Walter Schloss: Shared Insight on Value Investing

and this one is say a couple of things I started the fund that I managed in 1955 when Benjamin Graham said he was going

to retire and I liked them very much and one of the people who rested with them said Walter if you start a fund I

will I'm gonna put money in it so I said it was a good idea and we got nineteen partners and they most of them put five

thousand dollars in and he started off with 19 partners and $100,000 I didn't want to say I never worked with Goldman Sachs at my job was basically with loeb

rhoades which was kind of related to the Lehman family as opposed but anyway I just wanted you to know that

so I started 1955 and I stayed in the

field until 2003 and my 2003 slice 2001 I think I'm not quite sure how and I what I know is that my son turned to me

when they had said dad I can't find any cheap stocks and I said at my age let's go out of business and I just know that the market was gonna bubble because of

the high tech stocks were acting very crazily and when these things happen you find that you have to work about three years to catch up to other things that

went wrong and the previous three years and life's too short for that and I enjoy investing and I would write one other comment actually I was written up

by Forbes magazine and it came out and think of the issue was February 11th and you might find that interesting and I'm

ready to answer any questions you may have even if I don't answer them right you tell me who's been around and how it

started your relationship would been ground well what happened was I went to work in 19th died father had lost his job lost his job and there was the

money in the family and so I got a job as a runner and a column Logan company which came loeb rhoades later on was the big brokerage firm but it was small when

I went there and then they put me into the cashiers Department and the year later I went I thought I only get a little more money I was making $15 a

week and I thought I could get a little more so I asked about it if I could get it as a security analysis Department which is as they call it the sisters

tickle Department in those days and I spoke to the partner who had got me the job as a runner and I said could I become a security analyst instead of his

death and he said though I think maybe I had no money and I couldn't bring in brokerage fees and in those days all commissions were fixed so that the

wealthy people could send their family and then they would get fixed commissions now of course it's about competitive field so anyway he said no

you can't you can't do that but he said they the book called security analysis by Benjamin Graham and if you read that book you won't need anything else so I got all of the security analysis so

there was a very good book and I found that Benjamin Graham who had written the book was a customer of Loubs and I could

see the stocks they owned and it seems that mode would send me to it call the New York Stock Exchange Institute they

were trying to teach the employees on a small basis how the stock exchange worked and they also Benjamin Graham taught a course in statistical analysis

and I took two of this course of security analysis that average security analysis and I thought there was wonderfully sort like warren buffett every you see graham you understand the

way he thinks and it works and incidentally after I worked for Graham for a number of years

they he I've in his office but he gets a phone call from his to say that government employees insurance which she had brought for a

million he bought that day for a million seven hundred thousand dollars and he turned to be innocent water if this doesn't wait we can always liquidate and get our money back that

shows what sometimes happens when you make a good purchase you don't always realize how great it's gonna be so I'm open to questions if you

have and I don't know if I answer anything so far but ask me what if I don't know I'll tell you just as a wee

bit about how do you choose stocks how what projects do you follow to to stocks well I like to buy stocks giving new

lows I like to look at the stocks is in Italy I find Value Line very helpful because I don't have a computer and it's

easy to see the statistics and then when I see the statistics then I can sort of make a judgement about the company I don't really talk to the management's

back in the days when I started back at I I was in World War two I enlisted the day after Pearl Harbor and I was sent overseas to read I'm just telling you

this little background but in life you sometimes are affected by what happens we wanted to keep Russia in World War two in the World War one they they

collapsed and the Germans beat them and and we were afraid that in World War two that this would happen because the Russians were being beaten by the

Germans and they decided they we couldn't forgive them equipment through the Murmansk and the North Sea of Russia

so that we decided to open a second front as it were by setting up the anok truck assembly plant there we were the first troops there

we had ordnance people who put the trucks together you loaded them up with supplies you drove it to the north and part of Iran and then turned it over the

truck everything in the truck foods for the Russians the Battle of Stalingrad was going on and that was probably the place where the Germans took a big beating because

they never got any further and by doing this reject the Germans from going into back into France and as you remember a

couple of years later we invaded France and partly because the Germans Lord of they'd be able to be there so I felt that it was a very important thing we

were doing but because we weren't being killed nobody knew anything about the Persian Gulf command and you might find it an interesting thing so when I came back I was there about a year and a half

and then I applied to go to officers Candidate School so they sent me back to the United States in the United States the Signal Corps was merely the place

where you learned about you learned about communications and I went in and that's because I had enlisted I they say

they sent me there and I got training and I was traded back the 15th of December member Pearl Harbor was only

