The Hindu Business Line : Investment Nuggets

Jim Slater is a star of growth stock investing. He first became interested in investment in the 1960s, 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. 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. Slater’s investment style won him a fan set in America as well in other corners of the world. In his book, The Zulu Principle, UK’s first investment bestseller, he explained the criteria for choosing stocks. Some of the mandatory ones are:

A positive growth rate in earnings per share in at least four of the last five years;

A low P/E ratio relative to the growth rate;

The chairman’s statement in the report and accounts must be optimistic;

Strong liquidity, low borrowings and high cash flow.

Competitive advantage

Some of his other nuggets are:

“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.”

“Investment is essentially the arbitrage of ignorance. The successful investor believes he knows something that other investors do not fully appreciate.

“There is very little that is unknown about leading stocks. In contrast...most leading brokers cannot spare the time and money to research smaller stocks. You are, therefore, more likely to find a bargain (with some ignorance to arbitrage) in this relatively under-exploited area of the stock market.”

“Elephants don’t gallop — but fleas can jump to over two hundred times their own height.”

“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.”

“Become an in your chosen niche market. You will achieve your objective, like Montgomery and Napoleon before him, by concentrating your attack.”

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