Here’s a great extract from a lecture given by Walter Schloss on May 16th, 1996 at the Behavioral Economics Forum at the Harvard Faculty Club in Cambridge, Mass. Schloss provides some great insights into how to invest stress-free for 40 years:
How to Invest Stree-Free for 40 Years
A friend of mine who is a therapist at a mental facility in the New York area, asked me as a favor if I would give a lecture at his facility. He said That there were many intelligent patients there who had emotional problems, but he thought my speech would be helpful to them, I agreed to go, and after being introduced to the audience, I started to talk about investments.
After a time, a big fellow in the front row got up and shouted “Shut up, you idiot and sit down”. I turned to the therapist and asked him what I should do. My friend said “The therapy is working, that’s the first intelligent thing that fellow has said in months”.
I was reminded of this, because back in 1973, Forbes Magazine wrote an article about me modestly entitled, “Making Money Out of Junk”. I hope that this lecture will moderately improve my standing in the investment community. In any case, I’m approaching this meeting on behavioral economics with some trepidation. I don’t think investing is a science. I rather look at it as part art and part science with some boundaries. My son, Edwin, and I don’t consider our approach a behavioral science, it’s just bargain hunting and since a number of value investors have gotten into the field, it has become harder to find bargains
We want to buy value. We buy a lot of securities, We know a of people who don’t like our kind of diversification, but we can’t help that. If you were running a department store, you would like the buyers you employ to purchase suits or dresses, etc. that are good value for the customer. My daughter thought it would be nice to go to Saks Fifth Avenue in New York and buy my wife a dress for $640. plus tax that wasn’t on sale. My wife, being a Depression baby like me was horrified at the price and brought it back.
We are bargain hunters in the stock market instead of the retail trade or similar areas. As Ben Graham said, we buy stocks like groceries not like perfume, or as they say, “a stock well bought is half sold”. One reason why we don’t disclose our holdings is that we don’t want competition. If the stock goes lower, which is quite possible, we’ll want to buy more.
We don’t want to lose money, although, we do from time to time. We have found that if we are somewhat contrarian, we seem to do better than if we purchased companies that are doing well today. When we buy depressed stocks, we seem to reduce our stress. Some seem to thrive on stress, but we feel in the long run it is bad for them. I note that Peter Lynch of Fidelity Magellan Fund did brilliantly, but after 10 years or so, he retired because it became too difficult to keep up the pace. I’ve been managing our fund for 40 years and Edwin has been with me for 23 years, and we aren’t stressed out yet and we hope we never will be.
Why We Do It Our Way
We do it our way for several reasons: it fits our personality; it avoids stress, and for me, I remember the Depression of the 1930’s very clearly and how it affected our family. People who have been laid off in recent years won’t forget what has happened to them and their families, and it will affect how they or their children will act in the future. As they say, if the other fellow is laid off it’s a Recession, but if you are laid off it’s a Depression.
You can read the entire lecture here – Walter Schloss – Why We Invest The Way We Do.
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