Saturday, 28 June 2014

How Britain’s greatest physicist lost a fortune

How (not) to invest like Sir Isaac Newton

“When I see a bubble forming I rush in to buy,” he said. In January 2010 he declared gold to be the “ultimate asset bubble” shortly after he built up a £400m stake in the metal.
He had sold most of it by March 2011, at a handsome profit – and comfortably before the bubble popped in September of that year.
Not everyone can pull off the same trick; some clever people have lost a lot of money by failing to get out before everyone else. Some very clever people indeed, actually: one investor who lost a fortune this way was Britain’s greatest physicist, Sir Isaac Newton.

Newton was a victim of the South Sea Bubble, one of the most famous boom-and-busts in history – in fact, it was the one that gave rise to the very term “bubble”.
As the graph above shows, he initially did just what Mr Soros would do centuries later – invest early and then sell after making excellent returns very quickly. But Newton made the mistake of re-entering the market much closer to the peak, and then hanging on even after the bubble had burst, selling only once the price had collapsed to well below his buying price.
Newton reportedly lost £20,000, equivalent to about £3m in today’s terms.
The South Sea Company was an unusual business. Founded in 1711, it was promised a monopoly on trade with Spanish South American colonies by the British government in exchange for taking over the national debt raised by the War of Spanish Succession. However, the trade concessions turned out to be less valuable than hoped.
In January 1720, when the company’s shares stood at £128, the directors circulated false claims of success and fanciful tales of South Sea riches and in February the shares rose to £175.
The following month the company convinced the government to allow it to assume more of the national debt in exchange for its shares, beating a rival proposal from the Bank of England. With investor confidence mounting, the share price had climbed to about £330 by the end of March.
The South Sea Company was part of a wider flurry of speculation on the stock market, however.
Newly floated firms were seen as appearing like bubbles; 1720 was sometimes known as the “bubble year”. In June, Parliament, at the behest of the South Sea Company, passed the Bubble Act, which required all shareholder-owned companies to receive a royal charter.
The South Sea Company received its charter, perceived as a vote of confidence in the company, and at the end of June its share price reached £1,050.
But investors started to lose confidence in early July and by September the shares had plummeted to £175, devastating investors.
How to avoid losing a fortune in bubbles
The simplest way to avoid losing money in a bubble is not to invest in any asset in which you suspect a bubble is forming. But as the example of Newton illustrates, this can be easier said than done. The temptation to join in, especially if you tell yourself that you will “sell before the bubble bursts”, can be irresistible.
If you do buy into the latest hot investment, one homespun piece of advice is to sell when even the taxi drivers are talking about it.

Wednesday, 25 June 2014

A new approach to investment by John Slater

How to invest like Jim Slater – and beat the market by a factor of 20

The veteran investor's stock-picking formula outperformed spectacularly when he invented it 50 years ago. Here are four stocks that pass his tests today

Jim Slater
Jim Slater: 'I was convinced that the stock market winners of the past would have some common characteristics' Photo: PA

"It is only necessary to be 6 inches taller than the other people in a room to see above everyone’s heads.”
This is Jim Slater’s recipe for investing success – that if you concentrate on learning about a particular aspect of investment, you can quickly become more knowledgable about it than “the other people in the room”.
You will then make better choices – and bigger profits.
Mr Slater, who chose undervalued growth stocks as his specialism, called this approach “the Zulu principle” (the name of his most famous book) because he noticed how quickly his wife became, relative to most people, an expert on Zulus after reading a magazine article on the subject.
“It occurred to me that if she had then borrowed all the available books on Zulus from the local library, she would have become the leading expert in the county,” he said.
So when he decided to learn about the stock market after an illness that he feared might end his career as a company executive and force him to find another source of income, he researched the subject exhaustively before he bought his first share.
“At the time there were two weekly investment magazines, The Stock Exchange Gazette and the Investors Chronicle,” Mr Slater said. “I bought two years’ back copies of both and read through them page by page.
“I was convinced that the stock market winners of the past would have some common characteristics. If, with the benefit of hindsight, I could develop a formula based on these characteristics, I was sure that I would be able to make my fortune.”
Once he had come up with his system, he put it to the test in a stock-tipping column in The Sunday Telegraph, titled “The Capitalist” (pictured), which began in 1963. In two years his tips rose by 68.9pc, against just 3.6pc for the wider market.
The first of Jim Slater's Sunday Telegraph columns under the pseudonym of 'The Capitalist', March 3 1963
So what was his system?
First, he preferred small companies to large ones. “Mammoth companies rarely double their market capitalisation in a year. “In contrast, small companies often do this and more,” he said, summarising this analysis neatly in the phrase “elephants don’t gallop”.
Then he came up with a means to determine which small companies with good growth prospects were undervalued. Most investors are familiar with the “price to earnings” or p/e ratio, which shows how much you have to pay for each £1 of profit made by a company (so a smaller figure signifies that you are buying profits cheaply). Mr Slater took it a stage further to work out when investors were buying growth cheaply.
Do you believe in "investment formulas" such as Jim Slater's?
He devised the “Peg” ratio, which is the p/e figure divided by the annual growth rate of the company. For example, a share with a P/E ratio of 20 but growing at 25pc a year would have a Peg of 0.8.
Investors should seek shares with a Peg of less than 1 but ideally below 0.75, Mr Slater said, combined with a p/e (on the basis of forecast profits for the current year) of less than 20. The company should also be able to show consistent growth in profits in at least four out of five years.
In the first “Capitalist” article, he outlined a few other requirements. These included a dividend yield of at least 4pc; that the most recent chairman’s statement must be optimistic; that the company must not be vulnerable to exceptional factors; that it shouldn’t be family controlled; and that the shares should have votes.
Mr Slater also suggested watching out for directors selling shares or large debts, while cash flow should exceed profits.


