Inside the mind of the investor
I’ve just finished reading a classic book on investing, The Zulu Principle by Jim Slater. Slater was one of the most famous and articulate investors of his day, 20 or more years ago. He wrote an influential investing column in The Sunday Telegraph – for then City Editor Nigel Lawson, no less. Over the years he made, lost and made a lot of money. The book has been a best-seller ever since he wrote it in 1992. Although obviously dated in some of its language and ideas (who looks at the FT Ordinary Share Index of just 30 companies these days?), it still delivers much wisdom. For a businessman or woman, it also offers a great insight into that most mysterious of beasts, the mind of an investor.
Slater was most interested in finding relatively small, fast-growing businesses whose merits had not yet been spotted by the stock market. He wanted to buy companies whose high growth was not reflected in the share price. Once he had found a company that looked as if it met this criterion, he looked at a number of other factors to construct a ‘safety net’, reassuring him that the business really was doing well. He recommended, even if you didn’t use his exact system, you should create your own investment criteria. Use them rigorously and consistently to avoid being swayed too much by sentiment. He recommended holding just 10-12 stocks at any one time, a concentrated portfolio by today’s standards. And he said that, if you wanted to apply his principles, you should devote at least three hours a week to becoming an expert in whichever narrow field you had decided was your focus.
Today’s stock market, at least in the UK, is much more heavily researched than it was when Jim Slater was in his pomp. That makes it harder to find unsung gems, although they do still crop up from time to time. But the idea of developing strict criteria and applying them strictly holds just as well today as it did then. Good luck in coming up with your own!
© Patrick Macdonald 2015