How to invest like Jim Slater: Lessons from a shifting strategy

History is a funny thing. We tend to imagine that history books record facts and figures with scientific precision, as if the chronicles offer a photographic snapshot of the past. But the reality is quite different. Historians have to make do with archival scraps, odds and ends, and various leftovers from the years gone by. Some of the greatest thinkers—including Leo Tolstoy—have even argued that historical fiction is more truthful than non-fiction. Inevitably, historians miss important details.

Some characters are forgotten. Even if they shaped events, their names slip through the cracks and are lost to history. One of those names is Jim Slater. His obituary in the BBC said, ‘The name probably means nothing to anyone under the age of 50, but in the 1970s Jim Slater was a truly famous businessman.’ That line stuck with me. I remember my grandparents talking about the old days of Jim Slater, James Goldsmith and Tiny Rowland. When I became interested in investing, I asked my grandmother about Slater. Her face lit up, as if she was taken back in time. ‘Gosh’, she replied. ‘Now you’re talking!’ Her eyes gazed into the distance. ‘I wonder’, she said. ‘Is Jim Slater still alive?’

In 1977, Slater wrote his autobiography, Return to Go. The book is no longer in print and I bought it on Amazon for 1p. In 1992, Slater wrote an investment guide called The Zulu Principle. It was more successful than Return to Go, but it helps to read both books. One book can show you an investor’s style at a particular moment in time. Two books, written fifteen years apart, can reveal the lessons learned and the process behind developing a full investment philosophy…

Backtesting, the Old-Fashioned Way

Slater started investing around 1959, before the internet and before personal computers. The idea of backtesting an investment strategy was out of question, so Slater devised a clever workaround. He bought two years’ back issue of The Investors Chronicle and the Stock Exchange Gazette and reviewed the share recommendations. With the benefit of hindsight, Slater was able to identify traits that were present before periods of strong price performance. The process helped Slater separate genuinely good recommendations from tips that turned out to be duds.

Slater developed and refined his own investment philosophy. He described himself as an ‘earning situations’ specialist, but in many ways, he focused on turnarounds. In Return to Go, he said:

“I was looking for shares which, following a bad period, had a steadily rising earnings trend.”

Slater’s theory was that turnaround companies tended to stay undervalued because the market had become jaded after years of poor performance.

“Quite often after a period of losses it would take a long time for the stock market to forgive and forget, so the rating given to these companies was not high enough in relation to their recent earnings trend.”

Slater complemented this investment theory with a clear set of well-defined rules (see below). Slater listed these rules in 1963, writing an investment column in The Sunday Telegraph under the pseudonym of ‘Capitalist’. Rule 1 ensured the company was undervalued and generating enough cash to pay a dividend. Rules 2 and 3 focused on strong earnings growth, while Rules 5 and 7 ensured the company had a healthy balance sheet.

1. The dividend yield must be at least 4 per cent.

2. Equity earnings must have increased in at least four out of the last five years.

3. Equity earnings must have at least doubled over the last four years.

4. The latest Chairman’s statement must be optimistic.

5. The company must be in a reasonable liquid position.

6. The company must not be vulnerable to exceptional factors.

7. The shares must have a reasonable asset value.

8. The company should not be family controlled.

9. The shares should have votes.

Slater also applied criteria for the price-to-earnings (P/E) ratio. This was essentially a prototype GARP strategy (growth at a reasonable price).

“I was looking for shares with an above average earnings yield (the equivalent today would be a below-average price-earnings ratio) coupled with above-average growth prospects”

Slater ran a ‘ghost portfolio’ while writing his ‘Capitalist’ column. In Return to Go, he reflected on the results:

“The ‘Capitalist’ portfolio did appreciate in value by 68.9 per cent against a market average of only 3.6 per cent during the same period.”

Backtesting, the Modern Way

It’s been sixty-six years since Slater wrote his ‘Capitalist’ column. Today, we’re better equipped to simulate the performance, using data from 2015-25…

The strategy performed better in 1963-65, when Slater’s portfolio appreciated by nearly 70%. Back then, information was harder to access. Fewer investors used quantitative data. The market was less efficient, meaning it was easier to find mispriced stocks. An investment strategy which worked in the 1960s may not work in the 2020s. Slater managed this problem by reinventing himself, but before we get onto that… let’s go over the simulation in a bit more detail.

I adapted the criteria slightly: firstly, to make them consistent with the rules available in the Stockopedia screener; secondly, because the investment environment is different. Slater ran the ‘Capitalist’ portfolio at the tail-end of the post-war economic boom, when Prime Minister Harold Macmillan told voters, ‘You've never had it so good’. Slater later reflected, ‘The market was in quite a bullish phase… This obviously helped.’

