Core Viewpoint - The article discusses the investment philosophy of Walter Schloss and his son Edwin Schloss, emphasizing their "cigar butt" strategy, which focuses on buying undervalued stocks with a strong margin of safety and minimal debt [2][3][9]. Investment Performance - Walter Schloss established his limited partnership in 1955, achieving a remarkable annual compound return of 15.3% from 1956 to 2000, compared to the S&P 500's 11.5% during the same period [3]. - An investment of $1 in Schloss's partnership in 1956 would have grown to $662 by 2000, while the same amount in the S&P 500 would have only reached $118 [3]. Investment Philosophy - The Schlosses are minimalists, focusing solely on financial statements and avoiding external influences, which allows them to concentrate on buying cheap stocks [4]. - Their investment strategy is characterized by a strong emphasis on safety margins, only purchasing stocks priced significantly below their net current asset value (NCAV) or tangible asset value [9]. - They adhere to a zero or low-debt principle, ensuring that companies have minimal long-term debt, which reduces the risk of bankruptcy due to debt defaults [10]. Market Neutrality - Schloss's approach does not rely on bull markets for returns; instead, it focuses on the intrinsic value of stocks, which can be realized through various catalysts such as fundamental improvements, asset sales, or mergers [12][15]. - The strategy aims to capture value recovery rather than relying on high growth or market bubbles [15]. Diversification - The Schlosses maintain a highly diversified portfolio, typically holding over 100 stocks, which mitigates individual stock risks and ensures that a few successful investments can offset losses from others [16][17]. - This diversification strategy allows them to avoid significant losses from any single investment, thereby enhancing overall portfolio stability [17]. Avoiding Valuation Bubbles - The core of their deep value strategy is to only buy extremely cheap stocks, avoiding investments during market bubbles, which protects against substantial downturns [19][20]. - By steering clear of high-growth stocks that are often overvalued, the Schloss strategy minimizes risk during market corrections [20]. Summary of Success Factors - The Schloss strategy emphasizes strong downside protection, capturing value recovery, and maintaining a diversified portfolio, which collectively contribute to consistent positive returns over time [21][22][23]. - The approach is particularly suitable for investors with moderate risk tolerance who seek stable returns and wish to avoid significant drawdowns, focusing on long-term growth through compounding [23].