Stephen Bland: What I learned from Jim Slater
As editor of the Dividend Letter, Stephen Bland knows about income stocks. Here, he describes a career that included a stint with the late investment guru Jim Slater.
Everyone wants to find the next Apple or Asos. But if it was that simple, everyone would be doing it. The reality is that many fast-growing shares full of potential, end up falling back to earth, taking your hard-earned money with them.
Historically, a far more reliable source of stock market returns has been something quite simple dividends. And Stephen Bland knows a thing or two about them, having created a market-beating investment strategy based around finding companies that can pay a sustainable dividend yield.
That's why we've decided to interview Stephen for the final part of our week-long series. Stephen talks about a career that included a stint with the late investment guru Jim Slater (himself one of MoneyWeek's earliest fans and supporters)
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Q: Stephen, where did you grow up and go to school? And what were you like as a boy?
A: I grew up in northwest London, in Wembley. I went to primary school and what was then called grammar school, which doesn't exist anymore.
I was good at school, but I was a rebellious type. In the same way that I'm not a good employee, I wasn't exactly a model pupil. I was always up to mischief. I didn't turn out the way they wanted.
I'm a loner in many ways. I don't fit into people's expectations of what somebody should be.
Q: Which sports were you good at?
A: I wasn't that great at ball sports, but I was quite a good runner. I could run short distances.
Q: Were your parents in any way involved in finance or accounting?
A: My dad had his own small business. He used to make leather goods like handbags and wallets. He didn't have a shop, he sold to other shops. He had a workshop that made the stuff. He then sold it to retailers and wholesalers, and occasionally classy shops in Bond Street. It was quality stuff.
Q: Were you ever tempted to go into that business?
A: No. My dad always said, "You don't want to do this, it's rubbish". It had good times and bad times. He wanted me to be a professional a doctor, a lawyer, that kind of business.
Q: Tell us about your university years.
A: I left school at 18. I had quite a few O-levels and A-levels. I wasn't sure what I wanted to do. I went to City University and studied engineering. After about a year, I decided that that wasn't for me. But I still didn't know what I wanted to do.
I was interested in lots of different things. I wasn't single-minded. I did some odd jobs working in factories, just manual work, just to make money.
Then I came across a firm of chartered accountants. I went along to the interview purely because I'd seen it in the paper, not because it was something I've always dreamed of doing. I mean, as a four-year-old kid, I didn't stay up at night thinking I wanted to be a chartered accountant.
The guy seemed preoccupied with what my handwriting was like. I've got bad, indecipherable handwriting. Almost needless to say, a couple of days later, I got a letter saying thanks but no thanks. But my interest in accountancy had been aroused.
I then went through the routine of approaching the Institute of Chartered Accountants for a list of firms. I was looking for an apprenticeship. I got a job as an articled clerk. An article was a contract. You agreed to work for somebody for complete peanuts, and in exchange, they gave you the training.
Q: How did that work out for you?
A: I'm not bad at numbers. I did the four-year apprenticeship, did the exams, and became a fully-fledged chartered accountant by the time I was 22.
In those days, there were two main things you did: one was looking after people's tax, and the other was auditing. I did auditing, and hated it. I was bored out of my skull by it. Nowadays, it's very technological. In those days, it was adding up columns of figures all day long.
Q: Why didn't you give it all up?
A: If you dropped out, you couldn't qualify. I decided to get my qualification behind me. That way, the world would be my oyster. I stuck it out for four years, even though I disliked the work.
If I ever had an ambition, it was to run my own business. I'm not employee material. I can't put up with bosses. I just love business, but with me running the business.
When I qualified at 22, I decided I wanted to work in the City, because I was interested in stock markets and financial stuff. At the time, there was a very famous investor called Jim Slater. He was like the king of the stockmarket in the late 60s and early 70s. This guy couldn't put a foot wrong. Every time you opened the financial pages, there was an article about Jim's latest move. If you imagine the biggest stock market operator, that's what he was.
Q: What was special about him as a market player?
A: Jim Slater was a value investor. He would buy up companies where the assets were worth more than the share price, turn them around and sell them. He was also a chartered accountant. He was what they call an asset stripper.
