Walter Schloss, the essence of value investing

This article is posted here (Gurufocus.com).

Here is an excerpt:

Just before the housing crisis Schloss flipped through Value Line and stopped finding a furniture company battered by a lousy housing market: Bassett Furniture. The chair and table maker was trading at a 40% discount to book and had a 7% dividend yield. Schloss said something about how book value hasn’t risen for years and how the dividend may be under threat. His recommendation was to consider buying when and if the company cuts its dividend. Then it would be even cheaper and it eventually most probably will recover (sounds like it would have been wise to wait for General electric to cut its dividend before buying it not too long ago)! The company indeed cut it’s dividend after that from 20 cents to 10 cents and then to 0 by the end of 2008. By the beginning of 2009 the stock was trading under 1 dollar. His call was right: It now recovered to 8 dollars.

Walter Schloss
Walter Schloss never changed his investing philosophy, he refined it, he looked forward to buy decent companies with temporary problems, small or no dent and selling under book value. After 17 recessions I guess he acquired a good intuition. And he does really pick up unknown, small cap companies as Buffett said. He simply does not want to lose money on an investment and spoke of Benjamin Graham’s essential ability to remove emotions completely from investing. Mr. Market is emotional. But Mr. Graham did not care, he purchased securities strictly on a quantitative basis. He remained close to fully invested throughout his career. It looks like he trusted more the power of companies to preserve value than holding cash, gold, or meager bank deposits who tend to lose due to inflation. He once said, “I think I sleep better owning stocks than owning cash!”. Companies were his favorite currency.

About jrv

I was born in Spain and lived in Belgium, Chile, France, USA, Argentina among other places. Currently I am trying to settle down in a wild place. I am "retired", even though now I dedicate more hours "working" for my investments than I ever worked in the real labor market where I used to work in IT and Banking. I am a family man, I have a lovely wife, several sons and one step daughter. I have humble tastes, I like to stay home and read about companies and investments. I started investing at 25 before the internet bubble exploded. I did not know much about investing and liked technical analysis so my results were pretty bad. Fortunately I did not have much to lose. Some years later in 2006 bored of doing only real state investments and with quite a lot of money saved I opened an account in a cheap and excellent online broker and started again. This time I did not want to commit the same mistake, so I decided to follow a model. I heard that Warren Buffett was the best at making money via stocks so I started by reading a lot about him, all of his shareholders letters and several of the books that he recommended. I learned a lot, started applying his investing principles and reading a lot of 10K's. Digested news from lots of different sources. Basically I started buying very good and cheap companies and holding them for ever if possible and if nothing changed fundamentally. When the housing crisis started I was more than 75% cash. At that time I identified good companies at incredibly cheap prices so I invested most of my savings in stocks. In less than I year I doubled. By the second semester of 2009 I turned my software company into an investment vehicle and dedicated myself full time to it. My wife and I decided to change our lifestyle and moved from Belgium to the beach in a wild country. The goal was to keep fixed costs low in order to be able to live with a minimum 6-8% yearly return but specially to move away from the inhuman life of civilization and to have finally some peace and sunny weather to concentrate better on investing. Now I can think and study about companies 60 hours a week and I am doing great. I can finally do what I want full time and can proudly say that I have never been so happy, specially also with my just born 4th son, my other great kids and my sweet wife who supports me fully while I study most of the day and patiently wait for the opportunity to make a swing ! You can learn a bit more about my portfolio by viewing it at www.kuchita.com/view/sumo.php or you may learn more about me and my family by following the link "Author's site" from the menu above.
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3 Responses to Walter Schloss, the essence of value investing

  1. Jeff says:

    Any guesses on what the furniture company might be? It could be Flexsteel, but they issue new shares like mad, which dilutes the stock. It could also be Hooker Furniture, but they have very little insider ownership.

    Any other ideas?

  2. jrv says:

    Hi Jeff,

    It’s Bassett Furniture Industries.

    It comes from an interview given in January 2008:

    Schloss flips through Value Line again and stops at page 885: Bassett Furniture, battered by a lousy housing market. The chair- and tablemaker is trading at a 40% discount to book and sports an 80-cent dividend, a fat 7% yield. Schloss mutters something about how book value hasn’t risen for years and how the dividend may be under threat.

    His call: Consider buying when the company cuts its dividend. Then Bassett will be even cheaper and it eventually will recover.

    The company indeed cut it’s dividend after that from 20 cents to 10 cents and then to 0 by the end of 2008. By the beginning of 2009 the stock was trading under 1 dollar. It now did recovered to 8 dollars.

    After 17 recessions I guess he acquired a good intuition! And he does really pick up unknown, small cap companies as Buffett said.

    Cheers!
    jrv

  3. Jeff says:

    Thanks jrv!

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