The Simplest Way to Double Market Returns Every Year

I know you are getting bombarded with stories about AI, crypto, and whatever new thing Wall Street is trying to sell you today.

These are all attention grabbers, but if history is any guide, it will be difficult to profit by following the herd into these crowded trades.

Instead, let me tell you about something that actually works for regular investors like us, something I have seen create real wealth over decades in the market.

I'm talking about 20% annual returns for 47 years straight.

I want to share with you the wisdom of Walter Schloss, and believe me, this is someone you need to know about. Here is a guy who started as a runner on Wall Street, took Ben Graham’s night school class at Columbia, and worked alongside Warren Buffett.

Here is the really interesting part. From 1955 to 2002, he generated returns of over 20 percent annually before fees. That is double what the market did, and he did it without any of the fancy computers or high frequency trading systems everyone thinks you need today.

Now, let me explain something crucial about Schloss’s approach because this is where most investors go wrong. The absolute foundation of successful investing is not about following the latest trends or buying whatever stock is getting hyped on financial TV.

It is about understanding the relationship between price and value. That is it. That is the secret sauce.

Think about it this way.

When you are buying a local business, say a restaurant or a car wash, you would not just pay any price because someone told you it was a “growth opportunity,” right?

You would want to know what the assets are worth, what kind of cash flow it generates, and whether the price makes sense. That is exactly how Schloss approached the stock market.

Let us talk about how this works in practice. When Schloss looked at a company, he started with book value. Now, I know what some of you are thinking: “Tim, nobody uses book value anymore. It is outdated.” Wrong. Dead wrong. While earnings can be manipulated (and believe me, they often are), asset values change much more slowly. A good accountant with a sharp pencil can make earnings look like almost anything, but it is a lot harder to fake the value of real assets.

Let me give you a current example of what I am talking about. Look at Civitas (CIVI), an oil and gas operator that is trading at 71 percent of book value right now. Think about that: you are buying a dollar’s worth of assets for 71 cents. They are generating tons of cash flow, paying a 4 percent dividend, and buying back shares. That is exactly the kind of opportunity Schloss would have loved.

Now, here is where most investors struggle.

Patience.

Schloss understood something that most people never grasp. Stocks do not move on your schedule. Some of your best investments might do absolutely nothing for months or even years before suddenly jumping 50 percent or 100 percent when a catalyst finally appears. This is where having the right temperament becomes crucial.

Let me tell you about credit analysis, because this is something that can save your bacon in tough markets. Schloss was meticulous about understanding a company’s debt situation. He would look at the total debt, when it was coming due, and how easily the company could make its interest payments. But here is the key: he would not just look at the numbers on the surface. He would dig into the stability of the cash flows supporting those debt payments.

Think about Donegal Insurance, another current example that fits Schloss’s approach perfectly. It is trading right at book value, has a rock solid balance sheet, and pays a 4.65 percent dividend. Your colleagues at work probably are not talking about Donegal at the water cooler, but guess what? That is exactly why opportunities like this exist.

Let us talk about emotions, because this is where most investors really get themselves in trouble. Fear and greed are the most powerful forces in the market, and they will destroy your returns faster than any bear market. When everyone is excited about stocks, that is exactly when you need to be most careful. When people are running scared, that is usually your best chance to find real value.

Here is something critical about portfolio management that Schloss understood: you do not need to hit home runs. Singles and doubles, consistently hit over time, will make you plenty of money. That is why he spread his investments across multiple positions and was not afraid to hold cash when he could not find good values.

The market environment today actually reminds me a lot of situations Schloss would have loved. While everyone is piling into the same handful of popular stocks, there are plenty of solid businesses trading at significant discounts to their asset values. The increasing dominance of index funds and algorithmic trading is actually creating more opportunities for patient investors who know what they are looking for.

Let me explain something about compounding, because this is absolutely crucial to understanding why Schloss’s approach worked so well. If you can make a steady 12 percent annually and reinvest it, you will double your money every six years. That is the magic of compounding, and it works a lot better when you are not taking huge risks trying to hit home runs.

I have been in this business a long time, and I have seen all sorts of fancy strategies come and go. But what Schloss did, buying solid assets at a discount and having the patience to wait for value to be recognized, that approach has stood the test of time. It worked in the 1950s, it worked in the 2000s, and it is still working today.

Let me be clear about something: this approach is not going to make you rich overnight. It is not going to give you exciting stories to tell at parties. But if you are serious about building real wealth over time, if you are willing to do the work and maintain the discipline required, this approach has proven itself over and over again.

The beauty of Schloss’s approach is that it actually works better for individual investors like us than it does for the big institutions. We can buy smaller companies, we can be patient, and we can wait for the market to recognize value without worrying about quarterly performance reports or client withdrawals.

Remember something important here: successful investing is not about predicting the future or having some complex trading algorithm. It is about buying assets for less than they are worth and having the patience to wait until other people figure out what you already know. That is what Schloss did for almost fifty years, and that is what we can do today if we are willing to follow his principles.

So here is my challenge to you: take these principles seriously. Study them. Apply them. They might not be flashy, but they work. And in investing, that is what really matters.

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