December 7th and her January 31st I was on my way to Washington to see it I've not sure if you're aware of it but before Pearl Harbor

the Americans were training in the south because it was warmer there and so that when we when when the war broke out we didn't have any communications to speak

of and they were short court clerks so I became a cold Clerk and in Washington DC back in 1942 and I worked there for about six months and then the army

founded a company called the 8:30 third signal service company there was a bunch of crackerjack ham operators the people who really knew something about the communications and since I was they made

me a sergeant and I was kind of in charge of some of this stuff and I'm only telling you this so you get a little background because after I became an officer and they sent me that I

didn't I the bed gram knew about me because I was sending a postcard from at a time where I was and he won't be

after World War two and I'm still in the army I'm at the Pentagon in Washington and they he asked me when I was going to get out I said well I get out pretty

soon because I've been in for four years and he said well he is losing a security analyst who is going to work with his father would I be a security analyst and

I said yes I was very thrilled about it and I went to work for him and beginning of 1946 and in 1955 when Graham decided

to retire that's when I went into the business myself you know what process did you follow to minimize any mistakes

I know mistakes are navigable in valuations and security collection I guess what steps to follow to minimize

any mistakes and don't like to lose money and therefore I try to buy stocks which I think it's somewhat protected on the downside and then the upside sort of

takes care of itself so the main thing I think is to look for companies which don't have a lot of

debts and I don't like the idea of of people well I'll put it this way I'd like to get their valuable ports and you

can see a little bit about from the proxy statements and the annual report how much stock the directors own who owns fair amount of stock and also the

history of the company and I thought the idea of buying a company with a large amount of debt even though I it couldn't work out well because of the leverage I

don't like it so I look for companies and they're selling new at new lows well when you buy a stock at a new low it's usually has problems so I don't like

debt debt gets people a lot of trouble as you know if you read about MBIA and these other companies that have lent money and then find out they're in

really in trouble so I like buying companies which are evil and other simple capital they don't have a lot of deaths they

have that management owns a fair amount of stock that they are they have a history about them - you're looking at the look at a company is how long has it

been in business and what kind of business are they in now I was never very good at judging people's character

as such if you go to a talk to a management they may be charming people that may be very nice but you don't know anything about them so I found that

really was better for me to look at the numbers than to try to look at the people themselves and it's so if you particularly if they don't have a lot of

debt if they don't have a lot of debts usually that's fairly safe that once in a while a company after you own it decides they're gonna buy another company and the issue a lot of debts but

if you look at the background of a company and see the history and that's where a value line is somewhat helpful because they usually have 10 or 15-year

backed so you can see where the company was where it is today and I don't know if I answer your questions but the idea

is I don't like to lose money now when the stock was down do you automatically buy more or you reconsider the purchase

so when you buy a stock and the price goes down you keep buying and there's no sound like you I mean if you like it that then you're gonna like it more at 5

well what happens is lots of times you buy a stock and if it's having a problem which is a recent stock is depressed is

can go lower and what you want to do is to be satisfied the buying it at a lower price is a good idea so you look to see

how much death they have you look at the past history of the company you see it may have ate the stock may have gone from 12 to a hundred and it goes down from one hundred to seven you say boys

damn Vermont seventy that's great but you forget that a few years before the selling of ten so what you really trying to do when you invest is to protect your capital now

different people have ways of doing that sometimes they're they they made think they have better information than you have which they may have but I just

don't like losing money and therefore I try to protect it and the way I do that is if I like the company and I think it's a good little company a buy more on

the way down and if you're a stockbroker most stockbrokers do not like to recommend stocks that are going down because psychologically their customers

doesn't like and if they've paid somebody spider stockings that's thirty dollars a share and then it goes down to twenty-five they don't call their customer up and say hey you want to buy

more at twenty five and then it goes down to twenty so quite often the broker will not tell you to buy more stock although it's psychologically it's good

but for many people who are not in the field they get very nervous and go 43220 I lost a third of your money so if it goes back up to the baby thirty again

they make all the customers say that looks like you went down a lot but it's back where it was so maybe you should sell it I don't don't really like the idea of selling stock which just goes

back to where I paid for it quite often stocks all on the way down and that's why I buy them they're having problems but then I'd like to have I usually like to own try to get 50%

profit if I can the net result of that as you buy a stock at 30 and then it goes up to 250 I probably sell it if

it's long term that stock could go to $200 a share if I see that happen so you have to be a little willing to make

mistakes but I don't really like losing money and that's one of the reasons that I tend to not like that so the stock was down how can you tell it's not the value

trap how do you how do you tell that it's not may not recovered and we never recovered maybe some gear change that will make the stock I guess the long-term losing proposition so how can you protect I

guess how can you tell if it's a value trap or a normal I guess stock price decline would come back again I tend to write stocks that are selling below Book

value I also like stocks that are sorry with very little debt dead cats it gets a lot of people in trouble all you have

to say is these ATM machines for people what did the huge amounts of debt they can't pay it they go bankrupt it's a

it's I've been very concerned about borrowing money and I think that's one of the things that people forget that that creates a lot of problems and

therefore you try to avoid that as much as you can and if you buy a company and you look at the balance see you and the other thing you should do besides looking at Value Line is get all of the

