Financial History 139 (Fall 2021) - Page 29

• Price is the most important factor to use in relation to value .
• Use book value as a starting point to try and establish the value of the enterprise . Be sure that debt does not equal 100 % of the equity .
• Have patience . Stocks don ’ t go up immediately .
• Have the courage of your convictions once you have made a decision .
• When buying a stock , I find it helpful to buy near the low of the past few years .
• Try not to let emotions affect your judgment . Fear and greed are probably the worst emotions to have in connection with the purchase and sale of stocks .
Note his reliance on the balance sheet , especially book value and the relationship between market price and book value . In fact , the price / book ratio was the primary metric he used in screening for investment opportunities . In a Forbes interview , Schloss was asked why he focused on book value . He responded , “ I really have nothing against earnings , except that , in the first place , earnings have a way of changing . Second , your earnings projections may be right , but people ’ s idea of the multiple has changed . So , I find it more comfortable and satisfying to look at book value .” It would be problematic to apply a simple price / book ratio in today ’ s market , given the dominance of intangible assets in many companies ’ asset valuation . shows . Eventually , he became a voting member of the Tony Awards and regularly attended over 40 productions each season . He is an accomplished producer and was co-producer of Kiss Me Kate , Sweet Charity , Grey Gardens , Wonderful Town and La Cage aux Folles . He won a Tony for the revival of La Cage aux Folles in 2010 .
Performance of the Fund ( 1955 – 2000 )
For the 45-year period ending on December 31 , 2000 , the compound annual rate of return for limited partners was 15.7 %, compared to 11.2 % for the S & P Industrial Average . The fund had only seven down years in 45 years , compared with 13 down years for the S & P Industrial Average . The maximum drawdown was only – 12.8 % in 1990 . It grew in size from $ 100,000 to $ 130 million , even though it paid out relatively large distributions of realized gains each year . The partners of the fund were ordinary individual investors who needed the cash flow to finance their living expenses . Over these 45 years , the average holding period was three to five years . The portfolio was highly diversified , including everything from a few large-cap “ blue chips ” to a multitude of obscure small caps . Many of the companies no longer exist today .
Walter and Edwin worked together closely in their tiny closet-sized office at
Tweedy , Browne . They relied on basic company financial reports and Value Line . Edwin recalls that they focused on companies that were lower rated in timeliness in the Value Line rankings , which were being ignored by investors . “ In the early days , it was like shooting fish in a barrel . We initially found stocks selling below net working capital , then at 50 %, 75 % and 100 % of book value as the market traded up over time .”
Buffett commented that “ they never came within a mile of inside information . Indeed , they used outside information only sparingly , generally selecting securities by certain simple statistical methods Walter learned while working for Ben Graham . When Walter and Edwin were asked in 1989 by Outstanding Investors Digest , ‘ How do you summarize your approach ?’ Edwin replied , ‘ We try to buy stocks cheap .’ So much for Modern Portfolio Theory , technical analysis , macroeconomic thoughts and complex algorithms .”
Schloss used an unusual egalitarian fee structure in his partnership . “ I wanted to be in the same position as my partners . If they didn ’ t make money , I didn ’ t make money . If they made money , I wanted to be part of it . So , I got 25 % of the realized profits , but that ’ s it . If the market went down , we would have to make up the loss until my partners were whole .”
Edwin Schloss Joins the Partnership ( 1973 – 2002 )
In 1973 , Schloss ’ s son Edwin joined the partnership , and the name was changed to Walter & Edwin Schloss Associates . Edwin received a Bachelor of Fine Arts degree in playwriting from the North Carolina School of the Arts . After graduation he studied security analysis at the New York Institute of Finance . Together , Walter and Edwin very successfully comanaged the fund until its liquidation in 2002 .
Edwin has had a lifelong passion for the performing arts . He worked on Wall Street during the day and attended Broadway shows at night , often passing performance notes to the lead producer of the
Value of $ 1.00 Invested in the Schloss partnership versus the S & P Industrial Index , 1956 – 2000
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