Mr Slater’s system works on measurable data, so it is possible to replicate and apply it to the stock market today. This is what the boffins at have done – in fact, the website’s “Jim Slater” stock screen is its most popular.
It is also successful, returning 47.7pc in capital gains over the past 12 months and more than 90pc over the past two years, compared with 7pc and 23pc, respectively, for the FTSE 100.
Twenty shares currently make it through the Slater screen, but we have decided to focus on four. These stocks are also held in the fund run by Mr Slater’s son, Mark – the MFM Slater Growth fund.
p/e ratio 17.4
Peg ratio 0.6pc
Market value £141m
Trifast makes and distributes industrial fastenings (such as nuts and bolts). It recently completed the acquisition of an Italian rival.
p/e ratio 17.8
Peg ratio 0.4
Market value £212m
A utility cost management consultancy. High energy prices are expected to stimulate demand for its services.
Pressure Technologies
p/e ratio 16.5
Peg ratio 0.4
Market value £105m
Pressure Technologies is an engineering company that specialises in high-pressure devices. A boom in the deep-water oil and gas market could boost sales; the Slater Growth fund is a buyer.
Galliford Try
p/e ratio 11
Peg ratio 0.55
Market value £897m
The house-builder and construction business could benefit from momentum in the property market, supported by the Government’s Help to Buy scheme and the wider economic recovery.
Jim Slater
More 'How to invest like ...'

Wednesday, 11 June 2014

How to get started in investing

Before you dive into the world of stocks and shares, it pays to do your homework. 

Research, goal setting and self-evaluation will help break in a new investor

Stock market
Understand the risks of the stock market before jumping in  

Getting started in investing can be daunting. Novices tempted by a rapidly rising market should not invest money they cannot afford to lose. Always remember that share prices go down as well as up.
Also consider your financial objectives, your time frame and your appetite for risk.
Do you need income or are you hoping to grow your funds for the future?
Are you targeting rapid returns or is this a long-term investment towards a more comfortable retirement?
Do you have the nerve for the rollercoaster ride of risky investment, or are you aiming for steady, dependable results with less chance of loss?
The combination of personal goals, timing and attitude to risk should drive your choice of investments.
Rather than putting all your eggs in one basket, you might diversify your investments across different companies and countries. Pooled funds, such as unit trusts, investment trusts, open-ended investment companies (Oeics) or exchange-traded funds (ETFs), seek to diminish risks by spreading individuals’ money over many different shares or bonds.
However, since all funds have a different focus – some are geographical, while some only invest in small companies, or in bonds, or equities, it is important that you have a mix of funds as well.
This will help to minimise your risk, and can allow you access to a qualified fund manager who can pick stocks for you. Alternatively you can choose a tracker fund, which aims to replicate the performance of an index, such as the FTSE 100 or 250, and which may have lower charges than a managed fund.
Aim to invest for a minimum of five years and ideally 10, allowing time to ride out any short-term stock market volatility.
Choosing the right funds for you is a matter of research and personal preference. You can use the Key Investor Information documents (KIIDs) and fund factsheets, which will show you the top shareholdings in any fund, as well as its past performance – though be wary of this as it is not a reliable indicator of future performance – to help inform your decisions.
Financial planners can make recommendations tailored to your circumstances – at a cost. Check out for a directory of qualified advisers.
However, changes to the way people pay for financial advice, known as the Retail Distribution Review, have encouraged more people to make their own investment decisions.
If you prefer and are able to do your own research, many websites offer information about company performance, recommend shares and funds, and even provide model portfolios.
Free performance statistics are available on websites such as Morningstarand FE Trustnet, as well as on the websites of leading brokers.
Annabel Brodie-Smith, communications director at the Association of Investment Companies, says: “At the end of the day, there is no substitute for doing your research if you’re going it alone, and are comfortable taking the risks without seeking advice.” But no matter how much you research, you have to keep in mind those risks: you can lose money as well as gain it.
This article is from the Investment Library's 'How To' section
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About the Investment Library
If investors are to take advantage of the new rules set in the 2014 Budget, they need information. That is where the new Investment Library series, in association with Barclays Stockbrokers, will come in.
Whether you want answers to your questions or ideas, you will find articles grouped under easy-to-understand headings. The Investment Library will cover everything from tax efficient investing to how to invest at home and abroad. There will also be sections on subjects such as commodities and emerging markets.