manual report read their report see what the balance sheet shows see where that what is the history of the company and you might find that it's they're having

problems and the reason of having problems and that what they product is not very good in which case you probably wouldn't own it but I do find that if

you get it stopped that's selling it at but no considerably below Book value and and it has a good history over the last

twenty years it gives you a certain amount of confidence in it particularly if the debt is is more and if the

management itself owns a fair amount was about the margin of safety how it came about how it has evolved over time what

was enough safety Ben Graham was using and whether you still use what he was using or you have changed I guess of use and you have adapt to the times I think

a margin of safety is if your book value is considerably higher than the market price you gather margin of safety there doesn't guarantee that you'll be right but it just means

that you've got something there if it gets lower love somebody they want to buy the company so the management itself has an interest in making a company of success so it isn't as if you're

fighting the management the management wants to be a success too so you're in the same field but for some reason they've wanted it some trouble their product maybe it's one of the

unfortunate things and when you get it as they like the asbestos turned out asbestos is bad and then they get sued and their companies get into a lot of

trouble so you try not to get into a company where it has shall we say you

have problems and that may be true of the drug industry to where their people are being sued because they have a product which doesn't work my question

is have you ever made it a mistake because of your emotions Ben Graham obviously talks a lot about controlling emotions when investing I'm wondering if

at any point in the past you've made a mistake because of a poor emotional decision and if so maybe you could just share that with us and if not maybe you

could just explain to us you know how you control your emotions when investing and you know what's the best way for

somebody to do that well number one I tried to and I Graham I think bait the point to I try not to get emotional

about stocks I don't get emotional one of the reasons I don't really talk to management is management's have a way of

presenting the facts way they want you to see them and I'm not a terribly good judge of people Warren Buffett really is a walk of a man

in that respect he's very very good about deciding who is good and who is not like that's a pity that's why I like me but

I just think that but you try to do to keep your emotions out of investing then you try to look at the thing logically not the way you want to have it

I think the phases to getting electric cars it'd be a great idea but they don't seem to have made them in such a way that you don't need gasoline

someday somebody's going to invent it and then it's gonna be a big hit but I don't feel comfortable buying say an order will be of company because at some future time somebody's going to invent

something that'll make it better I'd rather buy the things the way they are rather than the way you think they may be at a later date so basically

instead of being you know making speculative decisions you like to you know invest in sort of known court of companies that are known that are put that have proven that of a proven track

record and and sort of that like I think that's true I think that's true I try to not be involved emotionally Warren Buffett told me an interesting story a

while back and he tried to come from control his emotions and he did by testing things the American Broadcasting Company which is still around but his

ABC now it was yeah he told a broker stop the selling at $30 a share I'm not exactly the fit but it's about that and one said to a rook I'd like to buy a

hundred thousand shares but I I want to pay 29 and if I can't buy the stock at 29 next day it's gonna be 28 so sure

enough the next day the guy calls up Warren tells me the story and he says okay one but give my hundred thousand shares at 29th no today I'm buying it at

28 I probably would have done this I don't think I had as much control of my emotions as warranted Warren said he brought that stock at $26 of shams now

that's controlling your emotions about how important it is and what price you're willing to pay I do find that putting in stock to buy

at a price and then that's it and don't don't have to watch well the typical slow let's down a pointer to half a point you have a price you want it out

and it may even pay you to have one of the prices where is you you put it in it could at a fixed price and they can't produce it so you may be going away and

you'd like to buy the stock but you don't want to follow it so you're given this Goodsell cancelled which I don't know if you know what that term means

GTC but you give a broker you want to buy a thousand shares of a stock good tour cancelled period now again if they

pay the broke the company pays a dividend they automatically reduced the price by the amount of the dividend unless you tell the broker don't do that

do not produce the crisis of it dividend is paid I don't know if that helps you yeah that definitely does thank you very much I'd like to know would you rather

buy outstanding companies at fair prices or fair companies at outstanding prices that's a good question and I don't think

I'd like to buy the good companies at bad well I think they're worth I really liked I have nobody problem buying a good company but I wanted it in the

discount I'm looking for to make a profit and I don't want to lose money and if you can at times once in a while people get very nervous and you can buy

a good company at a fair price I don't really like I can't generalize because each company is different but

but if you if you want to make a profit you really want to buy a stock at a price that you think it'll go up say 50% now it may take several years for that

stock to go up and then you just have to be patient now one day this goes back to my 1951 you weren't around and so forth but someone came to me and he said you

know then the company that we're interested in that is one of the I can't remember the name of it it was a

it was a company said and you analyzed other companies and if he said this particular company said that there's a there's a method there where they can a

copying machines and it's a patel institute new york i think it's a new york state has said this company has

great possibilities stock was selling it was selling at about twenty and it had lips broke through the depression and it

