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Jim Slater – The Great Survivor

Born March 1929. Currently living in Surrey, and still investing

 

The Outcast Years

Corporate pirate, asset stripper, failed banker. Tarnished and vilified by just about everybody. Wanted, at one time, for extradition to Singapore. A friend of the ruthless James Goldsmith. Aaah, they don’t make baddies like Jim Slater any more.

Nobody who read the newspapers during the 1970s will have forgotten the Slater Walker banking collapse, and the bank’s ignominious seizure by the Bank of England. Or the 15 different charges concerning offences against the Companies Act. Or the allegations of misuse involving huge amounts of company funds in personal share deals. It made for great headlines at the time.

Which is why it's important to remind ourselves that all charges were later dropped against both Slater and his ally Peter Walker. And as for Slater himself, he went on to become a powerful authority on small company investing, the author of several children’s books – and a multi-millionaire again.

Not to mention the inventor of the price-earnings to earnings-growth ratio (PEG). And the originator of Company REFS. We just thought we’d mention it.

From Cars to Stardom

Initially trained as a chartered accountant, Slater first hit the heights at the Leyland Motor Corporation, which was Britain’s largest car and truck manufacturer at the time (1963). But industry couldn’t hold him: the following year, Slater and Walker bought a shell company and founded Slater Walker Securities, which made a fortune for its investors by engaging in aggressive corporate takeovers which often ended in episodes of systematic asset-stripping.

In time, Slater Walker became a conglomerate. Then, in 1969, it morphed into an authorised investment bank. That was when the luck ran out.

A Minus Millionaire

The global stock market crisis of 1973 broke Slater Walker and cost many thousands of clients their life savings. And the interminable legal investigations started. Slater has always denied rumours that he had declared personal bankruptcy, but he agrees that he owed £1 million more than he possessed at the time. What is certain is that he didn’t stay down for long.

The Zulu Principle

Slater started an investment column for the Daily Telegraph  (“The Capitalist”), whose investment tips soon acquired an impressive reputation. And then, encouraged by the future Chancellor Nigel Lawson, he used the column to develop an investing philosophy which was later to form the core of his best-selling The Zulu Principle – a manual for selecting and investing in small-company growth stocks. Slater is still firmly convinced that thousands of these “hidden gems” are out there waiting to be discovered. But how to find them?

That’s where the innovative price-earnings to growth ratio (PEG) came in. Slater was convinced that the traditional p/e ratio worked badly with high-growth companies, and that a composite measure was required – one which combined a company's p/e ratio with its expected, or estimated, earnings per share growth rate. Generally, a fast growth made higher p/e ratios more acceptable.

There was more to it, of course. Slater insisted that debt should be low, and that there should be four years of accounts. A 30% annual growth rate was a sign that a company was probably too hot for comfort. Investors should watch out for directors selling out their shares. And so forth.

Meanwhile….

Slater had made a second fortune out of apartment building, and a third from mining investments. When he wasn’t doing that, he started the online business reference system Company REFS ("really essential financial statistics") with Hemmington Scott. He then moved into gold mining, and subsequently into Brazilian farms. And at 84 he shows no sign of stopping.

"Most leading brokers cannot spare the time and money to research smaller stocks.

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