That attracted me. I wanted to go work for him, because I admired this guy a hell of a lot. He didn't need to advertise, people just flocked to him. He was like the Beatles of the stock market.
Q: How did you go about approaching him?
A: He answered my call and said come along. He interviewed me himself, even though the company had a couple of hundred people working for it. The interview took 15 minutes, as far as I remember, and he took me on. I worked for maybe a year or so on bids and acquisitions.
Q: Was that doing research?
A: Yes, I was on the research side. I was very low in the pecking order, just a punk. There were all these whiz-kids there. He attracted those people; he himself was of that type.
Q: What happened then?
A: In the early 70s, there was a complete collapse. It was the Middle East war. Certain Arab countries put up oil many times, and there was economic collapse. In Britain, major banks went bust. The government had to step in and prop them up.
Companies went bust, including Slater's. Jim Slater described himself as a minus millionaire at that stage.
Q: What did you do?
A: I did a couple of other jobs. I worked for a tobacco company for a couple of years, which took me into my late 20s. I then took a few months off and decided to travel around the US on a Greyhound bus. I think the Greyhound ticket was $99, and you could go anywhere with it.
Q: What was that Greyhound bus trip like?
A: Fantastic. I explored the US for a few months. On a bus, you don't meet the upper echelons of American society. It's like something out of a Jack Kerouac novel. Sitting on a bus from nowhere, you lose consciousness of where you are. You get on at Oshkosh, Wisconsin, and get off at Nowheresville, Tennessee.
I remember one day, a guy got on a young chap, very friendly. He was a farm boy. His brother had been killed in Vietnam. He loved cars.
The Corvette Stingray is a famous sports car. It's the American equivalent of a Porsche. He told me his brother had this Stingray. He sat there for three hours telling me about the Corvette, how he looked after it, shined it, fitted valve springs in it.
We got off somewhere in the middle of nowhere. He insisted on buying me a hot dog and coffee, even though he couldn't have had any money. He was so kind to me, so natural. There was nothing phoney about him at all. He was so decent.
He was absolutely and totally shattered by the death of his brother in Nam. The car was like a substitute brother. I didn't see the car, and I didn't see the guy again, but imagined it looked like new.
Q: That would make a great short story.
A: It would.
Ninety-nine percent of the Americans I met were incredibly nice. They'd do anything for you, give you money, put you up. I've always loved Americans. And I've always loved the image of America. I was meeting what you might call the lower part of society, not the rich New Englanders. I found that interesting.
Q: Where did you go next?
A: I headed back to Britain, but my wanderlust was not diminished.
I got married. I worked again in some company in London for a while. Then I bought an old Volkswagen Beetle and we bummed around Europe for a few months with my wife: France, Germany, Italy, Greece, Turkey We came back through Bulgaria, Romania, Hungary and Austria. At the time, the Communists were still in power in Eastern Europe. It wasn't as easy as you think. We were camping, mainly.
Q: What happened when you got back to Britain?
A: I decided I'd start my own business. I was an accountant; I had professional knowledge and skills. I set up an accountancy firm.
By that point, I'd moved to Ealing and didn't want to travel, so I set up the firm in Ealing. With a small accountancy firm, you really do a lot of tax work. You don't do a lot of auditing. I had a lot of clients in journalism and show business. My (then) wife and I did this for a long time, 25 years, pretty successfully.
To build up my practice, I approached some firms and asked if they were interested in selling their business. I bought part of a practice that had a lot of small show-business people in it. They recommended people. I was interested in the taxation of small-time writers, musicians, actors. We got to know the special situations of those guys.
Q: Were they big tax dodgers?
A: No more than anybody else. Most of their money came through the bank.
Q: Did you come across any memorable clients?
A: We had a firm of undertakers as clients. I got to know the guy who ran it quite well. He was a nice guy. Shortly after the firm became a client, I went down there and got shown around.
Undertakers have a morgue where they dress up the bodies, because, especially at certain funerals, relatives want to see the body. So they dress it up to make it look like the person's asleep. They do stuff to it as a temporary preservative, so the body looks normal until burial.
I was a bit shocked. I'd never seen dead bodies before. To the people in the firm, it was all stock in trade: They were used to it, they made jokes about it.