was listed on the exchange was a small company and i went into mr. graham and i said you know this company's got a new pilot you know a copying machine and he says well you know water we don't really

buy stocks like that well of course it was Seahawks they ran up a great deal and I only consolation I had was that I went from twenty where we thought and

going to fifty they would have been out of it and the fact that it went up to a thousand of two thousand they have two splits I wouldn't have bought it I've bought it Bernie because

historically there seemed to be an interesting stock but but it but he was right that it really you didn't know that this particular product was gonna

be such a success the only thing you could say was the hotel Institute said that it was good so he what you try to do but I invest is not to lose money and

to do that usually want to buy stock set up having problems and most companies where they have problems get some help it doesn't you know the directors are

upset the president's upset why are the company doing badly and that's one reason I like companies which have no debt because then you don't have the

worry about paying it off and then you want to look and see what quite often the stock market hacks emotionally people act emotionally the bad news you

know bad news is causes trouble so but you try to do is you try not to get involved with the emotions of buying and selling

stocks and if you're managing money for other people you've got a responsibility and therefore you don't wander and so

what we did we never tone up limited partners because we were partnership we never told him what we owned because we

felt that that would be first of all if we told the words we owned then people would try to buy the same stock and

you'd have competition so I told this to a fellow who's interested in investing with as I said you know he said what's

gonna stop you from going to Brazil taking our money as it I have no desire to go to Brazil but if you feel that a nigga's about it don't invest with us

you know but people have certain emotions and they wanted to that lose money and they say we didn't tell people

what we owned and when they take off and he said you know I can't stand not knowing what he was an old man's I said well we own some bankrupt bonds of the

Pennsylvania Railroad which actually turns out very well later and he said I can't be in your partnership knowing that it makes me too obsessed solely

with Phil so people act emotionally and if you know what your own they know what you won't and then look in the or I don't like that stock that they call you in the floor and then they say well why

did you own it I don't want to hear people complain they were they trusted me with barn for their money and that's what a lot of the hedge funds do they

don't disclose what they own could you comment on now or maybe give us three three key personality traits state that you think are essential to being a

successful value investor I think a personality trade I would think would be to become that be too emotional about what you did do it

intellectually I think if you get emotionally involved in a stock it affects your judgment and Ben Graham also had that characteristic and he

didn't like to talk to companies he felt that they would think they would affect the body how he felt different people have their different abilities if you

you if you have a kind of a logical path and you meet a guy who's running a company and you're talking to him and you like him you may feel that you can emotionally buy the stock because you

feel comfortable with them and I wouldn't be good enough at it so I would say I don't even only would buy a stock that I think they think is cheap and

that the people who shall be women a couple of like an anonymizing call Hollinger miss that's a bit mr. black was a crook

and that he had a big name and a wealthy man and people what his securities and they lost a lot of money and I don't think I would have gotten involved with

him because I I don't think you Breyer stock unless it's very cheap then you look at the man and I think it's also helpful to get the annual reports of

companies read the annual report see if it fits in with what you think and look at the results over the years and if you if you see a company that's depressed and you sunni depressed because having

trouble heard any money people love to make money and if the company's having a problem that you know may not want to own that stock on the

other hand it may be a problem or temporary problem is a lot of permanent one and I do think people act emotionally and people who advise them

also don't like to have problems so they tend to stay away from these companies which may be good boys but again you try to keep your emotions

it control and you and you look at the facts and you see when the judge and and and a different people can do things differently I don't happen to like the

people who go in they say well this talk is cheap you're gonna buy it liquidated and close it off and they make themselves money I couldn't do that you know again you have you four different

personalities and I like companies to be a success and I've been he sucks and I sold over the years of growing up a lot I have try stolen you know some what I

sold them and yeah I don't say oh my god I could've made so much more money and I didn't forget it you sold him and and you go under something else so I think

emotions have a lot to do with success the Forbes article written on you says you've lived through seventeen recessions and I was wondering if we're

going into a recession if you feel that the next recession is any different from

the previous ones I have not tried to get involved with the what's going to

happen I've tried to stay away from that I say you against as good as Brian I don't know if you're gonna have a

recession that'll be I do think that the politicians don't like to have a recession because it's not too good for them and they try to do things to help

but I find that I'd like to buy stocks or the base of what they're worth and not trying to figure out what's what's what what's gonna happen in business it

saves me a lot of grief do you find that a recession is a better time to buy a

stock to find a cheap stock they have opportunities and buy the stock buy one

feeling is if the stock is cheap I wouldn't worry too much and they didn't have debt they had a nice record but for some reason or other the public is

emotional it may give you a great opportunity to buy stocks and you may take advantage of that but but again I

found that that trying to guess what the markets gonna do or what were you or what's gonna happen in the future I think it's really better if you if you

just buy the companies that uh you have a good value and then maybe you have to wait a little bit longer but if it

solves a lot of problems for me don't try to figure out what what's gonna happen in that pigment in this Curie's

market or or in the economic situation now in 1932 very 1929 we had this big

Bendis crash but you could have seen that before you could have seen in 1926 his stock monkey was getting high every 30 crazy so you've had this big break

but you wouldn't have been buying stocks in 1928 because he thought the stock bunk was too high so the fact that

suddenly had collapsed a lot of people but if you if you Ben Graham's book and you see that he's not terribly and

emotional about what he what he does and when he lectured he did something I thought was very unusual he talked about stocks which are undervalued I thought

their wonder value and he'd like to compare stocks he took coca-cola and Colgate Palmolive and there and why because they appeared to save on the but

this open the financial page and then he compared coca-cola just now a coca-cola was basically a product company and

