One of the things we talk about when gauging the intelligence of a money manager is their cost control. Warren Buffett pointed out once that Walter Schloss, a successful investor who worked for and studied under Benjamin Graham, crushed the market for nearly half a century while working out of a closet-sized subleased office at the Tweedy Browne headquarters in Manhattan. His total office expense was an estimated $11,000 while his partnership generated a net profit of $19,000,000. With margins like that, it's not difficult to see why he was successful.
Walter Schloss had a compensation system that was virtually identical to that which Warren Buffett setup at his partnership, taking a 25% cut of profits over a predetermined hurdle rate. His approach was deep value investing, focusing on securities that were statistically cheap by measures such as price to book value, price to earnings, discounts to working capital, etc. With little more than a few file cabinets, a rolodex, and a desk, he managed to produce a compound annual rate of return that soundly trounced the S&P 500. In fact, Walter Schloss was so successful, that Warren Buffett wrote about him to his partners and mentioned him in the now-famous essay, "The Super Investors of Graham and Doddsville."