The client showed me this body with some stitching around the head. What had happened was that the deceased had given permission for his body to be used for research. The corpse had been taken to the local medical school. They'd opened the top of head and taken the brain out. Then, after the body had come back, the undertaker's job was to make it look as if nothing had happened. They were in the process of stitching the top of the head back on and applying makeup. One of the guys there joked, "I don't know if this person had any brains when he was alive, but he certainly doesn't have any now!"
Q: What other interesting anecdotes do you remember from that time?
A: One of my clients was a film script writer. He'd written The Full Monty and added a couple of zeroes to his earning power. I like to write as well. I'd written a script. I asked this guy, "Do you know anybody I can show this to?" He gave me a list of people and made introductions to them. But I couldn't sell it. Those people are inundated with scripts.
Q: When did you wind up your accountancy firm?
A: I had the practice until 2000 or 2001. By then, I was 50ish. After doing people's taxes for 25 years, I was sick of it. My wife said, "We can't give this up, it's quite a good living".
Our marriage had failed. At the same time, we were madly connected, because my wife was my business partner. So my wife and I got divorced. She took the practice over, and I killed two birds with one stone: I got rid of the marriage and of the business.
Q: How many children did you have by that point?
A: We had three kids. The first one was born in 1979, the other two in the 1980s.
That business had a very nice office in Ealing, and we owned the freehold. She took the business over, and took it back to our marital home in Ealing. We sold the property, which was worth quite a lot of money.
By about the year 2001 or 2002, I had no business, but I had a lump of cash. I bought a place in Yeading, which I'm sure you've never heard of. It's in outer west London, four or five miles from Heathrow. I lived there for the next 13 years.
Q: Why did you choose to live there?
A: It was a peaceful little house overlooking a small lake.
While I was still at the accountancy, I started writing for the British arm of an American web site called The Motley Fool.
My interest in the stockmarket had never waned. I always followed markets and dabbled in buying and selling shares. When the internet got going in the late 90s and I found The Motley Fool, I started writing messages on their forums. They liked what I wrote. I can write in a style that appeals to people. A lot of people who have financial skills aren't necessarily good writers. I can be funny if I want.
They said, "Why don't you write for us?" So I began writing articles on shares and on taxes, because I had some expertise on that. I wrote weekly articles on value trading. That's where my first love is. Back from the Jim Slater days, I thought that was the way to make money in the markets.
On the Motley Fool message board, I was identified as TMF Pyad. The TMF (ie The Motley Fool) prefix was used on the board to identify those people connected to the company. The readers would know you were one of the paid writers.
As for Pyad, it's an acronym of 'P/E [price/earnings] ratio yield asset debt'. When I started writing about value shares on Motley Fool, I said if you found a company that met all four filters which is tough then you've got a good value share. The name stuck.
Q: Did you enjoy writing for The Motley Fool?
A: I've always loved writing since I was a school kid.
In terms of investment advice, there was a lot of rubbish out there. At the time, it was all about chasing fads things like The Tie Shop, with high P/E ratios. High P/E companies nearly always go wrong, particularly small ones. Apple might be on a high P/E, but that's an exception. They're a fad, they attract people like a craze.
The way you make money in shares is not to chase fashion, but to be a contrarian, and look for a low P/E, not a high P/E.
I got very successful on the Motley Fool I was probably the most popular writer on there. I became known as the value writer.
Q: When did you get your own tip sheet?
A: In the mid-noughties, The Motley Fool said, "Why don't we start a tip sheet promoting your value ideas? We can make money." So we started a tip sheet called The Value Investor. It was about value shares. That took off, because I was well known already. They did a promotion, and overhyped it, but apparently you have to do that. We thought we'd get 1,000 readers after a year or two. We got over 3,000.
On the back, we had a single page devoted to the high-yield portfolio which I'd launched on The Motley Fool. It was still successful, and very well followed. High-yield investing is a cousin of value investing; high yield is a value indicator.
When we launched Value Investor, they said, "Your high-yield portfolio is very successful. Why don't we include part of the high-yield portfolio in the tip sheet?" So the high-yield portfolio strategy, which by then had been going for five years, became part of the tip sheet.
Q: How big a hit was the tip sheet?
