Walter Schloss 'New Lows' strategy

Walter Schloss 'New Lows' strategy

Walter Schloss New Lows is a value investing strategy based on an approach used by Walter Schloss, who was a disciple of value investing legend Benjamin Graham. The strategy uses value and price factors as its main rules. It searches for companies that are trading below book value, using the price-to-book ratio, and at prices that are close to new lows. Schloss said: "We want to buy cheap stocks based on a small premium over book value, usually a depressed market price, a record that goes back at least 20 years?and one that doesn't have much debt." Between 1956 and 2000, Schloss's fund produced a compound annual growth rate of 15.7%. In a 1994 shareholder letter, Warren Buffett wrote: "Walter continues to outperform managers who work in temples filled with paintings, staff and computers. And he accomplishes this feat by rummaging among the cigar butts on the floor of capitalism."
Criteria
A set of indicative criteria for a Schloss investing screen might be:
A stock at or near its 52-week low price - Being at or near a low could signal a possible bargain stock, although it is important to distinguish between temporary and permanent problems. As Greenwald notes, Walter and Edwin Schoss "scrutinize[d] the new lows list to find stocks that have come down in price. If they find stocks is at a two or three year low, so much the better".
No long-term debt - Schloss avoided companies with much debt as this increased the risk profile of the investment.
Price Less Than Book Value per Share - Schloss saw it as a potential bargain if the price per share was below the book value per share. Buffett said that Schloss "doesn't worry about whether it's January…whether it's Monday…whether it's an election year. He simply says if a business is worth a dollar and I can buy it for 40 cents, something good may happen". Edwin, was more flexible in wanting some asset protection but being more willing to look at a company's earnings power.
Insider Ownership above average for the industry - Schloss wanted company management to own stock in the company.
Long Price History - Schloss liked to look at where a stock was ten or more years ago so he valued the long financial history available in ValueLine.
This strategy uses the following checklist:
P/B < 1.2
Net Debt < 0
Price Streak > 7
Industry Group not in Collective Investments,
Mkt Cap ?m > 10
Rank ( % Price Chg 3y ) < 25%