Today’s economic climate is less favourable, what with pandemics, inflation and geopolitical crisis. I was less stringent when running the simulation, particularly around earnings growth. I honed in on the following cut-offs:

• The dividend yield is at least 2%; # My interpretation of Rule 1 above
• An EPS CAGR rate of at least 20% (over prior 3 years); # As per Rule 2
• EPS growth streak of at least 3 years; # As per Rule 3
• The current ratio is at least 1, indicating a reasonable liquid position; # As per Rule 5
• The assets-to-equity ratio is 350 or less; # As per Rule 7
• The P/E ratio must be below 15; # As per Slater’s criteria for the price-to-earnings

We can make a few observations. The number of holdings in our simulation dropped significantly after Covid. This was likely due to slower earnings growth during the pandemic and the Ukraine War. Higher interest rates also made it harder for companies to meet Slater’s strict liquidity and balance sheet requirements. The ‘Capitalist’ strategy also performed better after Covid, particularly in 2021. Some of the top performers were as follows:

• Stock Spirits (LON:STCK^K21) - 42% gain between 2021-06-30 and 2021-09-30. Stock Spirits was a UK-based company primarily involved in producing and distributing alcoholic beverages. The company performed well during the pandemic. In September 2020, Roland explained that, ‘lockdown restrictions have inevitably led to a big shift in alcohol sales from the on trade to the off trade. One company that may have benefited from this is drinks group Stock Spirits.’ The company was eventually acquired through a cash offer of 377p per share, representing a 41% premium.

• Morses Club (LON:MCL^B23) - 76% gain between 2021-03-31 and 2021-06-30. The company was a home collect credit business. Covid forced a rapid digitisation of financial services, and Morses Club had already been transitioning to a more digital model through its Shelby Finance division. Furthermore, during the pandemic, many people faced financial distress. With many mainstream banks tightening lending standards, Morses served a niche but growing market of people excluded from traditional finance due to poor credit. As recently as June 2021, the company satisfied Slater’s criterion that the Chairman’s statement should be optimistic. Paul Smith, Chief Executive Officer of Morses Club, said: “Despite the continued impact of the pandemic, trading performance across all of our lending products has been very strong in the first quarter of FY22”

• Steppe Cement (LON:STCM) - 44% gain between 2021-03-31 and 2021-06-30. Steppe Cement, headquartered in Malaysia, operates as an investment holding company focused mainly on cement production and sales. The company’s financial statements for 2020 (published in 2021) contained several bullish points. Net profit rose 14% to $11.1 million, while EBITDA edged up from $23.9 million to $24.2 million. Export volumes also grew by 20%, keeping pace with broader market trends.

The Superinvestor of Slaterville

Many will argue that Slater was just lucky. After all, in a large enough group, a handful of coin-flippers are bound to land ten heads in a row purely by chance. This was precisely the point Warren Buffett made in The Superinvestors of Graham-and-Doddsville. He imagined a national coin-flipping contest in which 225 million Americans each flipped a coin once a day. After ten days, probability dictates that about 215 people would have flipped ten consecutive heads — not due to skill, but to random luck.

But then Buffett introduced a key insight: what if all the successful coin-flippers — or investors — had attended the same school? In that case, he suggested, ‘you might want to see if you could identify concentrations of unusual characteristics that might be causal factors.’ In other words, if the winners all shared a common background or approach, it would be worth exploring whether something more than chance — a method or philosophy — was behind their success.

Jim Slater’s approach, like those of the ‘superinvestors’ from Graham-and-Doddsville, clearly does not rely on random selection. Instead, it focuses on stocks that meet specific, targeted criteria. We can clearly see Slaterville in the top-right corner of the charts.

Investors applying the ‘Capitalist’ criteria would have gained exposure to distinct segments of the market — the growth segment, the quality segment, and the value segment. This approach would have ensured stocks were exposed to various factors that drive share price returns.

• One key factor is value — historically, stocks that are relatively inexpensive have outperformed those with high price tags. Slater gained exposure to value by hunting for companies with a low P/E and a high yield.

• Another factor is quality — firms that are consistently profitable, financially sound, and generate strong cash flows typically deliver better returns than companies that are unprofitable, heavily indebted, or struggling to maintain liquidity. Slater gained exposure to quality by hunting for stocks with a strong balance sheet.

Our algorithms generate rankings — ValueRanks, GrowthRanks, and QualityRanks — which are plotted on the chart. Each rank reflects how strongly a company is exposed to a specific factor, with higher scores being indicative of greater alignment with that particular factor.

