Who Was Buffett's friend Herbert?

[Saluki]

I mentioned in another post about someone mentioned in Supermoney.  Does any know who this person's last name?  

 

Warren introduced me to another Graham disciple.  “He has no connections or access to useful information,”  Warren wrote. “Practically no one in Wall Street
knows him and he is not fed any ideas. He looks up the numbers in the manuals and sends for the annual reports,and that’s about it. He is a very family-oriented fellow: he
probably spends more time thinking about children than about stocks.”

There followed a list of stocks, about half of which I had scarcely heard of. The Rutland Railroad? The New York Trap Rock Company? The Union Street Railway of New Bedford? Jeddo Highland Coal? Clearly the fellow had never been to lunch at Scarsdale Fats, and was probably not around after the close at
Oscar’s.

The record was not spectacular; it plodded away, beating the Dow Jones average by a few percentage points, not  as wide a margin as the Buffett Partners, but up 17 percent compounded over fifteen years. I made a lunch date with Herbert. We stopped at the checkroom with his raincoat and briefcase. He waited until the briefcase was stashed away. You couldn’t, he said, be too careful.

 

“I didn’t get to go to college,” Herbert said. “I went to work in the Depression because my folks didn’t have any money, and I worked as a runner on Wall Street and then in the cage, tallying stocks.” 

Herbert took a Graham course at night at the Institute of Finance. “Ben really loved to teach,” he said. “He could have made a lot more money if he hadn’t been so interested
in teaching.”

 

Herbert operated just as Warren said he had. He never looked at rising stocks. He looked at the list of new lows in the paper every day. “Look at the steels,” he said. “No one
wants them. Will they go bankrupt? How can an industrial country not have a steel industry? Look at American Can under thirty. Can they keep that dividend?”

 

“I’m not very bright,” Herbert said. “I can’t compete with all the bright people, and especially the ones who have college educations, who have been to business school,
who have lots of corporate contacts. I don’t know anybody. I have to buy what I’m comfortable with. These fellows that buy, even Procter and Gamble and General Electric,
why, those stocks go up and down all the time. I just wouldn’t be able to sleep at night if I owned stocks like that.” 

What was Herbert buying?

 

“Well, there’s one issue of Penn Central bonds,” Herbert said. That was a bit breathtaking. The Penn Central is very busted. “The Pennsylvania Railroad is bankrupt,” I said. “The value of the stock is negligible. The value of the bonds is questionable. It will take twenty years to straighten out. What you should buy is Shearman and Sterling, the lawyers, who will get all the money for the next twenty years.”

“I know,” Herbert said. “But there is one issue of Penn Central bonds that is collateralized by the Pittsburgh and Lake Erie Railroad. I wrote Irving Trust and asked them, did they have the collateral behind the bonds, and they said yes. They don’t pay interest on the bonds, but when they settle the case, I think they will, and meanwhile the interest is in a special account at Girard Trust, twelve, thirteen, fourteen percent. It may take a long time, but I can sleep at night. I’m not in a hurry. Things always take longer than you want them to.”
Had he really owned the Union Street Railway of New Bedford? “Oh, yes. They had a lot of cash. It took quite a while to liquidate, but it worked out very, very well.”

 

A couple of things about this passage are very interesting.  In the Snowball, if I recall, he mentioned an investor that he would trust to invest on his behalf (the investor had died years before). In this passage, he directs Adam Smith to someone who is only managing his own money and doesn't want to give a last name. Does he not like competitors for the spotlight? Or does he not like anointing people, besides Munger, who works with him? 

 

Herbert had a really long time horizon, but he wasn't betting on things like vacant land.  He was sticking to railroad bonds backed by good collateral. Ted Weschler also made a killing on distressed assets (W.R. Grace) which took over a decade to sort out. Even back in the 1970s, there didn't seem to be a lot of patience for ideas that would take a long time to play out, no matter how big the payoff.  In the 1940s, the average holding period for a stock was 7 years.  In 2020 it was 5.5 months.  It seems like the short term end of the investing curve is getting more crowded, what happens to the long-term end of the curve?  I'm sure the decline of full service brokers and the outrageous fees helped to speed up trading by reducing the transaction costs, but it's still interesting to look at your portfolio and think about which ones will have a big payoff, but not for a very long time. 

 

I won't mention my favorite real estate stock, because I want it to go down, not up, but if you take a look at something like Howard Hughes, maybe the payoff down the road is so big that the mismanagement is not going to matter? Or maybe, like Trinity Place Holdings or Seritage, someone may eventually get rich on it, but it probably won't be you? 

 

Just a thought.  But if anyone knows Herbert's last name and how he turned out, I'd be very curious to hear. 

[CGJB]

I've heard that "Herbert" was Walter Schloss. Don't know if that's true or not.

[Saluki]

16 minutes ago, CGJB said:

I've heard that "Herbert" was Walter Schloss. Don't know if that's true or not.

 

That was my first thought too.  But it appears Schloss took the Graham course through the NYSE, and he was know for holding dozens of cheap stocks, not distressed bonds that would take years to pay off. And Schloss started his own firm in the 1950s, so why wouldn't he use his real name if he was still trading for outside investors?

[Saluki]

@CGJB Actually, I think you might be right.  I found this https://acquirersmultiple.com/2017/06/walter-schloss-cagr/ which mentions some of his railroad bonds.  Maybe he didn't want any more investors in his fund, so went by "Herbert"?  

[CGJB]

Right, Schloss started his limited partnership in 1955. The book "Supermoney" came out in the early 1970s I think. I've always thought that Schloss probably just wanted a low profile for a long time, and after a while didn't mind doing interviews.

[competitive-advantage]

I think Herbert W. Stocks is the guy you're looking for.

[schin]

On 8/12/2023 at 3:30 AM, competitive-advantage said:

I think Herbert W. Stocks is the guy you're looking for.

 

I did not find any information on Herbert W. Stocks with my Google search.  Do you have any information on him?

[ValueArb]

On 8/12/2023 at 12:30 AM, competitive-advantage said:

I think Herbert W. Stocks is the guy you're looking for.

 

Did you mean Herb W.D. Smoker?

[competitive-advantage]

Sorry @schin and @ValueArb. I was too quick, but now I read about some other interesting Herberts, so it's never a waste to do some research 

 

"Forbes listed some of his notable home runs, including IPO purchases of Apple AAPL, +0.94% and Microsoft MSFT, +0.94% and a big enough position in Heico HEI, -0.04% to make him the company’s biggest stakeholder."

 

“My thing is,” Wertheim told Forbes, “I wanted to be able to have free time. To me, having time is the most precious thing.”

https://www.marketwatch.com/story/one-small-businessman-rode-this-warren-buffett-inspired-strategy-to-billions-2019-07-01

 

 

"People always cited him for high principles, brilliance, good advice, and generosity. “You’d like to die with the respect of somebody like Herbert Allen,” a guest gushed"

 

"Buffett had always been one of the most appreciative of Allen’s beneficiaries. He loved Sun Valley as a family vacation, for left to his own devices at a mountain resort with his grandchildren, he would have been at a complete loss for what to do. He had no interest in outdoor activities other than golf. He never went skeet shooting or mountain biking, thought of water as “a prison of sorts,” and would rather go around handcuffed than ride on a raft." 

https://www.today.com/popculture/warren-buffett-billionaire-s-tell-all-bio-wbna26888245