DIY Investor Magazine
/
September 2016
36
Statistics show that the best way to grow your money
in the long term is through careful investing in small
cap value stocks; but finding them can take a LOT
of digging – even if you know what to look for. That’s
why legendary investor Jim Slater devised a clear 11
step plan to make the process of stock selection much
easier.
Jim Slater was a chartered accountant and became
well-known for penning an investment column in the
Sunday Telegraph under the nom-de-plume ‘Capitalist’.
Unbelievably, his column tips achieved a gain of 68.9%
over a period of 2 years compared to a market average
of just 3.6%.
Best-selling investment tomes The Zulu Principle,
Beyond the Zulu Principle and How to Become a
Millionaire followed and in 1994, Slater devised
Company REFS, a stock selection tool based on his
unique model. Since 1994, the stock market and indeed
the global economy has seen turbulent times, but the
principles of Slater’s formula remain valid; his son Mark
Slater was recently named as the UK’s number 1 Fund
Manager by The Telegraph and his fund, the MFM
Slater Growth Fund, successfully deploys the stock
selection strategy devised by his father.
How Falling ill in Spain ‘Accidentally’
Turned £3,000 into £40,000
In 1958 on a business trip to Spain, Slater caught a
virus - which changed his life completely. For the two
years that followed, he was weak, exhausted and
unable to get out of bed much of the time. Down to his
last £3,000, he needed to find a way to make money,
that didn’t involve ‘working’ in the traditional sense.
Slater knew that if he could just pick the right stocks, he
could make money; convalescing in Bournemouth, he
did just that.
Convinced that there must be a pattern displayed by
big stock market winners that would allow him to predict
the future, Jim scoured two years’ back issues of the
Investors’ Chronicle and the Stock Exchange Gazette.
11 STEPS TO STOCK MARKET SUCCESS
FROM THE LATE JIM SLATER, CREATOR OF COMPANY REFS
As he did so certain, very particular, patterns cropped
up again and again; investing his very limited cash on
the basis of this new theory was a leap of faith – but
that basic formula enabled him to buy his first shares,
and turn £3,000 into £40,000.
Jim Slater wasn’t interested in quick wins, and as any
serious investor will tell you, this isn’t the secret to
long term success; he hadn’t unlocked a fail-safe trick
to the perfect investment and in the 1970s seriously
overstretched himself, ending up a ‘minus millionaire’
However, he paid back all his debts with interest within
just a few years by investing shrewdly in the stock
market – using the same strategy he’d discovered
during his illness.
Jim Slater’s Market-beating Formula
Slater coined a now-famous phrase in his best-selling
book The Zulu Principle, ‘Elephants don’t gallop, but
fleas can jump over two hundred times their own
height’. In other words, it usually takes many years for
shares in large companies - such as you would find in
the FTSE 100 – to show the same growth potential as
smaller listed companies.
HSBC or GlaxoSmithKline are just not going to double
in price quickly; on the other hand, it is quite possible
for a small company to double, triple or quadruple its
share price in a short space of time. A recent example
is online fashion retailer ASOS; at one point in early
2014, its share price had increased by an unbelievable
35,000% since it launched at 20p per share in 2001.
