The Bottom Line
April 17, 20035
By Eli Rabinowich
Welcome to “Profiles inInvesting”, brought to you by
The Bottom Line
Heilbrunn Center for Graham& Dodd Investing.
Every week we will profile a leading inves-tor and get an inside look intotheir investment philosophy.Up next, Walter and EdwinSchloss.For sheer uninterruptedexcellence few investors canmatch Walter Schloss. For 45 years, from 1955 through2000, Walter Schloss has man-aged the same investment partnership. The compoundrate of return for his LimitedPartners was 721.5x or 15.7% per year compared to a gainfor the S&P Industrial Averageof 117.5x or 11.2% per year.In 1973, Walter’s son, Edwin, joined the partnership and thefund became known as Walter & Edwin Schloss Associates.In 2001, Walter and Edwindecided to close up shop andliquidate the fund. I sat downwith Walter and Edwin andasked them about their careers,why they decided to shut down,and what the future has in storefor them.
ER: How did you first get started in research?
WS: In the 1930’s my mother had a good friend who wasmarried to a member of the New York Stock Exchange. Iused to visit them and I likedthe lifestyle, they had a kind of
joie de vivre
about the way theylived. He was a specialist onthe Exchange, but I didn’t likethe speculative nature of thework. I could see instinctivelywhat I liked – I like numbers.So after high school, in 1934, Iwent to work at Loeb Rhoades,then called Carl M. Loeb & Co.I started working in the cage,doing clerical work, recordingtrades for customers. A year after I arrived, I went to speak to one of the partners about get-ting into the statistical depart-ment, but he said he couldn’tdo it. He suggested I readBen Graham’s book,
, which had just been published and said ‘if you readthat book and know everythingin it, you won’t need anythingelse.’ Ben Graham was a cus-tomer of Loeb and was teach-ing courses at night. So I took two of his courses – I think ’36 and ’39 – at the New York Institute of Finance, which wasthen called the New York Stock Exchange Institute. I took Graham’s course and I just fellin love with the approach – itmade sense. He liked to takecompanies listed near eachother on the exchange and tocompare them. One would rep-resent a value stock and another a growth company. I remember he took Colgate-Palmolive, avalue company, and Coca-Cola,a growth company, and com- pared them. He also comparedDow chemicals (growth) andDistiller Seagram (value.)ES: How do you comparetwo different companies in dif-ferent industries?WS: He was using the statis-tics. He wasn’t using industryanalysis. He was using thevalue of the company. He waslooking at relative value to seeif the company was relativelycheap to book value.ES: You’ve always said some people latch on to the valueapproach, they really fall inlove with it and other peopledon’t have any affinity for value…WS: That’s right. They likegrowth. A lot of people aremore interested in a companydoing better next year than thisyear. Now what we do in our business is try to relate the mar-ket price of the stock to whatwe think it is worth. Whenwe buy a stock we don’t try to project what the future is goingto be, we’re not able to do that particularly well. To do it well,you need to know a lot aboutthe company, you need to talk to their competitors, suppliers – we don’t want to do that. We’rea small little office here. So welook at the numbers rather thanrun around the country, likePeter Lynch used to do.
ER: What was the first great stock call you ever made?
WS: Well you have to under-stand that I had no money, butthe first stock I remember buy-ing was ten shares of StandardGas and Electric, $7 preferredstock for $15 a share. I endedup buying and selling the stock a couple of times and madesome money, with the stock eventually working out at over $200. The thing about Ben
Read Between the Lines:
A Brief Response to Last Week’s Article “Look Beyond the Words”
PROFILES IN INVESTING
Going Out on Top: Walter & Edwin Schloss
By Rob Tarulli
Andrea Alban-Davies wrote a very interestingarticle last week asking for the student body to writeto President Bollinger and ask “that he uphold argu-ably the most important right given to us by our con-stitution – the right to freedom of speech. Ask him torespect Professor DeGenova’s right that he exercisedwhen making his comments; ask him to encourageeach member of our community to speak his or her mind without fear of
repercussions”.Mr. De Genova, like all Americans, has the rightto exercise freedom of speech. However, Mr. DeGenova, like all Americans, does not have the right tohold a prestigious position as a professor at ColumbiaUniversity. I can offer you numerous examples of individuals who have worked for private, public, andacademic institutions who have lost their jobs basedon comments or actions that exhibited extremely poor judgment and have seriously offended the organiza-tion’s stakeholders. Some recent examples are TrentLott and Peter Arnett. More notable is University of New Mexico history professor Richard Berthold whoon September 11 became infamous for telling a classthat “anyone who can blow up the Pentagon has myvote.” The University issued Mr. Berthold a letter of reprimand and he voluntarily retired a year later because it became evident the University’s adminis-tration was making life difficult for him.But this is not an issue of free speech. I whollyacknowledge that Mr. De Genova has a right toexpress his beliefs, however abhorrent and hatefulthey may be. I also believe that we, the students,employees, alumni, and trustees of the University,must do everything we can to disassociate ourselvesfrom him and from the repulsive actions he promotes.Mr. De Genova has unveiled a venomous disgust for many of his fellow Columbians and has sought toincite violence against them. There are upwards of 50 students on campus who still have active com-mitments to the military and are therefore targetsof Mr. De Genova’s tirade. This is both inappropri-ate and completely unacceptable. This is not aboutMr. DeGenova’s freedom to speech, it is about theUniversity providing an environment that is con-ducive to learning and ensures the safety of its stu-dents. I strongly feel that if his comments were madeagainst any other student group (ethnic, social, reli-gious, etc . . .), the university would have formulateda much stronger response to ensure the safety of thestudents on campus.President Bollinger explains his actions (or rather inaction) by proclaiming that Mr. DeGenovawas speaking as an individual, not as a ColumbiaUniversity Professor. President Bollinger states inhis press-release, “His comments were not made in aclassroom, but rather at a teach-in, an informal gath-ering where faculty and students come together todiscuss and debate the pressing and important issuesof the moment. They are not authorized or officiallysanctioned classroom experiences.” This distinctionis made because if Mr. DeGenova’s comments weremade during ‘officially sanctioned classroom experi-ences’ (i.e. class), disciplinary action may have beeninevitable. My argument has been that these state-ments were indeed made by a Columbia Professor speaking at an event organized by other ColumbiaProfessors on Columbia’s campus and therefore the professor/individual distinction cannot be made; that because of the nature of the event and its organizers,Mr. DeGenova was speaking as a Professor. Thisdoes not depend on what the definition of ‘is’ is.It is evident to those of us who follow the news thatthere has been some backlash towards the Universityon this matter. When I first called the University tomake a complaint, I was informed that they werereceiving thousands of calls a day on this issuealone. I am quite confident in saying the vast major-ity of these calls were not congratulatory in nature.Recently, 104 members of the U.S. Congress Houseof Representatives co-signed a letter to PresidentBollinger urging that Mr. DeGenova be fired.When Mr. DeGenova made those comments atColumbia University on March 26, he seriously tar-nished the University’s reputation and brand. It ison these grounds, along with his calls for violenceagainst certain students on campus, which I believedisciplinary action is called for. If you agree with me,I urge you to make your voice heard - stop by myfolder on the second floor of Uris and sign my peti-tion. If you don’t agree with me, I still urge you tomake your voice heard - I think Andrea has a petitionfor you in her folder.
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