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December 7, 2012 6:31 pm
When Jim Slater first started to attract attention in the City in the mid 1960s, a reporter from the Daily Express christened him “Big Jim”, on account of his height. “Lucky Jim” might have been a better epithet.
Slater is now 83, but looks barely a day over 65, something he attributes to daily pilates, swimming and dog-walking. He lives comfortably, though not ostentatiously, with his wife in Surrey, and divides his time between his two main business ventures, his investing and his charitable work, which is managed through a foundation bearing his name.
He readily acknowledges his good fortune and terms himself “half-retired” – a description that would have been fairly accurate at any time over the past 30 years.
To his detractors, lucky doesn’t begin to cover it. Slater Walker, the investment bank he set up with Peter Walker in 1964, had to be rescued by the Bank of England in 1976, which extended what some considered extraordinarily lenient terms.
His personal creditors – he famously described himself as a “minus millionaire” – were likewise accommodating, allowing him plenty of time to repay (which he did, with interest).
Then there was the attempt by the Singaporean government to extradite him over the Haw Par loan and shares affair. That was thrown out by a UK court in 1977, sparing him a possible stint in Changi jail.
He is sanguine about that period, during which he and other members of the “Mayfair set” – the likes of Jimmy Goldsmith, James Hanson and Tiny Rowland – pioneered the use of borrowed money and aggressive takeovers to build up sprawling financial conglomerates.
Jim Slater spent his early life raiding companies with underutilised fixed assets. Yet a key feature of his current investments is that they are all relatively asset-light. Dialight is a firm favourite of Slater and son Mark. It manufactures LED-based lighting systems, which are more efficient and reliable than traditional incandescent lighting, for industrial and traffic management applications.
NCC is another top pick. It’s a cybersecurity specialist, helping companies and government agencies to make their systems and websites resistant to virus attacks and hacking. It also provides “escrow software” services.
Dechra Pharmaceuticals transformed itself from a chemicals company to a veterinary supplier with a shrewd deal a few years ago, and is still adding bolt-on acquisitions. The shares are close to a 12-month high.
Entertainment One has grown rapidly in the past few years because of the success of Peppa Pig, a cartoon creation aimed at pre-school children. The character is now making inroads into the US market and a recent acquisition is expected to yield substantial cost savings and revenue growth. The MFM Slater Growth fund has a material position in the company and the shares have trebled since it first started acquiring them.
Mark Slater has huge admiration for Domino’s Pizza. “We were holders for ten years or more. We made ten times our money. The company is not anything like as exciting as it used to be, but in its dynamic phase it was amazing.”
IQE supplies silicon wafer to chipmakers and manufacturers of solar panels. This is a classic cyclical industry, but Jim Slater stays alert to the possibility of setbacks by keeping an eye on its customers. “Five of their biggest customers have just reported and only one of them was slightly negative. The other four were optimistic.”
His main exposure to gold is through his stake in Spanish Mountain, but he said that if he didn’t have that, he’d certainly have exposure to silver. Great Panther, Fortuna Silver Mines and First Majestic Silver – all small and fairly high-risk companies quoted on Canadian markets – would be his targets.
Slater senior generally doesn’t invest in large-cap stocks, owing to the “elephants don’t gallop” principle, but he does think that BP is getting interesting. “It could be coming right. I’ve just started looking at it. I think Bob Dudley has done OK, he is delivering.”
An oil company that certainly is on his radar is Soco International, which is developing deepwater fields off the coast of Vietnam. “It’s growing production very fast, it has a good cash position, a low p/e ratio and it’s a very likely takeover target.”
“I think I did do something in attacking companies that were laden with assets and hadn’t been using them in shareholders’ interests,” he says, acknowledging that such conduct wasn’t to everyone’s taste. “It made people very defensive.” But, he points out, it was an era when businessmen generally were much more inclined to take big risks. “There aren’t very many big personalities in business these days . . . it’s all a bit colourless.” He points to Sir Martin Sorrell, who built WPP from a tiny reverse takeover into an advertising and public relations titan, as the closest embodiment of such buccaneering capitalism today.
Once Slater Walker was history, Slater walked away from the corporate scene. “I discovered that I quite liked having a life,” he says. “Instead of work controlling me, I am in control.” After rebuilding his finances – a property venture with Tiny Rowland was the key to that – he pursued what might be termed the ultimate portfolio career.
Since the late 1970s, in addition to investing, he has written books on picking shares, books for children, organised chess tournaments, published pamphlets arguing against the UK joining the euro and devised the CompanyREFS system of analysing company finances.
CompanyREFS is still the basis of his own stock picks, and I notice that although it’s long been available online or as a CD-ROM, Slater still uses the original doorstep-sized print version that’s updated monthly, scanning its pages for the “moons” that signify companies with the right combination of growth and price.
