Walter Schloss at Richard Ivey School of Business

[Parsad]

Walter Schloss, one of the greatest investors in history, spoke at the Richard Ivey School of Business.  I would recommend that investors and investment managers alike read his comments.  There seems to be a very large contingency of investors focusing on macroeconomic issues on the board these days, and I thought this would be a terrific refresher on the core points of Ben Graham's theories of intelligent investing.  There is also the full audio of the presentation available at the Ben Graham Resource Center.  Cheers!

 

http://www.schloss-value-investing.com/2010/07/walter-schloss-presentation-at-the-benjamin-graham-center-for-value-investing/#more-70

[Uccmal]

Walter and his son averaged annual returns of just above 20% from which he deducted his hurdle rate to get the partnership's 15%.  On a compound basis he completely trounced the indexes.  All by performing the simplest of systems.  Simple but not easy.

 

In this climate today he would be 90% invested with 10% available for redemptions.  He did not restrict redemptions because many of his clients invested their personal "working capital" with him.  

 

I am a big fan of his methodology because it takes alot of the macro, and guess work out of the process (guess work being discounted cash flows, commodity prices, etc.).  I am also a fan of the way he used diversification to protect his downside from any one bad call.  I am also increasingly a fan of his preference for simple to understand companies (manufacturing, retailers and the like) - call me a slow learner in this regard.  Keeping the high level of diversification allowed him to wait the years he often needed to see results from some companies.

 

There is an enormous amount to be said for this method.  Now, he didn't face 2008/09 meltdown but he was in business long enough to face meltdowns of nearly the same scale and long periods of lackluster markets.

[Munger]

Any study of Graham would conclude that he would not be buying a stocks at the moment -- the margin of safety is just not big enough.  Schloss "liked to buy stocks below book value" -- do you know how low the market would have to go in order for quality companies to be trading below book value.  The margin of safety currently offered by Mr. Maket is not near enough for Schloss either.

[Uccmal]

Any study of Graham would conclude that he would not be buying a stocks at the moment -- the margin of safety is just not big enough.  Schloss "liked to buy stocks below book value" -- do you know how low the market would have to go in order for quality companies to be trading below book value.  The margin of safety currently offered by Mr. Maket is not near enough for Schloss either.

 

 

Sure he would. 

Some of mine:  SSW, FBk, SLf, FFh (close enough), cfp, pd, mtl

 

I dont recall any mention of "Quality" companies:  Just low debt and cheap.

[Munger]

Sure he would. 

Some of mine:  SSW, FBk, SLf, FFh (close enough), cfp, pd, mtl

 

I dont recall any mention of "Quality" companies:  Just low debt and cheap.

 

 

I was more addressing the increasingly popular view that quality large cap companies offer a good value, which is not close to being true according to the standards of Graham and Schloss.  And generally speaking, the market does not offer a margin of safety that would be appealing to Graham or Schloss.

 

If you like to buy cigar butts and see the companies above as meeting that criteria, hope it works out for you. 

 

 

[SmallCap]

Any study of Graham would conclude that he would not be buying a stocks at the moment -- the margin of safety is just not big enough.  Schloss "liked to buy stocks below book value" -- do you know how low the market would have to go in order for quality companies to be trading below book value.  The margin of safety currently offered by Mr. Maket is not near enough for Schloss either.

 

I don't believe that Ben Graham ever talked about buying "quality" companies below book value, one of his basic ideas was to buy a large number of companies below book, some of them would do well and some of them would die, over all you should come out ahead. this doesn't sound like quality companies to me and is very different from the WEB pattern of buying quality companies with a wide moat.

 

SmallCap

[Uccmal]

Munger, Maybe you should take off your critics hat and offer something to the board.  Just a suggestion. 

 

Ucc.

[Parsad]

Any study of Graham would conclude that he would not be buying a stocks at the moment -- the margin of safety is just not big enough.  Schloss "liked to buy stocks below book value" -- do you know how low the market would have to go in order for quality companies to be trading below book value.  The margin of safety currently offered by Mr. Maket is not near enough for Schloss either.