Colgate Palmolive values of toothbrushes and so forth and I noticed there's still both of them but I thought if he used that as a good exam

already did he compare them and so forth but I just like to buy individual stocks on that Vegas that was a great way to go but I do think it's it's interesting to

compare the different companies and this is if you quit in the same field it might be interesting one of the company may be much better than the others and

if you compare it's get to liquor companies or to companies and we're doing so much the same thing you might find one is selling at a higher price in

the other than you might decide you want to buy the one selling at the lower price remember this I don't like to lose

money to ask you whether you feel over the recent years that the market has become more efficient and good values

are harder to find because management turns over so much more often now I think that's a good question that I think they were this thing called the

efficient market and which own stock sold at where they should sell out and I think that there weren't in that period they don't with any periods there are

differences and your job as an analyst is to see why one stock is selling above

another and if one of it I think I like to hold companies where they're having problems in that industry and when you have an opportunity there may be good

companies and some that are not so good but if they're an industry which is having a problem look at the companies in it and you may find a good by their I

think today because there are so many security analysts you get a lot more competition than you used to but I don't

think value analysts are really happy about buying stocks that are going down and sometimes that's the best way to be used to do that we buy stocks on the way

down and sell them on the way up and the only problem is is I think it's much more difficult to know where the silvered went to buy

their deli with other people's money and that gives you a responsibility and I must say I did

I never associated with some of the people who did the illegal things and that may have been luck but it also is that these people were interested in

taking advantage of others but if you're dealing with people and some of them you feel oh no I won't say no that's a company you know they had some question

with them don't get involved it's so much easier you know they say if you if

you if the truth one way you don't have to remember what's happened because he

didn't do anything wrong and I think there are people in Wall Street know that they want to take advantage of you

so you try to be ethical and if you tell the truth you don't have to remember I don't know if that's a good price I like it

mr. schloss we were wondering what your personal view is on diversification between industries as well as between sort of stocks and bonds what do you

feel about about industries I really don't have an opinion about that out per se this I'm gonna stay away from the computer industry because I don't

understand it I'm too old for it and I know there's a great future in it but I just don't know how to look at it so I I just stay away so I'm not involved in

computer stocks that doesn't mean you're bad and if you know your computer business you may know you know when stock is better value than others but

it's a fear that's changing constantly and I kind of like companies I don't know Campbell Soup for example I don't say you should buy careful soup I don't

even happen following I'm just saying it's a staple it's been around a long time and I think I'm more comfortable with that kind of a company then then going

into new industries but again it depends of the person I don't know what was the other question we nah stocks and bonds are you would

you be a hundred percent stock or do you sort of mix between the two now there is a problem there's over the years they

they tend to be inflationary factor in there and the reason for it is that people want things government wants things and they get have debt and then

they this certain amount of inflation so that owning a bond of less it's a very high interest baby but you'll never make

a lot of money you get a nice income and I don't know in Canada if the taxes are very high on dividend income but I feel

more comfortable owning stocks because I think there is growth there is growth in America and I think that growth in Canada although I must say I'm not

really familiar with Canada but I think it's a great country and therefore there are opportunities for people to grow I don't read a bunch about can you know

more about a year of a Canadian you know more about Canada than I do I just think that growth is very an important thing

and if your taxes are too high you kind of hurt people from growing I like stocks better because a deflationary

factor with bonds at the end of the time you get the most you do is get your money back and you get interest on your money but you can you find very few

people of McCabe millionaires by owning bonds they may inherit it but they don't make it but your socks you can make ups you can if you happen to hit the right

area you can be very successful and I think that that for young people like you I would think that you may focus on stocks rather than one finder for old

people that's my theory thank you very much could you please discuss your experience raising capital for your personal fund

in the 50s as a young fund manager and any mistakes or things you did

differently I'm not a very aggressive man about buying but by going around I'll tell you a story about Warren

