This conversation is part of our “Wisdom in Books” series and podcast. Every week we inspire your reading with an exclusive author interview or John’s takeaways from an influential book on investing, business, or life.
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We had the pleasure of chatting with Texas-based investor Tom Jacobs, a senior investment advisor at Maridea Wealth and Huckleberry Capital.
Tom discussed Maurece Schiller’s books on special situations, including How to Profit from Special Situations in the Stock Market. Tom has edited and republished the books with authorization of Schiller’s descendents.
The following transcript has been edited for space and clarity. (MOI Global members, access all features, including ways to follow up with Tom.)
John Mihaljevic: Tell us how this project came about, with you taking on the editing and republishing of Maurece Schiller’s books on special situations.
Tom Jacobs: It was quite accidental and, in some ways, ironic. I was the adviser on a special situations research project at The Motley Fool. My senior analyst, Jim Royal, and I were devotees of Joel Greenblatt’s highly influential You Can Be a Stock Market Genius. We wondered where this came from. Was this invented out of whole cloth? One day Jim Royal, my associate, sent me a PDF with no comment; this is typical of Jim and me. I opened the PDF and it said Investor’s Guide to Special Situations in the Stock Market by Maurece Schiller. Where Jim is quiet, I am not. I began jumping up and down. I told him we have this book from 1966. I went through the table of contents where I found every special situation you could imagine 31 years before You Can Be a Stock Market Genius was published.
John: How did these books get lost to history prior to you finding them again?
Tom: It’s somewhat of a mystery. In 2014, I located Schillers’ two adult children who are both in their 80s. I told them this is great stuff. It’s been lost. They initially responded, “Who is this guy?” These books were on their father’s shelf, and he never talked about them. They didn’t understand their significance. I asked, “How many others are there? What do you think about republishing them since they’re out of print?” These books might have been out of print and unknown because Schiller was an extraordinarily private man, according to his children. He was not self-promotional. Also, the big reputations in our world accrue to the hedge fund managers with demonstrable investment partnership records. Schiller was a registered representative. He was the equivalent of today’s investment adviser. He wasn’t out there. He wasn’t running Graham-Newman.
John: Do you know whether Joel Greenblatt had read the books originally? Have you spoken with him since the project?
Tom: Yes, he knew of the books. For example, you might have seen the notes from Joel’s course floating around the internet in the early 2000s in which he clearly identified Schiller’s 1959 book. When I started and thought this would take half of the time or a third of the time that it took, Joel was more than willing. He was wonderful, and he spoke with me for a bit. He was pleased this was happening.
I must tell a related story. How did I get to speak with Joel Greenblatt, who is a god to me and all of us in the special situations field? It turns out I was involved organizing my 40th high school reunion. I got in touch with Blake Darcy, who was Greenblatt’s right-hand man in launching the mutual funds. Can you believe that? I played with Blake in elementary school. Anyway, he said, “Of course I’ll connect you with Joel.” Joel was extremely gracious and supportive. He hands these around in his classes, he told me.
John: Let’s delve into the books. Why are there five? How are they structured?
Tom: Schiller kept a scrapbook. For example, he had reviews of the books. He had this little essay – I don’t know if it was a speech or something like that – and he talked about why he wrote and published the first book, Special Situations in Stocks and Bonds, published in 1955. He said he knew no one else in the field. He had been employed in the securities business since 1920 when he was about 20 years old. At that point, he started as a runner.
Also, he was a terrible student. He spent a year at Dartmouth and then tried a year at NYU. I got his transcript from NYU, and he didn’t get a grade above C. They were all Cs, Ds, and Fs. It’s clear to me he got the Wall Street bug. He reported he was an intern one summer and said, “To heck with school.” Then worked his way up. He clearly had great research skills.
He wrote in this unpublished essay how he watched the securities world grow pre-SEC and post-SEC. He wrote about how he devoted his career to helping the individual investor, whom he thought the system ripped off, certainly pre-SEC. Then he committed to individual investors in the fee-based world. He began developing special situations. He didn’t invent the field. This was in the late 1930s, a period we associate with public utility and railroad reorgs and arbitrage, distressed debt, Heine, and with Michael Price. He worked on special situations into the 1940s, but he didn’t know people who specialized in it as a field. They do this part or that part. We know, for example, Graham only wrote maybe a page-and-a-half on the subject. These were discussed, and Schiller said, “This has been my life’s work. I know all about it. I have file folders full of trade records showing special situations in practice, special situations I recommended to clients. I will write a book in part to satisfy my own ego.”
John: How does the sequence of the books go in terms of what’s covered in each one?
Tom: I hear that question often because the books are sold individually, not as a set. I want to create a boxed set sometime. People ask, “Which one should I read first?” John, from your excellent work at Manual of Ideas, you and I share a certain mindset where we love reading investment history. I love reading the Schiller books and seeing developments from book to book. However, the developments are subtle. In the early books, he is freaked out by the Great Depression, and this theme persists throughout his books and his professional career as much as we know from his children. Schiller was averse to risk, and special situations are perfect for the risk-averse investor who still wants to pursue excellent returns, the value-based investor. He started out with the idea – and this is absolutely in 1955 – saying, “I want to protect individuals from charlatans and losses. I never want anyone to go through the Great Depression-type thing again.” Then over the five books, he started to loosen up a little.
After World War II, the economy boomed. The U.S. had all the factories. Germany and Japan had been all bombed out. Europe was devastated. For a 10- to 15-year period the U.S. operated essentially as a monopoly. The U.S. grew in everything until the Japanese introduced cars in the late 1960s. The second factor concerns a technology transfer from the war to the private sector. Hewlett-Packard and Texas Instruments started along with the military contractors.
In the second and third book in 1959 and particularly 1961, in Fortunes in Special Situations in the Stock Market, Schiller introduced this theme: “I’m a purist for special situations. I want to measure risk.” He was so academic and obsessive about it, he practiced it in the real world. He started saying, “I cannot deny the wealth created in post-World War II, new era companies.” He started adding these observations in the books even though there’s nothing in special situations about a fast-growing tech company. The analogy is of Munger influencing Buffett to be more growthy. However, Munger had a pay-up for quality mentality. Schiller, with the tech companies, was willing to take a bit more risk. It’s completely strange and different, but it’s a development. Schiller lost 5% of his fear of the Depression, and he embraced the booming market of the 1950s and early 1960s.
John: It sounds like around the time these books originally came out, Buffett was running his partnership, and he had a bucket called “workouts.” Would you say those workouts were in line with what Schiller would call special situations?
