Walter Schloss passed away last year. He was a true Zen Investor.
What is a Zen Investor? It’s someone who has figured out how to calm down and let the stock market come to them. It’s a radically different approach to investing. Most investors are trying too hard to beat the market, as if it were an opponent in a sporting event. They struggle and push and agonize over mistakes. They try to control the uncontrollable. But a Zen Investor doesn’t struggle against the natural volatility of the stock market.
Schloss gained 16% annually from 1955 to 2002. By comparison, the Standard and Poor’s index returned 10% annually during the same period.
The principles of Zen Investing are very well-suited to individual investors. The approach is somewhat similar to buying index funds and not spending too much time looking at the daily drama of the stock market.
Here are 5 investing lessons from Walter Schloss that you can apply to you own investing strategy.
- Keep it simple. He works from 9 am to 4 pm every day. His schedule involves looking at stocks from Value Line. He screens a lot of stocks. He looks at his checklist. If a stock fits his investment checklists, he buys small portions of them. He owns 1000 stocks at some point. Unlike Buffett, he doesn’t look at the businesses. He looks at hard numbers. He doesn’t time the economy. He doesn’t read quarterly reports. That’s essentially how he does it.
- Downside. He doesn’t like stocks that carry a lot of debt. His main objective is capital preservation rather than significant returns. He analyzes investments on the basis of risks. If the risks are covered, he can be assured that the returns will follow. He minimizes his risks through wide diversification.
- Courage. He doesn’t mind going against the crowd. In fact, most of his purchases are ugly stocks that trade below their assets. He learned from Ben Graham that an investor is not necessarily right because everyone agrees with him. An investor is right because he is correct in his analysis.
- Limitations. He doesn’t have an army of analysts. He has his son Edwin as his partner. So he keeps his operations low. Since he knows his limitations, he adjusts his investment processes. He doesn’t talk to management because he knows he doesn’t have the skills to correctly assess CEO’s.
- Patience. He advises other investors to wait patiently. Investments don’t go up immediately. It takes a lot of time before companies make significant progress. Most of the stocks he bought are ugly stocks. It probably would take a couple of years before it goes up. On the average, he did quite well as he bought them on the cheap. As the saying goes, “Good things happen to those who wait.”
He lived a long and fulfilling life. He didn’t worry about anything – from the economy to the stocks he bought. He was confident that the downside was protected.
His approach to investing is a testament that individual investors can do well even with a calm, laid-back approach to a very turbulent activity.