Schloss was a great investor, but of a different era. His thinking was not too dissimilar to that of Benjamin Graham, but they lived in a time when companies were rich in tangible assets. This approach is not easy to read across into today's investment landscape.
- Buy assets, not earnings:
This is really difficult to apply in practice to a business which has developed something inhouse, which has been expensed rather than capitalized and so doesn't even appear on the balance sheet. Consider Coca-Cola's secret recipe. If the business was ever acquired, that asset would appear as Goodwill on the acquirers balance sheet and it would be enormous, but it doesn't appear on Coca-Cola's balance sheet at all. The same is true with tech companies. The issue is that accounting was designed to facilitate tax collection, not to facilitate investing.
-Look for low P/E stocks:
This is a fallacy. In 2022 Ford had a trailing P/E of around 5. It is a solid company with a remarkable history and at that P/E it looked cheap. Yet if you had bought it in 2022 at $20 a share you would be down almost 50%. Contrast this to Amazon, which many avoided for years because its P/E appeared to be eye-wateringly high, and you would have done remarkably well. $10,000 invested in Amazon at its IPO would be worth more than $25 million today. This article explores the fallacy of price centric investing in greater detail: https://rockandturner.substack.com/p/the-fallacy-of-price-centric-investing
-Diversify, Schloss often held over 100 stocks in his portfolio
This contrasts with the approach of Buffett and Munger who always said “Diversification is protection against ignorance. It makes little sense if you know what you are doing.” They backed this up by asking, 'why would you put money in your 25th favourite company when you could instead put it in your top two or three?' This speaks to the opportunity cost inherent in investing - the only time that you should diversify across 100 companies is if you are not able to assess opportunity cost - in which case you shouldn't be investing! In truth, there are very few good companies worth investing in over the long term and so if you find them, you swing hard and bet big. This idea was explored in greater detail in this article which reveals that long term stock market returns are driven by only 4% of companies https://rockandturner.substack.com/p/the-4-of-companies-worth-holding
-Use book vale as the starting point
This is old fashioned thinking. Buffett moved away from using book value in the mid twenty-teens. Think about Apple. It's book value has reduced by over 50% in recent years (primarily because equity has been destroyed through overpriced buybacks to offset egregious stock based comp), but does that make it a bad company? It's market cap has more than doubled over the same period.
I could go on, but I think that the point has been made.
Schloss was a great investor, but of a different era. His thinking was not too dissimilar to that of Benjamin Graham, but they lived in a time when companies were rich in tangible assets. This approach is not easy to read across into today's investment landscape.
- Buy assets, not earnings:
This is really difficult to apply in practice to a business which has developed something inhouse, which has been expensed rather than capitalized and so doesn't even appear on the balance sheet. Consider Coca-Cola's secret recipe. If the business was ever acquired, that asset would appear as Goodwill on the acquirers balance sheet and it would be enormous, but it doesn't appear on Coca-Cola's balance sheet at all. The same is true with tech companies. The issue is that accounting was designed to facilitate tax collection, not to facilitate investing.
-Look for low P/E stocks:
This is a fallacy. In 2022 Ford had a trailing P/E of around 5. It is a solid company with a remarkable history and at that P/E it looked cheap. Yet if you had bought it in 2022 at $20 a share you would be down almost 50%. Contrast this to Amazon, which many avoided for years because its P/E appeared to be eye-wateringly high, and you would have done remarkably well. $10,000 invested in Amazon at its IPO would be worth more than $25 million today. This article explores the fallacy of price centric investing in greater detail: https://rockandturner.substack.com/p/the-fallacy-of-price-centric-investing
-Diversify, Schloss often held over 100 stocks in his portfolio
This contrasts with the approach of Buffett and Munger who always said “Diversification is protection against ignorance. It makes little sense if you know what you are doing.” They backed this up by asking, 'why would you put money in your 25th favourite company when you could instead put it in your top two or three?' This speaks to the opportunity cost inherent in investing - the only time that you should diversify across 100 companies is if you are not able to assess opportunity cost - in which case you shouldn't be investing! In truth, there are very few good companies worth investing in over the long term and so if you find them, you swing hard and bet big. This idea was explored in greater detail in this article which reveals that long term stock market returns are driven by only 4% of companies https://rockandturner.substack.com/p/the-4-of-companies-worth-holding
-Use book vale as the starting point
This is old fashioned thinking. Buffett moved away from using book value in the mid twenty-teens. Think about Apple. It's book value has reduced by over 50% in recent years (primarily because equity has been destroyed through overpriced buybacks to offset egregious stock based comp), but does that make it a bad company? It's market cap has more than doubled over the same period.
I could go on, but I think that the point has been made.
I welcome your comments.