 

We own three stocks under book.  In fact, our largest holding is a small-cap company that is relatively well-known, yet not a single person on this board, or its predecessor, has ever talked about it from my recollection.  It trades at about 8.5 times earnings and less than 0.85 of book...and book is undervalued!  Cash flows are consistent, little debt and it's been around a long time.  Yet not a single person has ever talked about this company.  Schloss would be buying stocks today...but that's because he would be doing more legwork and research than everyone on here.  Cheers!

[Myth465]

Munger I tend to agree with you and feel that the market doesnt fairly discount the economic situation we are in and that large caps arent the value that everyone thinks they are (10x FCF is a great price in a flat to improving economy but I dont think thats where we are).

 

With that said there is value out there, and those thoughts are irrelevant because no one here is likely buying the market. I own some great small caps (BYD.TO, KSP, ATSG) which are cheap - 3 - 5 x FCF and should do well unless things fall apart.

 

Also FFH, and SSW are far from cigar butts. They should do well in a 3 - 4 year downturn.

[ExpectedValue]

In fact, our largest holding is a small-cap company that is relatively well-known, yet not a single person on this board, or its predecessor, has ever talked about it from my recollection.  It trades at about 8.5 times earnings and less than 0.85 of book...and book is undervalued!  Cash flows are consistent, little debt and it's been around a long time.  Yet not a single person has ever talked about this company.  Schloss would be buying stocks today...but that's because he would be doing more legwork and research than everyone on here.  Cheers!

 

Would they happen to be based out of Torrance, CA?

[Munger]

Munger, Maybe you should take off your critics hat and offer something to the board.  Just a suggestion.

 

What you interpret as a critic, I view as my contribution.  I believe most do not fully appreciate the magnitude of the downturn we will experience -- and only an opinion, just as everyone else expresses on this board.  With that said, I firmly believe (i.e., have absolutely no doubt) the day of reckoning will be brutal and when that time comes, you will no longer view me as a critic. 

 

With that said, I would most def invest in a quality business at 3x FCF and debt free balance sheet even in the face of the macro risks.  Only my personal preference but I would not want to buy a poor business in this environment unless readily realized liquidation value far exceeded current price.

 

Best.

[Guest Bronco]

Quote from: Parsad on Today at 10:56:08 AM

In fact, our largest holding is a small-cap company that is relatively well-known, yet not a single person on this board, or its predecessor, has ever talked about it from my recollection.  It trades at about 8.5 times earnings and less than 0.85 of book...and book is undervalued!  Cash flows are consistent, little debt and it's been around a long time.  Yet not a single person has ever talked about this company.  Schloss would be buying stocks today...but that's because he would be doing more legwork and research than everyone on here.  Cheers!

 

Parsad - why do you tease?

 

You know damn well someone here is going to try and figure it out!

[OracleofCarolina]

I was going to say Alleghany but they are more of a mid cap

[rmitz]

Any study of Graham would conclude that he would not be buying a stocks at the moment -- the margin of safety is just not big enough.  Schloss "liked to buy stocks below book value" -- do you know how low the market would have to go in order for quality companies to be trading below book value.  The margin of safety currently offered by Mr. Maket is not near enough for Schloss either.

 

We own three stocks under book.  In fact, our largest holding is a small-cap company that is relatively well-known, yet not a single person on this board, or its predecessor, has ever talked about it from my recollection.  It trades at about 8.5 times earnings and less than 0.85 of book...and book is undervalued!  Cash flows are consistent, little debt and it's been around a long time.  Yet not a single person has ever talked about this company.  Schloss would be buying stocks today...but that's because he would be doing more legwork and research than everyone on here.  Cheers!

 

I should *hope* that someone doing this as a job rather than a hobby can spend more time on the research than I can. :)

[NormR]

It trades at about 8.5 times earnings and less than 0.85 of book...and book is undervalued!

 

As it happens, I was just screening for firms like this.  Ok, I was a bit of a spendthrift by allowing P/E < 9 and P/B < 0.9  ;)  

 

Anyway, currently ~100 stocks fit the bill on the NYSE & TSX combined.    Perhaps BZ, IM, MET, or MIG on the NYSE?  Mind you, it might be one of those fly-by-thing things on NASDAQ  ;)

 

I'm rather fond of sleepy ALC @ 8.4/0.74 or GVC @ 8.6/0.68.  Oh, real small cap folks can consider PAP.A as a profitable Net-Net.   :D

 

(I may have a position in the aforementioned stocks, this is not a recommendation.)

