Walter Schloss 16 rules
1. Price is the most important factor to use in relation to value
2. Try to establish the value of the company. Remember that a share of
stock represents a part of a business and is not just a piece of paper.
3. Use book value as a starting point to try and establish the value of
the enterprise. Be sure that debt does not equal 100% of the equity.
(Capital and surplus for the common stock).
4. Have patience. Stocks don’t go up immediately.
5. Don’t buy on tips or for a quick move. Let the professionals do that, if they can. Don’t sell on bad news.
6. Don’t be afraid to be a loner but be sure that you are correct in
your judgment. You can’t be 100% certain but try to look for the
weaknesses in your thinking. Buy on a scale down and sell on a scale up.
7. Have the courage of your convictions once you have made a decision.
8. Have a philosophy of investment and try to follow it. The above is a way that I’ve found successful.
9. Don’t be in too much of a hurry to see. If the stock reaches a price
that you think is a fair one, then you can sell but often because a
stock goes up say 50%, people say sell it and button up your profit.
Before selling try to reevaluate the company again and see where the
stock sells in relation to its book value. Be aware of the level of the
stock market. Are yields low and P-E rations high. If the stock market
historically high. Are people very optimistic etc?
10. When buying a stock, I find it heldful to buy near the low of the
past few years. A stock may go as high as 125 and then decline to 60 and
you think it attractive. 3 yeas before the stock sold at 20 which shows
that there is some vulnerability in it.
11. Try to buy assets at a discount than to buy earnings. Earning can
change dramatically in a short time. Usually assets change slowly. One
has to know much more about a company if one buys earnings.
12. Listen to suggestions from people you respect. This doesn’t mean you
have to accept them. Remember it’s your money and generally it is
harder to keep money than to make it. Once you lose a lot of money, it
is hard to make it back.
13. Try not to let your emotions affect your judgment. Fear and greed
are probably the worst emotions to have inconnection with purchase and
sale of stocks.
14. Remember the work compounding. For example, if you can make 12% a
year and reinvest the money back, you will double your money in 6 yrs,
taxes excluded. Remember the rule of 72. Your rate of return into 72
will tell you the number of years to double your money.
15. Prefer stock over bonds. Bonds will limit your gains and inflation will reduce your purchasing power.
16. Be careful of leverage. It can go against you.