A: In the first couple of years, it was very successful. Then they blew it. They said, "We want to extend The Value Investor to a wide range of ideas, not just value and dividend investing". They wanted to convert it into a much wider specification tip sheet. They thought that would reach a wider audience. I said, "That's not going to work". I had business acumen, they didn't. They were kids compared to me. They knew the technology of websites, but weren't the world's greatest business minds. They wanted a tip sheet that was too widely drawn.
I said, "You can't be all things to all people: I'm not going to continue with it", and I left. They changed The Value Investor title to Champion Shares, which never, never went anywhere. It did pretty badly after that.
Q: What did you do at that point?
A: By then, I'd gotten older and realised that even with value investing, you don't make any money. In fact, most traders don't make money. Value makes money, but you need certain very rare skills like patience, which they don't have.
I'd noticed that the high-yield portfolio had done very well. So I thought, I'm going to launch my own tip sheet. I said to The Motley Crew, "Do you want to take it on?" They said, "No, that's never going to work". So I said, "I'm going to do my own thing".
I approached MoneyWeek. The guy who ran it liked the idea. So we launched The Dividend Letter. The idea of buying shares not for making capital gains, but purely for income, is my idea. It took off. The Motley Fool lost out.
Most of my life, everything I read has been about capital gain. Hardly anyone talks about shares based on dividends. I'm trying to change the nature of that.
Q: But surely you could make a very big profit selling a particular share at a particular point?
A: You could, but the key word is could'. Traders haven't got the skill to do that over a length of time. Making money by trading shares, particularly short-term over a day, a week, a few weeks or a month is very, very difficult. Most people make so little, they might as well have left it in the bank. I know this. I've worked in the City. Day traders are the worst of all: amateur fools sitting at home in front of a computer all the time.
Q: Let's say I own shares of Company A. The shares, for some extraordinary reason, double in value. Why would it be wrong for me to sell them and make a capital gain?
A: I'm not saying it's wrong. But if you try and do that all the time, you'll lose a lot of money. It's gambling. Gamblers lose, mainly. Overwhelmingly, they lose. Day trading is gambling.
Value share trading is one of the rare strategies that makes money. But it requires being willing to see your shares drop miles before they go up, being willing to sit on something for years, and having belief in yourself. You have to fight the herd. Most people don't have that ability.
Q: You don't sound to me like someone with that kind of patience.
A: You're right. Perhaps that's why I've sold too soon many times in the past. I've lacked those qualities.
As I've gotten older I'm in my sixties I've become a little bit more risk averse. My investment strategy is almost wholly my own high-yield portfolio. I hardly ever trade shares.
Q: How long do you recommend that people hang onto shares?
A: Forever. My ideal holding period is eternity.
If you've got £100,000, you can get 4.5% on an HYP [high-yield portfolio]. You're buying it for the income, not to make the profit. Forget the capital value, in the same way you might put money in a gilt to get the interest rate.
In reality, over the long term, the capital will probably do well. But you're still buying a share for the income. Why would you buy Shell? Because it's yielding 6%. I don't know what's going to happen to Shell in the next 25 years. I'm just going to buy it and sit on it, whatever happens. Strategic ignorance is one of my key platforms. Long-term forecasting is so worthless.
The market will trade your shares for you, through bids or spinoffs. Your portfolio will slowly change and not because you do anything. Portfolios I set up 10 or 15 years ago are changed by market trading. That market trading is usually good: a bid on the company means big premia to what the investor paid. To a trader, capital is everything. But to an equity income investor, capital doesn't matter. Don't even follow it. Action is the worse thing you can take.
Q: Your portfolios are hypothetical composites, right?
A: Yes. Each month, I recommend a new share for the current portfolio, with between 15 and 20 companies in each portfolio. After 20 months, I end up with a new portfolio.
A key factor is diversification. It's critical: you don't want to be too much into oils or banks or pharmaceuticals.
Q: You've recommended Royal Bank of Scotland and Sainsbury's in the past, and they're poor performers at the moment.
A: RBS was the first share I recommended in The Dividend Letter and the worst ever. In March 2008, I tipped it because it was a good income-producing share. The market collapsed in 08, and RBS hasn't paid a dividend since.
Q: What do you do when that happens?