The Times They Are A-Changin'

In 1992, Jim Slater introduced a new set of investment criteria in his book The Zulu Principle. Our Zulu GuruScreen, inspired by Slater’s approach, applies the following investment filters:

1. PEG ratio below 0.75 — indicating growth at a reasonable price;
2. Price-to-Earnings (P/E) ratio under 20 — avoids overvalued stocks;
3. Earnings per Share (EPS) growth over the past year above 15% — selects companies with strong recent growth;
4. 1-year relative strength greater than 0% — focuses on stocks outperforming the market;
5. Return on Capital Employed (ROCE) above 12% — ensures efficient, profitable use of capital;
6. Market capitalisation between £20m and £1b — targets small- to mid-cap growth opportunities.

We simulated the performance of the Zulu approach between 2011 and 2025. While it didn’t quite match the returns of Slater’s Capitalist portfolio (1963–65) it still delivered solid gains… over a much longer time period.

By adapting his approach, Slater was able to sustain a strong performance over time. But what exactly did he change? First, he used different metrics. In the early 1960s, Slater used a range of separate metrics to identify undervalued growth stocks — including the yield, the P/E ratio, and EPS growth. By 1992, he introduced a composite measure: the PEG ratio. This divides a company’s P/E ratio by its EPS growth rate. A lower PEG suggests that the stock could offer growth at a low price.

Slater also increased his exposure to two factors that drive returns: size and momentum. He started to focus on companies within a specific market cap range, deliberately targeting small, dynamic growth stocks. He summarised his thinking with a one-liner, ‘Elephants don’t gallop’ — i.e. bigger companies have less scope to deliver rapid earnings expansion. It’s also important to highlight that Slater introduced momentum into his strategy. Momentum is the idea that stocks with strong recent performance tend to continue rising. Slater started to target companies with positive relative strength — i.e. companies that were beating the market.

While Slater consistently targeted Quality-Growth shares, he increased his exposure to Quality-Momentum over time…

To pivot toward momentum, Slater had to overcome certain cognitive biases. He was a trained accountant and his early emphasis on liquidity and balance sheet strength was perhaps a reflection of the classic ‘man with a hammer’ syndrome. If to the man with a hammer, everything looks like a nail, then to the investor who is an accountant, every stock is a balance sheet. He initially sneered at the idea that future returns could be predicted by simply looking at historical share prices. In 1992, he wrote:

“About twenty years ago, I observed that chartists usually had dirty raincoats and large overdrafts… Even now I do not know many rich chartists.”

Over time, Slater’s view changed, apparently accepting the wisdom of crowds — i.e. the idea that the market’s collective judgment can be more accurate than that of an individual investor.

“I give technical analysis much more credence than before…Other investors may be selling after becoming aware of problems that you have not yet identified… If the shares are not keeping up with the market, you should be on red alert.”

Conclusions, key takeaways and next steps

I always wondered why Jim Slater was not more of a household name. He was hugely influential in financial and economic circles. The older generation mentioned him now and again. And yet, he seems to have slipped through the cracks of history, never quite getting the recognition he deserved. Then it occurred to me that history is supposedly written by the winners. For a while, Slater found history working against him. He was wiped out in the crash of 1973 and retired to write children’s books. The fates had been cruel. Slater was condemned to the status of a ruined financier… a harsh reminder that 'rags to riches' stories can play out in reverse. 

But Slater proved himself as the comeback kid and eventually had the last laugh. He reestablished himself as an investment guru with The Zulu Principle and a series of other books. These books were my own introduction to investing. When he passed away in 2015, many investors reflected on the debt they owed to his work. Anyone interested in learning more about Slater’s career should check out Adam Curtis’ documentary, The Mayfair Set.

Perhaps most remarkable is how Jim Slater evolved his investment approach over several decades, adapting to changing market conditions and bouncing back from failures in the early 1970s.

Readers hoping to invest like Slater can follow these key steps...

• First, align with the factors that drive returns. Slater consistently exposed his portfolio to value, quality, and growth, and over time, he incorporated size and momentum into his strategy.

• Second, adapt with the times. Slater managed a successful portfolio from 1963 to 1965, achieving strong results that we were unable to replicate in the 2020s, using similar rules. Slater recognised the need to evolve, especially by revising his views on momentum, with the result that his 1992 approach generated solid returns (see below).

• This leads to the third requirement for long-term success: the willingness to question and overcome our own biases. As a trained accountant, Slater initially favoured balance sheet strength and was skeptical of price trends, but he ultimately overcame these biases and targeted shares beating the market.

Feel free to explore our GuruScreen, designed to align with Jim Slater’s Zulu Principle strategy.