Buffett which I thought it's not a cute one after he left we have Newman when mr. Graham decided to retire he went and

grabbed new and decided to liquidate he went across the street to see one of the people who live there very nice guy and his wife and they had four children I

think it wants and I think I can help you with your investment and that his wife said oh you can't how can you give money to the young tiny he's 20 years

old he's got suntan and so they didn't well the man's name was Don Quixote went to doubt and he ended up as president of

coca-cola and his wife and who I be when we sometimes have these meetings there how she's always thinks about that because he was young and he wanted them

to have her best she didn't think that was a good idea so you Lily when you go into business for yourself you really probably should work for somebody else

first to get the experience of the way it is and then if you have some money or your family as money or they buy give it to you and then you get your feet wet

you have some experience in this thing now I was lucky in one respect people had a terrible experience the 1932 Depression and they never they didn't

forget it for many years and I remember them saying yeah he's got a money and he said how can you start a fund don't you know the Dow Jones it went up to three

it was high 3:81 and the Dow Jones now is - is 400 and how can you start your business now I said well somebody's offered to put

some money in it that was a timing was there but people have long memories and so would you want to do if you want and have people or clients you first of all

I think have to look at the values and then feel somebody in your family has some money maybe they would let you manage it for a while and you gotta feel

for understanding what you've got it's very difficult to start a fund and I think particularly when you don't want to lose people you don't want to lose

money for people so if you're right mathematics and you like the idea of investing I think you can do it and just

to get to control your emotions back to me again what time what is the biggest

mistake and novice investment my biggest mistake I kind of I kind of forget my mistakes I once admit I'd have to think

about my biggest mistake I really often don't know I I think you could say well the mistakes were the different that you

you put more money in or the stock that is going down we didn't lose money very

often and I that's why I kind of wiped it out of my mind we didn't sometimes buy a lot of stock because we because I was a little nervous about putting too

much money and added on so we never put a great too much money we had a I wrote over 100 stocks most of the time and

that way we had a big diversification I'm trying to remember what well I'll give you an example of one and I and I

don't even remember the name anymore I brought this dark and it was selling around two dollars

and I held it for quite some time and it was a company that manufactured said tough for the army and the man who owned

it old about 80% of the company and he offered to sell to buy it and take all the stock at about 7 dollars a share the

time it had a working capital of 10 and I I didn't have much in it but I have

about $100,000 worth of the stock and I objected I went if there was a lawyer who said look I can't handle this if you I won't charge you a fee because I've

got to stop it so he put it in court and he complained about the way the tender offer was made and he won in the court

in the New York State so then they ban appeal to the next higher court in New York State Court of Appeals I think it's cool and then he how he won by a vote of

three to one and now they then said who owned the stock mr. Berlin I remember his name and he he said he said of mine

food with her insurance man said you know you're gonna be sued for harassment pop this man meanwhile I had about hundred thousand dollars with the stock and I sued over the last but because he

lost this I said it isn't worth my while I was just given so I bent with a man and I took the original price of seven and of course at that time the Reagan

administration came in defense went way up and I'm sure he was did very well but emotionally I found getting involved in

legal action was I didn't like it I found there are people that don't mind it but I found that it was a pleasant experience did never really focused on

my mistakes at all for that matter or the profits if I sold the stock and it went up a lot more after I saw them I

was out of my mind I think when I try to do is to avoid the mistake of getting involved

with people who would not a particularly ethical there was a man made out of never the band's name he came out of

Canada actually and he sold a company called Croix oil and he'd had he would not supposed to do it without register

you with the SEC so Croix royal if he was caught of deads and he was sent to prison with beta billions of dollars out of it and after he got out of prison he study at all this money and he

entertained people now that gentlemen whatever his name was he bettered he made a lot of money out of out of the stock market but it's not

somebody that I want to associated with you try to stay with good people but I can't tell you what my biggest mistake

was how you find the investment environment in Asia and maybe China in particular undergoing an industrial

revolution right now I did spend some time to try the right realtor I do not buy foreign companies and that did not

include Canada I have been a little bit in Canada but basically I want I want to be protected and I feel that most countries of the world do not have an

SCC it's not easy to judge them I think certain companies countries that insiders know more about what's going on it can buy the stock and I stayed

attendant way away I'd rather buy United States companies because I understand them I know they understand following companies and China is one of them I

don't understand and I feel very uncomfortable owning a company and this was true with a good example would be

Brazil with the ban there just took over the oil company of Chevron or one of the Orca you wanted it so he took it and I feel that China is

that category if they if you get if you get stock in it and then all of a sudden the Chinese government says well we're gonna pay you what we want to pay you and goodbye

and I feel comfortable owning stock where I feel I have some protection so buy tend not to get involved with European companies where I don't

understand them particularly the manual report is in German or French or something so I can deploy American companies that just mean I'm white it's

just that I feel comfortable because I understand the situation and I don't understand another country thank you very much for your time today

you touched earlier on the example of Xerox in its early days and the difficulty of knowing when to sell a successful investment I think you noted

that you find it easier to decide when to buy and in some instances have sold out very good investments too early could you talk to us a little bit about

