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What We Learned From Jim Slater

The second investment book I ever read was The Zulu Principle (right after finishing the first edition of the US Fool’s Investment Guide), so I was saddened to read of the passing of its author and investing legend Jim Slater, who has died at the age of 86.

Jim Slater’s early career was not without controversy, and the investment firm he started with Conservative MP Peter Walker, Slater Walker, built a reputation as an asset-stripper, buying up companies and selling off underperforming assets to net nice profits — although Jim himself argued that if a firm is not properly using its assets, it deserves to have them stripped.

Slater Walker was hit hard during the recession of the seventies, and Slater was forced out after the firm was bailed out by the Bank of England. The crash turned Slater into what he famously called a “minus millionaire”, but after a little while writing children’s books he was back in the world of investment, writing share-tipping columns for a number of publications.

The Principle

The famous Zulu book was published in 1992, working on the idea that it’s relatively easy to be come an expert in a narrow field, and that if you do so in the world of investing you’ll be ahead of the great majority of the market. The narrow field the book espoused was that of growth investing, and detailed a process by which future growth stars can hopefully be identified. It revolved round what has come to be known as the PEG ratio, which compares a company’s P/E with its forecast EPS growth rate — and a low enough ratio suggests a share is undervalued in relation to its growth prospects.

It was that idea, and that book, that gave me the kickstart I needed to go looking for small cap growth opportunities all those years ago, and I did reasonably well at it — with the occasional spectacular failure, but that’s to be expected with that kind of strategy. (Although as I get older, I’m looking more for undervalued shares offering high dividend yields and with lower risk.)

I also had the pleasure of listening to Jim at an investors conference many years ago. I can’t remember when it was, and I can only remember two other speakers — one was Alvin Hall, who entertained but didn’t really educate, and the other was Terry Smith, the author of the fraud-busting book Accounting for Growth (which is another I’d recommend to anyone starting out in the stock market).

Capitivating

Jim captivated his audience, hammering home his enthusiasm for his Zulu approach in a way that it’s just impossible to glean from simply reading a book, and I for one went away feeling significantly motivated. I can also still remember the dreadful joke he opened his act with, and I’m grateful for one career decision that he made — to stick with investing and not try his hand at stand-up comedy.

Today, all these years on, Jim’s stock-picking methods are still as fresh and effective as they have always been, because they’re based on simple investing principles — understand what you’re buying, ruthlessly avoid emotional attachment, and only buy shares when all the fundamental indications suggest they’re cheap.

Jim Slater was a controversial figure, certainly not universally liked, but I’ll miss him.

Following sound, but simple, investing principles can bring investors great long-term rewards from the stock market.

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