His investment criteria revolve around the price/earnings growth (Peg) ratio, plus low debt, relative share price strength and strong cash flow. Thanks to books such as The Zulu Principle, plus his website (www.jimslater.org.uk), they are fairly well known. I’m more interested in how he decides when to sell.
“The very worst time to sell is when you have an unexpected happening and there’s a terrific fall,” he says. It often pays to wait a day or two. But on the other hand, he doesn’t believe in hanging on for recovery or buying more so as to lower the average entry price.
“As soon as you get a profit warning or a major disappointment, you sell. The first profit warning is usually followed by another,” he says. He cites Andor, a company he once owned but which had a profit warning after he sold it. The share price has partially recovered since, but he’s not tempted to get back in.
The other reason to sell is when a company simply no longer fits the bill. “You sell a good stock that’s performing well when it no longer meets your criteria. I try to buy companies that are special, and sell them when they become ordinary.”
Slater has long been an enthusiast for gold, firmly believing that the various easy monetary policies pursued around the world will lead to inflation and higher gold prices. His preferred way to play the story is through shares in gold mining companies, and he’s unperturbed by their recent chronic underperformance.
A case in point is Spanish Mountain Gold, a Canadian company where he is a substantial shareholder. The shares have slumped 63 per cent so far this year despite the buoyant gold price, and at the time of our meeting the company was preparing a preliminary economic assessment.
“We’re very happy with it,” he maintains. “The shares have suffered like all of them, but we hope that once the economic assessment comes out, it will give people a base to decide whether or not to invest.” He points out that Jim Rogers, another high-profile gold enthusiast, is also on the board. “It’s very highly leveraged. I know that if gold does well, I will do exceptionally well.” [The assessment was released a week later, proposing a $755m investment to establish a 197,000 ounce-per-year mine with cash production costs of around $774 per ounce over the mine’s life, but the share price has not reacted].
Spanish Mountain is one of his main business ventures. The other is Genagro (formerly Agrifirma), an agricultural development business focused on Brazil, which Slater co-founded and which is backed by other high-profile financiers, including Lord Rothschild. At present it is a private venture but it may be floated in due course.
But Slater’s personal investments still take up a lot of his time. His stockbroker called twice in the hour or so that I was with him, and his chauffeur confided to me on the way back to the station that age has certainly not dimmed Slater’s determination to finish on the right side of every deal.
That, he says, is why he carries on. It’s not just about the money, it’s about the challenge and the enjoyment. “It’s still a great game to be in.”
A chip off the old block?
Many of Slater’s personal favourites do indeed crop up in the MFM Slater Growth Fund, which is managed by Mark Slater, one of his four children (and the only one to pursue a City career).
“There are some companies that are obviously very good and we both end up owning them,” says Mark Slater. “There are others that are more complicated or less obvious where we have a different take on things. For instance, I’ve had Entertainment One for many years, whereas my father has only come into it much more recently.” He adds that he keeps the focus firmly on growth, whereas his father is more likely to buy into cyclical recovery stories. “There are certain companies that can show up in Refs but which aren’t really growth companies – they might have very cyclical earnings. My father would probably be tempted to buy those, and I probably wouldn’t.”
While the two basically follow the same “growth at a reasonable price” strategy, and often use the same information sources, running a Ucits-compliant fund also places constraints on Slater junior.
“We’ve tried very hard to keep the fund pure and not have fillers . . . but you can’t have the same level of conviction in your 25th stock as you do in your top five,” he says. He runs as concentrated a portfolio as he can, with the optimum number of holdings between 20 and 40, but acknowledges that the private investor “has a huge advantage in this regard, provided he runs a sensible process”. The company also reviews the size of the fund – currently about £55m – at £25m intervals, although he believes the investment approach will work fine up to a few hundred million pounds.
Like his father, Mark Slater is a bottom-up stock picker and doesn’t really do market timing or macroeconomic analysis. “Typically we look to buy when a company has a Peg ratio of under 1, or preferably under 0.75, and look to sell when the Peg is 1.2 or just over that,” he says.
He’s less inclined to sell purely on valuation grounds. “If you’re lucky enough or clever enough to have found a great business, if you’re in at a good price and it’s working, then you need a very good reason to sell it. Being slightly overpriced isn’t a good enough reason.”
Mark Slater is adamant his father didn’t push him into the City “I liked numbers from a young age. I used to ask my father to ‘tell me big numbers’.” He began running his own portfolio at the age of 16 and started his fund in 1994, after a spell at French bank Société Générale and as a financial journalist at the Investors Chronicle.
“My father would talk about business, but he certainly didn’t push it. The one thing he did communicate was that it was fun and he enjoyed it – not just stocks but property and business generally,” he says. Nor was the growth investing concept imposed from above. “As a business we have an income strategy, we have a special situations fund. We do other things. But the growth strategy is good in most conditions and occasionally it’s exceptional. I think I would have gravitated towards it anyway.”
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