with a value play that has been a successful investment how do you know when to sell and whether you tend to

sell a stock in its entirety or sell it in small components along the way how do

you know when to sell I would say I don't know where to shop I I don't I

think basically when the stock gets to be vulnerable in that if you buy a stock you paid $50 a share for the stock and

it's hundred dollars a share I'd probably sell it because I've made a hundred percent profit and I don't want to worry about it and I had but we did

it do but where I worked and I lost with some of the scale you wouldn't sell it all on one price I'd sell some it may be 85 depending how long I held it I

usually held a stock for usually about three years we didn't sell it just because you're bored I did that seller so that so that you had a time you

a few reports you read about them and see what the company has been doing and when you get a profit I mean a light

profits but I don't I don't have any formulas to say well if the stock goes from $50 that what about if they sell it you look and see them in the meantime

but because remember the stock has a down they the downside to it too so the stock gets up high enough phase a lot of data sent about a vulnerability you want

to stock the 58 ghost on it but you say I'm not going to sell it then that goes down to 50 you feel kind of stupid and you didn't take advantage of it so that

I tend to sell it on the way up and that is a problem as when do you sell a stock and I have here made a comment which I

think might be interesting to you Ben Graham wrote in his in his third edition

of security analysis which came out of 1951 you can get at the library and in there but page 536 he discussed the

difference between price and value and on page 726 he says the special situations and he discusses them and I

use that as an example I talked up at Columbia once Kumbi University and I told them about McDonald's McDonald's had come down a lot was selling at $14 a

shade over the restaurant chain was selling it at about 14 and they'd been out from about 35 and you know there

were some problems with his at range that things could happen so I took and I said well I think the selling at 14 now and I used Graham's formula and his

formulas are weeded to you because I thought it was interesting he says let G be the expected gain and points in the event of success that there'll be the

expected Lawson points in the event failure and let C be the expected chance of success expressed as a percentage that y be the expected time of holding

in years and P be the current price of the security this is an algebraic formula and you could make your own judgment but the beauty about this particular one you could you kill use

any figures you wanted to but your but the idea was what is the formula and what you do is you use the U in this

case I said I think McDonald's is worth 22 selling your 14 so you're gonna make if you buy it at 14 and then sell it at

20 and at 22 you've made eight points and then what is the chance of success so I use that and I fell at

75% chance of success record of 22 and then I you multiply that times a hundred percent minus C which is to be the

expected chance of success expressed as a percentage and it comes out at 600 that a 75% would be 600 minus 50 and

then you divide that by 14 molar and the Duke denominator was 14 and you'd say it'll take two years to work so you

ended up with a format of fifty five hundred and fifty for the profit the numerator 28 14 times 2 is 2 years is 28

and it comes out of 19.6% as a return per year so you make a 19.6% or a trim per year the beauty of this thing was

you make up your own minds you take a stock you've you've estimate what you think it's worth and then you multiply it out and use that formula and if you

get that in addition the third edition of Graham of the security analysis which came out of 1951 and the reason I mention this is because then was working

on this can he turn to beliefs of water I've got a lot of things the appendix you let me know if there's anything in there that I should put in and I've picked this particular thing which I thought was

interesting because you can make up your own mind what you think the company is worth and then see whether how long it would take to do it it's just a

judgement fact but it's a great experience I just wanted a very quickly in terms of asset allocation you have noted a fondness Buster with asset

allocation you've said that you like stocks or bonds generally how much would you allocate to an individual stock what

is the maximum percentage of a portfolio in your experiences that you would allocate it attends a little bit on how

wealthy or how much you want to put into his stock if you only have a few stocks you could I use it versified I had a hundred stocks at that way you didn't

have one stock that had too much I would say if it's really a good thing you really liked it very much you might put 20% in one stock I don't think I'd put

more than 20% so just thinking you've got a million hours and how you gonna spare how you're gonna invest it you have you like something you put $200,000

that's a lot of money but if you put in $500,000 you risk in health of your net worth so you have to limit how much money you want to put into it and if

you're managing other people's money you don't want to have them nervous about it so you may put in less than that you put 10% it though again it depends on how

strong how optimistic you are about your judgment and another thing I think would be fair to say if you feel that this

society for example when we have this the text that taketh the period where there were these people were buying of tech stocks way up under a merit it was

dangerous and I met a book by a Vista Perkins and he talked about the bubble the and you can probably get it in the library and he talked about the bubble of this thing and I thought you know God

make sense so that I was actually shorted a few stocks which I normally don't do because I find shorting stocks is upsetting to me I don't like to do it

because you're listing your capital but I thought that the the freaking book is voice looking at and certainly I would say Graham

