This Unlikely Idea from One of the World’s Best Investors Has Made Me a Lot of Money

Dividend Cuts, Investing Strategies

It’s safe to say that most market participants know about Warren Buffett. It would be hard not to since, in addition to a fantastic track record, he and his partner in crime, Charlie Munger, also get a lot of attention in the media.

After all, a billionaire curmudgeon whose uncommon intellect and blunt manner make for great entertainment is hard to ignore.

Another billionaire investor that’s hard to ignore is Carl Icahn. Even if you wanted to overlook his spectacular track record, his “Listen to me or I will snap your neck” attitude, born on the streets of Queens, NY tends to attract one’s attention.

But the idea that’s made me the most money comes from someone else – one of the greatest investors the world has ever seen, and one almost no one has heard of.

Here’s what he taught me…

Row of safe deposit boxes with one of them open and lit from the inside

Other successful traders like George Soros, Stanley Druckenmiller, and Paul Tudor Jones are spoken of with almost the same reverence as Jesse Livermore. And although his skill as an NFL owner is still in doubt, the brash nature, brilliant analysis, and spectacular results of David Tepper are hard to ignore.

However, when I am with people involved in the markets, mentioning Walter Scholl will elicit responses like “Wasn’t he the Cleveland Indians shortstop in the 50s?” or “Isn’t he an author of some sort?”

But the answer is that Walther Schloss is one of the greatest investors ever. He was born in 1916, and by the age of 18, he was working as a runner on Wall Street.

He took finance and economics classes at Columbia University with a professor named Ben Graham to get ahead.

Ben Graham, of course, is known today as the “Father of Value Investing.”

Walter ended up working for Graham’s investment partnership along with another of Ben’s students by the name of Warren Buffett. The two remained friends for life, and when Buffett wrapped up his original partnership in the 1960s, he suggested his investors consider moving over to Schloss’s fund.

After leaving Graham’s employ in 1955, Schloss opened his own fund. For the next 47 years, he managed money using old-school principles of value investing and racked up an incredible track record.

He never bothered getting an office. Instead, he rented space from the folks at Tweedy Browne, an investment firm that some of Graham’s other students had formed. Until Tweedy moved into new digs on Park Avenue, that office was a desk in a closet in a Midtown office building.

Over 47 years, Walther Schloss produced returns of 20% annually before fees and 16% net to his investors. He did not use options or leverage. He didn’t even use a computer.

His tools of choice were a Value Line subscription and the Standard & Poor stock guide’s paper edition.

Walther Schloss left us a lot of suggestions for making money in stock, and over our time together here in Hidden Profits Report, we will discuss many of them. However, today I want to talk about a powerful idea from Walter Schloss that flies in the face of accepted Wall Street wisdom and has made me a lot of money over the years.

Schloss believed that if you believe a company will survive, a good time to buy a stock is following a dividend cut.

See, income investors dump stocks that cut their dividends, pushing their shares down to bargain valuations.

That’s a great buying opportunity if you think the company will survive.

That is the opportunity we’re seeing right now with United-Guardian Inc. (UG).

United-Guardian is a boring 80-year company that makes lubricant products for use as cosmetic ingredients, pharmaceuticals, medical & healthcare products, and proprietary industrial products.

The firm took a significant earnings hit in 2022 primarily because of losses in its investment portfolio. The company owned about $7.6 million in stock and bond funds starting in 2022. By the end of the third quarter, this was down to $6.6 million and will doubtless be even less at year-end 2022.

The dividend has been cut twice this year due to falling stock and bonds and lackluster sales, and the stock has fallen by 375 over the past year.

The company’s CEO, Ken Globus, is stepping down and is being replaced by Beatriz Blanco, an experienced personal care products executive.

Mr. Globus owns 29% of the outstanding shares.

This will be the first time a non-family member has controlled the company.

It is worth noting that the company had conducted a strategic review of alternatives for its future earlier this year. Although the formal review is over, the board has made it clear that they are open to discussions about strategic alternatives.

If I were a private equity fund manager with a personal care or compatible medical products business, I would look at this company and see an opportunity to cut a lot of costs and fold the operations into my existing portfolio.

United Guardian already produces strong cash flows, which could be increased by judicious cost cutting.

Even if that never happens, an eventual rebound in the markets and economy could easily lift the stock by at least twice the current price.

In the meantime, even after the dividend cuts, the stock yields over 6%.

As is the case with many of my ideas, United-Guardian is a smaller company. Therefore, use a limited order and exercise patience if you choose to enter a position in the stock.

$25k into $4.1 million from this??

Check out the picture on the next page. It’s a beat up building that would’ve turned $25k into $4.1 million. It’s not a real estate play. Actually, with the Fed raising rates, it’s the best asset to buy right now. View this beat up, millionaire-making asset.