Under the Radar - October 29th, 2024

You probably never heard of Walter Schloss.

Walter passed on to the great market in the sky in 2012 at the age of 95 after a long and, as many would say, unremarkable career on Wall Street.

He was never famous.

He was not a frequent guest on Wall Street Week and was only mentioned in Barron’s a few times throughout his five-decade career.

Walter’s office was converted to be close to the offices of fellow Ben Graham aficionados Tweedy Brown. It was meant to be temporary quarters, but he never got around to leaving.

Walter was mentioned in Warren Buffett’s 1984 article in Hermes, the Columbia University Business School magazine. At that time, Schloss had been managing his partnership since 1955 and averaged 21% a year over that 19-year period.

Walter was not a graduate of Columbia or any other university. He started on Wall Street as a runner in 1934 and took night classes at the New York Stock Exchange Institute to learn more about markets. His professor was a studious gentleman named Benjamin Graham, who taught Walter value investing concepts.

Schloss worked for Graham for several years and eventually went out on his own when Graham closed his original investment partnership in 1955.

The fund stayed in existence until Schloss closed his doors in 2002.

He had no computer or quote machine on his desk.

He had a phone, the Standard & Poor’s Stock Guide, and the Value Line Investment Survey, but little else.

With tools and knowledge from working around Ben Graham, Warren Buffett, and other founding fathers of value investing, Schloss earned about 20% a year over a 47-year career as a fund manager.

That is one of the best track records in the history of investing.

Walter Schloss did not buy the super exciting growth stocks. Over his career, technology grew by leaps and bounds, with thousands of super exciting companies coming and mostly going over the long run.

Entire industries were created, matured, and died during his career.

When he opened his fund, very few people had a television, and radio was still a big deal.

Franklin Roosevelt was President when he went to Wall Street, and George W. Bush was President when he left.

He had a philosophy of investing, and he never deviated from it.

Stories and fads came and went in society as well as on Wall Street, and Schloss just stuck to his knitting.

He invested in financially sound companies that traded below book value and held them until they traded for more than the company was worth.

He liked to buy stocks when they were trading near multi-year lows.

Walter was a big fan of dividends.

Unlike his more focused former co-worker, Warren Buffett, Schloss owned lots of stocks in his portfolio.

Most were smaller companies with solid balance sheets, traded at a discount to asset value, and were way off Wall Street’s radar screen.

When I mention Schloss today, people tell me that he is too old-fashioned to work in today’s complex world, and with all the fancy accounting gimmicks surrounding technology stocks and other market leaders, price-to-book value is meaningless.

I cannot tell you how glad I am that they think so.

The further off the radar screen this deep value approach to investing is, the easier it is for Under the Radar investors to earn massive long-term returns.

We can get further away from mainstream thinking by taking our Schlossian bargain-hunting strategy overseas.

U.S. stocks account for more than 60% of the global market cap right now, and the general attitude towards European and Japanese stocks is a muffled chorus of “Who cares?”

“Who cares?” is a bargain hunter’s dream.

Kyocera Corp. KYOCY

Source: Benzinga Pro

Kyocera is a massive Japanese conglomerate with over 300 subsidiaries that manufacture everything from ceramic components to semiconductors to solar panels.

The company also has a telecommunication business they would be better off selling.

Kyocera has more than 70% of the market and has a 75%-80% market share of ceramic packages used to protect semiconductors after they are installed on circuit boards.

The company pays out about 30% of cash flow every year as a dividend, which should amount to about 3% this year.

According to my calculations, the shares’ break-up value is more than two times the current stock price. Shares trade at just 85% of asset value, and the balance sheet is rock solid.

Based in Copenhagen, Denmark, A.P. Moller-Maersk A/S AMKBY is a global leader in integrated container logistics and shipping. Maersk focuses on end-to-end supply chain solutions, leveraging technology to enhance logistics efficiency and sustainability. Its services range from ocean and inland shipping to warehousing, air freight, and supply chain management.

After some normalizing of the shipping industry after the post-COVID surge, Moller-Maersk is experiencing increased earnings momentum across segments. Maersk experienced strong market demand and volume growth, achieving EBITDA of $2.1 billion and EBIT of $1.0 billion.

The Ocean segment benefited from rising freight rates, with the Red Sea disruption impacting profitability.

 Logistics and Services showed a sequential improvement in EBIT, progressing toward a 6% margin goal driven by investments and acquisitions.

Terminals performed well, posting high EBITDA with a 37.5% margin due to volume growth and cost management.

Maersk’s full-year guidance was recently revised upward. Underpinned by robust demand and operational efficiency, it projects underlying EBITDA of $9-11 billion and EBIT of $3-5 billion.

The company emphasizes a strong balance sheet, cost discipline, and a focus on expanding capacity and automation to support future growth. Key priorities for 2024 include network improvements, fleet renewal, and maintaining customer service agility.

Despite the business improvements and bright outlook, the stock is cheap. Right now, shares of A.P. Moller-Maersk A/S are trading at less than 60% of tangible book value. The balance sheet is solid, and the company has a generous dividend policy that should see an annual payout in the 8-9% range this year.

With very little fanfare or publicity, Walter Schloss made his investors and his family very wealthy. We can use the same low-key, highly profitable approach to achieve the same results for ourselves.