Benjamin Graham's I like that third edition it came out 1951 before you were born but it's it's probably not in print anymore but you can get it you can get

it at the library I'm sure we did you find it interesting when you're looking at a company do you rely only on historical financials and the annual

report or do you do a lot of outside research I like the buy stocks selling below Book value it gives me a certain amount of

protection I also like stocks that don't have much debts that gives me a certain amount of protection then you look at the company itself well the company may

not be a great company but if it's got a lot of book value and you had the manage the bail and you look back at 20 years

you'll see now this article that I wrote in Forbes but you might get hold of I used about 6 stocks I gave it examples of the stock side back the vendor of

what they were ok and you know you can disagree with them but at least I put them down and so if you get all of it

forms samuel 11th issue of if you would end and then i say there's an article there about me so it may help you see

where I've come from I don't know where I'm going but I know I came from I wanted to just ask you a question about more along the industry lines that you

enjoy you mentioned in the past that you like to avoid industries that you're not comfortable with but I was wondering how you become comfortable with a particular industry that you might

have some interest in I'm not quite sure I got the question but up front of him should tell me if I'm mistaken I kind of

like companies that have manufactured goods basically I think I vspeed you buy an airline stock though I haven't but I don't know enough about the airlines and

you know the Airlines is an area which then had fabulous growth but but the stockholders never did very well with it

so getting a growth stock it's not always helpful if you can't if it doesn't come out so that you can make some money out of it

so I tried to buy companies which had simple capitalization Zed stocks and they had debts and you've got very little debt and then you look back over

the last 20 years you see what the company has done then and then get an annual report one of the things I really don't want to do is get in the company

that's got a but the management I would say is crooked but I'm just saying that it's not ethical you try to stay away

from people that then out to maybe to take advantage of you and it's your money or your money that you're managing you've got a responsibility and then

when you have a responsibility you have to act responsibly and and I like I like the only buying of stock which is

protected on the downside and youmu Freight that nucleus has stopped or the help broke is not good then again that you have to look at it but I would use it

I'd use Value Line as an example so you can get a picture of where the stock was ten years ago where the book value is

with the death structure is that cent for the annual point if you're interested because there were an awful lot of security analysts out there now and I think a lot of one buy the

computer and the computer doesn't think it just if you what you want to hear you know what's there but I like the

idea of people being at the end of the thing rather than just numbers I don't know if that helps you at all the point is you don't want to lose money you

don't want to lose money and you have a clients and responsibilities and he was very important and them but the very philosophical man he writes I think the

intelligent investor is a great book of Warren Buffett said the greatest book he ever read but he wrote intelligently and unemotionally and I think those are

good qualities to have in investments it may not be good in some other field but if you lose money it's very upsetting to you and your

client so you're trying to protect yourself and one way to do it is to buy it buy stocks which are depressed and then you want to be sure they're not going to go broke they want to be

adjusted it's maybe the industries having troubles and then you have to weigh that against the opportunities hello in Canada we have a lot of public

companies that are family-owned so what do you think about special voting

classes of shares when I first started working there were people who had remember easy washing machine was an

example they had an A and a B stock the a stock with the voting stock and the B stock was the same except they had no votes and those companies have gradually

disappeared they're not many family stocks around most of the people it seems to me have sold over the years

have sold their businesses I don't know exactly where if a you know a new family having a good business at some point

they want to leave it to their their family and generally I think it's probably better that they sell it

I think that the family has got a very bright you know grandchildren and so forth will take over I was always struck by the

fact that the Rockefellers who loved me finish intelligent and smart people I don't think they bought any shares of Berkshire Hathaway now they you would think that they would

because this is they donítö on the income but it just shows that that Warren is a very brilliant eye for the problem is that if you wanted income you could get me from him

you all you got is a capital gain but if you needed income if you you you have to wait 20 years it can't you wanted so

that a growth stocks are good for wealthy people I think that's true but I

like the idea of being able to sell your cover stock now people who own a business waiting for the next generation

to take it over and I don't know enough about Canada to know what the tax situations are whether it pays for the family to keep the business orders or

not because I don't know the inheritance qualities but you know you'd have to know the tax law was to but I don't think families over the years and

benefited by keeping the business going and then they turn it over to someone

else maybe but almost a fine I want to ask you a last question which I normally

ask to every speaker we had and this is what is the most important thing in

investing and in life that you have learned over the past 50 or so years well I think honesty is the best thing

you can have it just solve a lot of problems and just you have an ethics and you have a problem and that loss comes from the family I think basically I

don't know if I'm answer your question but it says be a it could just tell them to tell the truth you don't have to remember great

thank you very much I'd like to thank you for this valuable a very informative interaction with my students the value

investing guest speaker series is a critical part of my course as beyond the numbers my students need to understand

the character the personality and the temperament of value investors and internalize the character development

I'm trying to instill in them so I really appreciate your help in helping me do this in the process create a memorable experience for me in my value

investor students or become of all of us I will be sending you a small gift a token of our appreciation our say memento of this event well thank you

very much a good evening thank you very much I don't do this very often but I think it's probably helpful it keeps me young

[Applause] you [Music]