, is history:
“...armed only with a monthly stock guide, a sophisticated style acquired largely from association with me, a sub-lease on a portion of a closet at Tweedy, Browne and a group of partners...Walter strode forth to do battle with the S&P…" -- Warren Buffett praising Walter Schloss in a letter to members of the “Buffett Group" before its Hilton Head conference in 1976.
Schloss liked his “cigar-butt" companies and sought to acquire as many companies trading at 1/3 net working capital as possible. Schloss' screening criteria were:
- Trading at a discount to book value
- Trading at a low P/E multiple
- Been around for more than ten years
- Had no long-term debt
- Trading at or near its 52-week low
- Had a high insider ownership
- Had a good dividend yield
“…He simply says, if a business is worth a dollar and I can buy it for 40 cents, something good may happen to me. And he does it over and over and over again." -- Buffett, The Superinvestors of Graham-And-Doddsville
And this approach worked extremely well. These are the returns of the Schloss partnership from inception through to 1984:
From 1955 to 2002, by Schloss' estimate, his investments returned 16% per annum on average after fees, compared with 10% for the S&P 500 over the period.Schloss' strategy is easy to replicate. He was never going to be the next Buffett, so he didn't try to be. Instead, he stuck to his principles and…
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