Friday, 6 June 2014

Nurse reveals the top 5 regrets people make on their deathbed

Nurse reveals the top 5 regrets people make on their deathbed

This article presents a series of regrets that many people experience of their deathbed. It’s an interesting source of perspective for many of us who are moving into new phases of our adult lives.
Ware writes of the phenomenal clarity of vision that people gain at the end of their lives, and how we might learn from their wisdom. “When questioned about any regrets they had or anything they would do differently,” she says, “common themes surfaced again and again.”
Here are the top five regrets of the dying, as witnessed by Ware:
For many years I worked in palliative care. My patients were those who had gone home to die. Some incredibly special times were shared. I was with them for the last three to twelve weeks of their lives.
People grow a lot when they are faced with their own mortality. I learnt never to underestimate someone’s capacity for growth. Some changes were phenomenal. Each experienced a variety of emotions, as expected, denial, fear, anger, remorse, more denial and eventually acceptance. Every single patient found their peace before they departed though, every one of them.
When questioned about any regrets they had or anything they would do differently, common themes surfaced again and again. Here are the most common five:
1. I wish I’d had the courage to live a life true to myself, not the life others expected of me.
This was the most common regret of all. When people realise that their life is almost over and look back clearly on it, it is easy to see how many dreams have gone unfulfilled. Most people had not honoured even a half of their dreams and had to die knowing that it was due to choices they had made, or not made.
It is very important to try and honour at least some of your dreams along the way. From the moment that you lose your health, it is too late. Health brings a freedom very few realise, until they no longer have it.
2. I wish I didn’t work so hard.
This came from every male patient that I nursed. They missed their children’s youth and their partner’s companionship. Women also spoke of this regret. But as most were from an older generation, many of the female patients had not been breadwinners. All of the men I nursed deeply regretted spending so much of their lives on the treadmill of a work existence.
By simplifying your lifestyle and making conscious choices along the way, it is possible to not need the income that you think you do. And by creating more space in your life, you become happier and more open to new opportunities, ones more suited to your new lifestyle.
3. I wish I’d had the courage to express my feelings.
Many people suppressed their feelings in order to keep peace with others. As a result, they settled for a mediocre existence and never became who they were truly capable of becoming. Many developed illnesses relating to the bitterness and resentment they carried as a result.
We cannot control the reactions of others. However, although people may initially react when you change the way you are by speaking honestly, in the end it raises the relationship to a whole new and healthier level. Either that or it releases the unhealthy relationship from your life. Either way, you win.
4. I wish I had stayed in touch with my friends.
Often they would not truly realise the full benefits of old friends until their dying weeks and it was not always possible to track them down. Many had become so caught up in their own lives that they had let golden friendships slip by over the years. There were many deep regrets about not giving friendships the time and effort that they deserved. Everyone misses their friends when they are dying.
It is common for anyone in a busy lifestyle to let friendships slip. But when you are faced with your approaching death, the physical details of life fall away. People do want to get their financial affairs in order if possible. But it is not money or status that holds the true importance for them. They want to get things in order more for the benefit of those they love. Usually though, they are too ill and weary to ever manage this task. It is all comes down to love and relationships in the end. That is all that remains in the final weeks, love and relationships.
5. I wish that I had let myself be happier.
This is a surprisingly common one. Many did not realise until the end that happiness is a choice. They had stayed stuck in old patterns and habits. The so-called ‘comfort’ of familiarity overflowed into their emotions, as well as their physical lives. Fear of change had them pretending to others, and to their selves, that they were content. When deep within, they longed to laugh properly and have silliness in their life again.
When you are on your deathbed, what others think of you is a long way from your mind. How wonderful to be able to let go and smile again, long before you are dying.

Life is a choice. It is YOUR life. Choose consciously, choose wisely, choose honestly. Choose happiness.

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