Jim Slater’s Zulu Principle books were some of the first books I read about investing before I joined the City as a young broker and so it was with great pleasure that I listened closely to his views on the market at the very enjoyable Growth Company Investor Show yesterday afternoon at the Barbican.
The background on Slater, if you don’t know his story, is very colourful. He was a corporate raider building up Slater Walker through the 60's and early '70s in swashbuckling style and setting the mould for Jimmy Goldsmith who replaced him when it all went a bit wrong - the Bank of England having to step in to prevent it's collapse during a banking crisis. He reinvented himself as a successful children’s author, broadsheet columnist and highly successful investing guru publishing the Zulu Principle and founding Company REFS.
He has further built his fortune by practicing what he preaches through growth company investing and latterly investing in resources.
What follows are my notes from his presentation:
Outlook & Asset Allocation
He foresees 2 contrasting possiblities in terms of the economy and macro environment:
- In the Dark Room - This scenario involves deleveraging of banks, overcapacity, banks not lending, underfunded pensions, sovereign debt in doubt, US states in deficit, bleak deflationary output, US on point of no return - all pretty grim stuff really.
- In the Light Room (or the Quantitative Easing room!) - He likens it to being a heroin addict. You can't take the patient off the drug. The Bank of England and the Federal Reserve are talking of more Quantitative Easing. It makes cash a terrible investment but leads to potentially hyperinflation.
So, based on that, his preferred asset allocation is to hedge your bets and prepare for either or both scenarios at the same time:
- 25% in Cash,
- 30% in small cap growth shares,
- 30% in gold shares,
- 5-10% in oil,
- 5-10% in agriculture.
Slater still insists that you should pick under researched niche small cap shares where reratings and takeovers are more likely. He gave the statistic that the average micro cap share has beaten the market by 10 to 1 since 1940.
Zulu Principle Criteria
Obviously he still bangs the table about the Zulu Principle System that he is renowned for and advocates his Company REFS product. …