Requiem for a Superinvestor

 | Feb 21, 2012 | 12:30 PM EST  | Comments
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It's been a tough month for the value-investing community. Two members of the original "superinvestors" that Warren Buffett wrote of in his now-famous Hermes article, "The Superinvestors of Graham-and-Doddsville," passed away recently.

Ed Anderson was a partner at Tweedy Browne from 1960s to the early 1980s, during which time the firm built an enviable record investing in asset and earnings bargains. The value of the approach was proven during the difficult market of the 1970s. The firm had just one down year in that volatile and dangerous decade, with a loss of a little less than 2% as the decade opened. Over the span of Anderson's career at the value-investing firm, it earned 16% compared with just 7% annually for the broader market. He retired in 1983 to pursue charitable and intellectual interests, including behavioral science and education.

The greater loss for me personally occurred over the weekend. Walter Schloss passed away at the age of 95 at his home in New York. Schloss was my hero; he is the investor I have most emulated over the years. He bought stocks based on book value and, like me, realized that you had to know a lot more about the entire company to buy it based on earnings. Earnings may change quickly, but assets usually do not. He was not tied to the tick-by-tick gyrations of the stock market and didn't fly around visiting management or talking to stock analysts. At any given time, he owned a portfolio of stocks that most people had never heard of and even fewer cared about. He bought companies at a fraction of their book value, and when the stock traded above book value, he sold it and moved on.

Walter and his son Edward worked out of the office of Tweedy Browne for many years. I have had several opportunities to visit the office, and the first thing I always did was look over to Walter's corner to try to meet the man. Alas, it never happened. The Schloss' had closed their fund by then and were semi-retired. Walter still came in from time to time, but I was never lucky enough to schedule my visits when he was at the office. I consider it a huge loss.

I am not going to eulogize Walter Schloss or repeat stories off the Web. Many others will be doing that over the next few days, and I leave that to those who actually knew him. That is not what we do here at Real Money, anyway. What I can do is produce a list of stocks that fit Schloss' investment criteria that might be of interest as long-term investments. He bought stocks that traded below book value, had little or no debt and had insiders that owned a significant number of shares. He was also a big fan of the Value Line research service, as am I, so I will use that universe to screen for Schloss-style value stocks.

I suspect Schloss would not have been thrilled with this week's screen based on this particular universe. I found only one stock that would be a candidate for a Schloss-style portfolio. I have written about Kimball International (KBALB) in the past, and the stock is still very cheap. The company has an unusual mix of businesses. One division makes furniture for the home and the office, as well as the hospitality and health care industries. The other segment is electronic manufacturing services, which performs component assembly work for manufacturers.

The furniture business is improving, with a solid 15% year-over year sales gain in the most recent quarter. The EMS segment is retrenching after losing a large customer last year. Kimball has closed two EMS plants in Ireland and California as part of a consolidation and expense-reduction plan. The company has managed to stay cash-flow positive throughout the prolonged recession, in spite of being in two very economically sensitive industries. The dividend has been cut a couple of times, but Kimball is still making payments to shareholders.

The share price has moved higher in the past few months, but the stock is still delightfully cheap. The shares trade for half of tangible book value and the yield is 3.5% at the current price. Kimball has no long-term debt and insiders own more than 30% of the shares. The shares trade at about a third of the highs reached prior to the housing and credit crises and could easily recover much of that ground when the economy strengthens.

I own a little of this stock and will depart from my usual buying regimen and add a little more in honor of the passing of my investment hero, Walter Schloss.

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