A: You don't do anything. You just leave it, even if it's worth a fraction of what it cost.
Q: What happens if Sainsbury's goes bust?
A: Then you've lost that money in that share. Because of my insistence on industry diversification, it's unlikely that all of the shares are going to go bust.
I've got shares that are worth two or three times what the original investment was. The portfolio has beaten the market by a huge amount. Although I don't want to promote it on that grounds, in fact, the capital gains have been spectacular.
Q: Where do you invest your own money?
A: My portfolio closely but not precisely contains nearly all of the shares I've tipped over the seven years since I launched The Dividend Letter. I don't own every single one. But I wouldn't tell my readers to buy shares if I didn't put my money where my mouth is.
Q: What does your own net worth consist of?
A: I don't run any other businesses. My only income from labour is The Dividend Letter. I occasionally write articles for other magazines and people. The bulk of my total assets is invested in my own HYP.
Q: Where are you living now?
A: I live in Hemel Hempstead in Hertfordshire. The town is quite big. I live just on the edge. Within five minutes' walk, I can be walking through farmland and countryside.
I work from home. I don't like noise. I could never live on a busy main road.
Q: You mentioned that you had a fondness for motorcycles. Why?
A: I can't explain why. I always have ever since I was 15 or 16. It's a passion.
Q: What kind of motorcycle do you have right now?
A: A BMW R1200RT. It's a big one. I've always liked big bikes.
I went around Europe on a previous bike. I had a big Harley and went to Poland with one of my sons, who was then about 19, on the back. We rode around Europe more than once. And once I did it on my own. The longest distance was, I went to Poland and from there to the south of France.
Q: Isnt' that a dangerous thing to do?
A: It is a dangerous thing to do compared with driving a car. Far more bikers proportionally get into accidents than drivers. You're just not protected. You go down, and it's not like being in a steel cage. But apart from that, there's no particular danger associated with it.
Q: What are your other hobbies?
A: I read quite a lot. At the moment I'm reading Dracula by Bram Stoker. It was written a century ago.
Otherwise, the books I read tend to be modern novels. I'm not so much into Dickens or Jane Austen, although I've read all that stuff. I just read Stephen King's 11.22.63. He's a good writer, and not just a supernatural writer. He's very good with words, a wordsmith. The date in the title (written in American style) is the date of the John F Kennedy assassination. The book goes back in time and tries to prevent it. The book weighs about two kilos.
I've read a few Irvine Welsh novels, including Trainspotting. It's a hard read, you have to translate Scottish dialect.
On my bookshelf, I see a few books by Martin Amis: The Zone of Interest; Time's Arrow an interesting book, where time works backwards and London Fields.
Q: I hear one of your sons is a journalist.
A: Ben is the Financial Times correspondent in Hong Kong. Before that, he was in Indonesia, and earlier, in Vietnam for The Telegraph. Prior to that, he was in Singapore. He's been around Southeast Asia.
Q: Does this make you proud?
A: Yes, it does, especially when you work at the FT, which is one of the world's leading papers.
Q: Does your son share your interest in finance?
A: He's more interested in general politics. He studied history at Cambridge, and ended up with a postgraduate degree in politics.
Q: What about your professional poker-player son?
A: He's in Vegas at the moment on a two-month stint.
Q: Is that a concern for you?
A: It's not the career I would have wished for him. It's risky, and if it goes wrong, you've got nothing to fall back on, no professional qualifications. If by the age of 40 he can't make a living, he's a bit stuck.
He's very sharp, as you probably imagine, but I'm not certain it's something he can work at all his life. He calls it work.
Q: You need a lot of nerve to do that.
A: He's got that. He's not short of nerve.
He's not a compulsive gambler. He's a maths player. He's very maths-based, like me. He plays the odds. But poker is not like chess. It's not a 100% mathematical game. In the long term, a great player should do well. But in one night, a poor player can beat a great player. Poker is a mixture of luck and skill. You can go badly wrong.
Q: Does that make you anxious?
A: It gives me something to worry about.
I just got a text from him saying he'd won $50,000 with a picture of him in front of a pile of gambling chips.
Q: So he's doing well!
A: As of now, on this particular trip. But he's had bad runs before, because of the luck element. You don't win every time. You can't hope to win every play.
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