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Jim Slater: the godfather of asset-stripping who made – then lost – a fortune
Jim Slater, the legendary 1970s financier who died last week aged 86, started his own business, lost a fortune, and then made another one.
Jim Slater, the legendary 1970s financier who died last week aged 86, "was once the most influential figure in the City, and certainly one of the most feared", says The Independent. His stated ambition was to own "a significant percentage of every major asset situation in Britain", and for a while it looked as though his investment vehicle, Slater Walker, might do it. The "godfather of asset-stripping" (gaining control of a firm, then selling off underperforming assets), he made and lost a fortune before reinventing himself as an investment guru and children's author.
"Courteous and witty", Slater was "the consummate get-quick-rich merchant" a superstar who made Slater Walker the most glamorous of firms, says London's Evening Standard. Co-founded in 1964 with Peter Walker a future Conservative Cabinet minister whom Slater met at a lunch given for under-40s tipped for the top "it was inextricably linked to the Tories". Slater ruled the City; Heath the country. Captains of industry lived in fear of being "Slaterised". There was nothing wrong with asset-stripping, he said, because it increased efficiency. "It's like a knife and butter, and we're the knife."
Born in 1929, the son of a salesman who died young, Slater grew up in suburban north London and left school at 16 to train as an accountant. He joined a group of metal companies, and then the Leyland Motor Company, before being floored by a mystery virus, says The Daily Telegraph. Anxiety over his health led him to question his career and think instead about share dealing. Holed up in a convalescence home in Bournemouth, he undertook "a fortnight's intensive study" of company data to work out his strategy (see box). In 1963, he persuaded Nigel Lawson then The Sunday Telegraph's City editor to take him on as a columnist; the following year he started Slater Walker.
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The key to Slater Walker's early rise was its ability to use clients' cash to gain control of firms that were later stripped and flipped. The growth was exponential, says The Guardian. It spawned "a network of satellites run by acolytes", the most successful of whom was Lord Hanson. But in 1974, the property and banking crash "exposed the frailty of the wheeler-dealing at its heart".
Slater became a self-confessed "minus millionaire" and was hit with fraud charges (later thrown out) and an extradition request from Singapore. Aided by his wife "a long-term hold", as he put it Slater rose from the ashes, paid his debts through stock-picking and property deals, and turned to writing successful children's books. Asked in 1992 what he would like to be remembered for, he rattled off his sponsorship of British chess and tennis, his support for Birthright and wild salmon, his happy marriage, and his books. And Slater Walker? "I'm not particularly proud of that, it failed after all. But I'm not ashamed of it either."
How to apply the "Zulu principle"
Slater's first principle of investing, as outlined in his 1992 book The Zulu Principle, was that "focusing on a relatively narrow field" gives you an advantage, says The Daily Telegraph. If you read every book in the library about Zulus, he observed, you will soon know more about them than anyone else around you. "It is only necessary to be six inches taller than other people in a room to see above everyone's heads." Slater's favoured shares were usually smaller firms. "Elephants don't gallop," he wrote. "Mammoth companies rarely double their market capitalisation in a year; small companies often do this and more."
He used the p/e to growth (Peg) ratio to hunt down undervalued small companies with good growth prospects, says Richard Evans in The Sunday Telegraph. This took the familiar price/earnings ratio "a stage further", dividing it by the company's annual growth rate. The lower the Peg, the better the opportunity. He used to insist on a dividend yield of 4% too, but later relaxed the rule "although a meaningful rising yield is an obvious plus". He also looked for an "optimistic" chairman's statement, an absence of family control, for cashflow to exceed profits and no substantial selling of shares by directors. Not rocket science but, as Slater showed, when you do your homework, you get results.
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