Ten great investors
5. Jim Slater
No official position. Slater manages his own money through a private company.
Investment style
Flexible, but he is best known as for his interest in stocks that offer growth-at-a-reasonable-price (GARP).
Profile
Slater trained as an accountant. He first became interested in investment in the Sixties, while a director at a British Leyland subsidiary. After publicising his methods via a column in the Sunday Times, he launched the investment conglomerate Slater Walker, which he chaired until 1973. The company was known for its aggressive acquisitions in every area from banking to property. It collapsed in the 1973-4 recession, leaving Slater bankrupt to the tune of about £4m in today's currency.
He fought his way back to prosperity through private property deals and writing for small investors. In 1990, he published his main work, The Zulu Principle. This popularised the use of a financial ratio devised in America, known as the PEG, or Price:Earnings Growth Ratio. He has since devised a monthly publication called Company REFS (Really Essential Financial Statistics), which helps investors to apply his system by listing PEGs and other key ratios and information on all UK companies.
Now living in Surrey, but far from retired, Slater is still very active in educating investors through his books and lectures. He is also a major shareholder in a variety of small companies, and puts a good deal of money into charitable causes and sports sponsorships.
Long-term returns
Not known.
Biggest success
Slater's own sharedealings are mostly private. But in 1996-7, he is known to have built up a substantial holding in Blacks Leisure. After selling a lossmaking division, this sports retailer staged a spectacular recovery from around 50p to a high of 549p just 17 months later in May 1997, delivering gains of 1,000%.
Method and guidelines
The stock market is a constantly unfolding drama which shifts repeatedly from scene to scene as conditions fluctuate. It is thus unwise to stick rigidly to any one method or type of asset. However, advises Slater:
"I suggest that for most private investors their first (and possibly final) area of specialisation should be growth shares. They are by far the most rewarding investments. The upside is unlimited and, if the right companies are picked, the shares can be held for many years, during which they should multiply the original stake many times."
Source: The Zulu Principle
The best shares to buy are those with high forecast earnings growth and a relatively low prospective P/E, i.e. a low Price:Earnings Growth ratio (PEG). A share is reckoned to be fair value when this ratio is 1.0.
Search for shares with PEGs
- no higher than 0.75.
- ideally, 0.66 or lower.
| Forward P/E 15 | Forward EPS growth (%) ÷ 20 | Forward PEG = 0.75 |
The appeal of a low PEG is that it offers scope for the shares to earn a higher P/E (known as a 're-rating') once the market recognises the earnings potential. Thus the price should rise by the same percentage as the earnings, plus a higher multiple of those earnings - a 'double whammy' effect.
When selecting shares, rely on figures and financial ratios rather than qualitative judgment. Click here for a list of quantitative criteria.
(Ask your broker for all the relevant figures, or consult Company REFS. You can find forecast EPS and P/E ratios on the Companies page of the Hemmington Scott website by clicking on 'Brokers' Consensus'.)
Consider selling when one of the following occurs:
- The prospective PEG reaches 1.2 or higher.
- The story changes for the worse, such that the figures and factors that first attracted you to the company no longer apply
- An even more attractive investment opportunity presents itself.
"Become as expert as possible in your chosen niche market. You will achieve your objective, like Montgomery and Napoleon before him, by concentrating your attack."
"Investment is the art of the specific and selection is far more important than timing."
"The price of growth shares can only increase due to earnings growth and a status change in the multiple [the P/E ratio]. The latter is often much more important than the former."
"Elephants don't gallop - but fleas can jump to over two hundred times their own height"
(i.e. smaller companies tend to grow much more rapidly than larger ones).Further information
Start by reading Slater's primer, Investment Made Easy and visiting his webpages. These will prepare you for the more advanced material in The Zulu Principle and Beyond the Zulu Principle. After that, you may wish to sample Slater's monthly newsletter Investing for Growth.
http://www.incademy.com/courses/Ten-great-investors/Jim-Slater/5/1040/10002