[watsa_is_a_randian_hero]

Quote from: Parsad on Today at 10:56:08 AM

In fact, our largest holding is a small-cap company that is relatively well-known, yet not a single person on this board, or its predecessor, has ever talked about it from my recollection.  It trades at about 8.5 times earnings and less than 0.85 of book...and book is undervalued!  Cash flows are consistent, little debt and it's been around a long time.  Yet not a single person has ever talked about this company.  Schloss would be buying stocks today...but that's because he would be doing more legwork and research than everyone on here.  Cheers!

 

Parsad - why do you tease?

 

You know damn well someone here is going to try and figure it out!

 

Rick's Cabaret

[NormR]

From last week, but a fair number of stocks in the S&P500 trade below a P/E of 10 and a P/B of 1 ...

 

Name		Ticker	Price	P/E	P/B	Leverage
CONSTELLAT	CEG	29.59	1.23	0.66	3.32
CAPITAL ONE	COF	38.61	8.52	0.70	7.30
NRG ENERGY	NRG	22.41	10.00	0.71	3.39
UNUM GROUP	UNM	20.78	8.02	0.77	6.61
ASSURANT	AIZ	36.85	8.90	0.79	5.42
SUPERVALU	SVU	11.05	6.78	0.79	6.00
ACE LTD		ACE	52.97	6.23	0.84	4.10
LOEWS CORP	L	36.9	9.49	0.85	4.42
PRUDENTL FINL	PRU	55.5	6.11	0.87	19.68
WELLPOINT INC	WLP	51.58	4.60	0.87	2.16
MORGAN STANLEY	MS	26.12	8.85	0.88	18.96
TRAVELERS COS 	TRV	49.63	7.43	0.89	4.12
ROWAN CO	RDC	25.53	9.86	0.89	1.59
CINCINNATI FIN	CINF	26.63	8.48	0.92	3.17
MICRON TECH	MU	7.37	4.52	0.95	2.10

 

[Parsad]

I should *hope* that someone doing this as a job rather than a hobby can spend more time on the research than I can.

 

Yes, that helps and is an advantage!  

 

Granted, I work pretty much 25-30 hours a week for Quantum as well to help pay the bills, so I probably don't have that much more time than most...it's just that I usually read till 1-2am and then back at it again at 6-7am...every day, of every week, in every year...even in the washroom!   ;D  Probably too much information.  Cheers!

[Uccmal]

As per Norm, I ran a screen of <.85 bv, debt < 50%; and PE<8.5 and got nearly 300.  Some I even recognize.

[Guest Bronco]

Rick's Cabaret - never heard of it?  Is it a burger joint?

[dcollon]

Bronco,

 

I'm wondering if you are joking about Rick's.  You can get food there, but that's not usually why people go.

 

All in good fun...punch it up in google if you haven't seen the name before.

[Guest Bronco]

Just a joke. 

 

My dream was to become a hedge fund manager, make billions, buy out Playboy's stock, and move in the mansion (owned by the corp I believe).  I would also launch a hostile bid against Rick's, with price being no object.  The instrinsic value of all these "assets" would be off the charts - sort of like owning a Picasso.

 

I would rule the world.

 

 

Instead, I am talking to you guys.  FML.

[Parsad]

I think that's an admirable goal Bronco!  ;D  Buffett would be impressed. 

 

By the way, no it's not Ricks.  Cheers!

[watsa_is_a_randian_hero]

I think that's an admirable goal Bronco!   ;D  Buffett would be impressed.  

 

By the way, no it's not Ricks.  Cheers!

 

rats...I dont know much about rick's but it is in that trading range (pe 8.8, pbv 0.82).  Ricks also owns a lot of their properties (thought that could be your rationale for bv being undervalued), is small cap, and definitely is "well known."

[Hawks]

Parsad

How about Glacier Media?  Right in your geographical area too. And McElvaine also own lots. One of my favourites for a long time.