Be Careful What You Short

Shorting on valuation alone is a risky business. Nine times out of ten, the analysis is sound, it’s clear the company in question is overvalued and should be due for a re-rating. However, it’s often difficult to maintain the short position for the required period as there’s no telling how long market exuberance can last.

How successful are short selling campaigns?

A recent article by Alon Bochman of investment firm, Stepwise Capital provides a real insight into how successful different types of short selling campaigns are. The article looked at the different performance of shorts based on valuation, compared to shorts based on suspected fraud. The article uses data from a new research service called Activist Shorts Research, which has compiled data on more than 400 short campaigns from 2002 to present…..see more at

The Superinvestors of Graham-and-Doddsville: Walter Schloss

The Columbia University School of Business is synonymous with value investing. It’s where Benjamin Graham, the father of value investing taught and developed the style of investing we now know as deep-value investing during the 1920s.

In 1984, in honour of the 50th anniversary of the publication of Benjamin Graham and David Dodd’s book, Security Analysis, the University invited Warren Buffett (undoubtedly Graham’s most successful student) to speak to students. Buffett’s speech became the driving force behind his now famous essay, ‘The Superinvestors of Graham-and-Doddsville‘.

Walter Schloss

One of Buffett’s ‘Superinvestors’ was Walter Schloss, who learned his trade under the stewardship of Benjamin Graham.

Schloss never went to college. In fact, his financial education was limited to an evening class with Graham, which he enrolled on after reading ‘The Intelligent Investor’. Soon after taking the class, Schloss went to work for Graham at the Graham-Newman partnership. He left the partnership during 1955 and the rest, as they say, is history:

“…armed only with a monthly stock guide, a sophisticated style acquired largely from association with me, a sub-lease on a portion of a closet at Tweedy, Browne and a group of partners…Walter strode forth to do battle with the S&P…” — Warren Buffett praising Walter Schloss in a letter to members of the “Buffett Group” before its Hilton Head conference in 1976.

Schloss liked his “cigar-butt” companies and sought to acquire as many companies trading at 1/3 net working capital as possible. Schloss’ screening criteria were:

  • Trading at a discount to book value
  • Trading at a low P/E multiple
  • Been around for more than ten years
  • Had no long-term debt
  • Trading at or near its 52-week low
  • Had a high insider ownership
  • Had a good dividend yield

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Walter Schloss Part Seven: Learning From The Master

Walter Schloss – Part seven: Learning from the Master

As I’ve covered before, Walter Schloss never went to college. At 18, he started working as a runner on Wall Street at Carl M. Loeb & Co. After a year at the firm, Walter Schloss met with Armand Erpf, a partner of Loeb & Co, who was also incharge of the statistical department. Walter Schloss wanted a job in the statistical department but Armand turned him down. Instead he advised Schloss to read a newly published book entitled “Security Analysis” written byBenjamin Graham and David Dodd

After reading the book, and looking to further his career, Schloss enrolled on a series of courses conducted by the New York Stock Exchange, prerequisites for classes with Graham. After these primers, Walter Schloss was allowed to take a course in “Security Analysis” as taught by Graham.

Articles seven and eight of this series on Walter Schloss are based on what Schloss learned from Graham during his time with the Godfather of deep-value.

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Walter Schloss – Part Six: The Right Stuff

Walter Schloss – Part Six: The Right Stuff

In parts five and six of this series, I’m taking a look of some of Walter Schloss’ deep-value investments that he made over his six-decade long career on Wall Street.

These examples have been taken from interviews with Schloss, conducted over the years by financial publications, and there’s plenty to choose from. Schloss was more than happy to talk about his investments and where he was directing his partners’ money.

One such interview, published within Barron’s magazine during February 1985, Schloss talked about the importance of letting profits run…

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Walter Schloss – Part Five: Making Money Out of Junk

Walter Schloss – Part five: Making Money out of Junk

The first few parts of this series on Walter Schloss, have looked at the legendary investor’s background, how he got into deep value investing and how he went about finding suitable investments.

However, as of yet, I’ve not looked into any case studies, or investments Walter Schloss made, the reasons why and what results they yielded for his portfolio. And with over 100 stocks in his portfolio at any one time, there are certainly plenty of examples to pick from over Walter Schloss’ six decades of deep-value history.

Luckily, Walter Schloss wasn’t shy. He gave plenty of interviews and lectures over his career. One such interview, entitled Making Money Out of Junk, was published in the August 15 1973 issue of Forbes magazine and it gives us a real insight into Walter Schloss’ deep-value philosophy.

Making Money out of Junk

Book value per share and the price to book, or P/B ratio are two of the most important financial metrics in the deep-value investors’ arsenal. Walter Schloss begins his interview with Forbes by talking about the importance of these figures, but more importantly Walter Schloss comments on the reliability of these figures and they can often understate the replacement cost of assets.

Read the whole article at

Walter Schloss – Part One: Introduction To The Master Of Deep Value

This is the first part of a multi-part series on Walter Schloss, legendary value investor. To ensure you do not miss the rest of the series sign up for our free newsletter.

Walter Schloss – Part one: Introduction

Just like Seth Klarman, Walter Schloss’ success is virtually unknown outside of value circles. However, just like Klarman, Schloss’ returns over the past few decades were nothing short of impressive.

Unfortunately, Schloss passed away during 2012 at the age of 95 but his legacy lives on and today’s investors can learn from his disciplined approach to value investing.

From 1955 to 2002, by Schloss’ estimate, his investments returned 16% per annum on average after fees, compared with 10% for the S&P 500 over the period — these figures do vary marginally depending upon the source — Schloss’ returns up to the year 2000 compared to the S&P 500 can be seen in the chart below.

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Should investors use EBITDA – or is it a folly?

“I think that, every time you see the word EBITDA, you should substitute the word ‘bulls**t earnings’.” — Charlie Munger

The earnings before interest, taxes, depreciation, and amortization, or EBITDA metric has its uses, and has become an extremely popular standard to measure business performance. However, the figure is highly misleading, it’s easy to manipulate and should be taken with a pinch of salt. (The same can be said for almost all financial figures and metrics, but few are as easily and frequently manipulated as EBITDA.)

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