Financial History 139 (Fall 2021) - Page 27

Courtesy of Edwin Schloss
Walter Schloss ( in suspenders in rear ) and three Tweedy , Browne partners , 1962 .
book called Security Analysis that had just been published by a man named Ben Graham : “ Read the book and when you know everything in it , you won ’ t have to read anything else .”
Schloss took his advice . He also enrolled in the New York Stock Exchange Institute ( New York Institute of Finance ), where he took courses in accounting and finance , qualifying him to enroll in Graham ’ s course in security analysis . Schloss recalled that “ it was a great experience and I remember taking two different classes with him . The firm paid for the classes , which I think was $ 10 or $ 20 a semester .” This was where Schloss developed his personal relationship with Graham .
On December 12 , 1941 , immediately after Pearl Harbor , Schloss enlisted in the US Army and served as a code clerk in the 833rd Signal Company . He was then transferred to the Persian Gulf Command in Iran , which constructed Studebaker trucks in an Iranian truck factory . These trucks were loaded up with supplies and driven north to the border , where they were turned over to the Russian army for use in the siege of Stalingrad . After a year and a half , he returned to the United
States to attend Officer Candidate School and was commissioned a 2nd Lieutenant . He served the balance of his military service in Washington , DC at the Pentagon .
In 1946 , when he completed his World War II service , he married Louise Filer , also from New York . They had two children , Edwin and Stephanie .
Graham-Newman Corporation ( 1946 – 1955 )
During the war years , he stayed in touch with Graham by postcard and letter . Graham wrote back while Schloss was still in the service and offered him a job as a security analyst in his investment firm , the Graham-Newman Corporation . Schloss joined the company on January 2 , 1946 and remained until 1955 , when Graham decided to retire to California .
When Schloss joined Graham-Newman , the company was already 10 years old and had established a very good track record . Its total assets on January 31 , 1946 were $ 1.4 million consisting of $ 1.1 million in 37 stocks and the balance in arbitrage strategies . His first job was to prepare the annual report for that year and then to find stocks which were selling below net working capital . Graham ’ s mantra was to buy stocks like groceries , not like perfumes . Schloss recalls that “ Ben was a great believer in buying a diversified group of securities , so that he limited his risk . He was badly hurt by the Depression , and he didn ’ t want to do that again .”
A good example of Graham ’ s conservative investment style was his purchase of 50 % of GEICO for $ 712,000 in 1948 . Schloss remembers Graham saying , “ Walter , if this purchase doesn ’ t work out , we can always liquidate it and get our money back .” He recalls that Graham “ had no conception of the growth potential of this thing . He was just buying an insurance company cheap .”
Graham-Newman was the incubator for several of the superinvestors of Graham-and-Doddsville . In addition to Walter Schloss , there was Tom Knapp , who went on to co-found Tweedy , Browne Partners , and , of course , Warren Buffett , who founded the Buffett Partnership and bought control of Berkshire Hathaway . They all worked there from 1954 to 1956 . Buffett recalls , “ I offered to go to work at Graham-Newman for nothing after I took Ben Graham ’ s class ( at Columbia Business School ), but he turned me down as overvalued . He took this value stuff very seriously ! After much pestering , he finally hired me .”
When Buffett joined Graham-Newman as an analyst in 1951 , the work dynamic of the company changed as the other employees , including Schloss , recognized his genius . Schloss was 14 years older than Buffett with a lot more seniority at the company , but he did not react defensively . In fact , he reached out and became an informal mentor to him . Thus began a lifelong friendship . They both enjoyed playing bridge — Schloss even joined some games with Buffett and Bill Gates in later years .
The other superinvestors were Bill Ruane , who founded the Sequoia Fund ; Charlie Munger , Buffett ’ s long-time partner at Berkshire Hathaway ; Rick Guerin of Pacific Partners ; and Stan Perlmeter of Perlmeter Investments . Buffett maintained friendships with his fellow superinvestors by arranging meetings every two years , including a famous pilgrimage to visit Graham in La Jolla , CA in 1968 .
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