Mark Slater's presentation at the Mello Bloomberg Event on 12th March 2015

I attended the Mello Bloomberg investor event last night and what a good event it was; some excellent speakers and “refreshments" afterwards in Bloomberg's high tech office in Finsbury Square.

The first speaker was Mark Slater, the manager of the Slater Growth Fund, who has a superb record over the near 10 years since launch of the Fund in March 2005. It is up some 280% v around 120% for its benchmark, the IMA UK All Companies Sector.

Cumulative performance to 31st January 2015:

 Individual years to 31st January 2015:

The Slater Growth Fund is one of those that I benchmark myself against; if I can't beat him I might as well give up and invest in his fund. I often have a glance at his Portfolio to find ideas to follow up. Since launching the JIC Portfolio in 2012 it was up some 89% over the three years to 31st January compared to 65% for the Slater Growth Fund; I need to keep that performance going! He described his investment approach and made some excellent observations, notably that he believed private investors had a distinct advantage over institutional fund managers; private investors can move more quickly and are also able to run more concentrated portfolios. He said that if he was managing a private portfolio “personally there was a strong argument for having only 5-10 holdings!"

What Slater looks for in an investment:

• Low PE relative to growth; unashamedly he is a GARP man thinking that pigeonholing oneself in either Value or Growth is fine but not for him. Ideal company might be on about 15x forecast earnings and a PEG Ratio (PE Ratio/earnings growth) of 1.0 (i.e. 15% earnings growth).
• Strong cash flow; it's all very well looking at earnings per share but they can be, and often are, manipulated. Cash flow per share is the real measure of the strength of a company.  It's okay if a growing company has a short period of poor cash flow providing it is investing for growth but he would want to understand why and expect it to be positive over 5 years. Free cash flow is very important; it's what pays the dividends.
• Positive recent trading statement; he likes investing in companies that are doing well now; I liked that as all too often investors, me included, are blinded by the excitement of the upside if such and such a company achieves success in two years' time; so called “blue sky" companies. Investors invariably pay far too much for the “potential" which is rarely delivered.
• High Return on Capital Employed and margins. It says something about the quality of the company and its potential to keep on delivering growth for shareholders.
• Rising sales per share; too many companies are easily seduced into issuing new shares to fund acquisitions or growth, by investment bankers greedy for fees. Sales per share growth demonstrates that you have found a company where management is really growing the company organically and adding value.
• Directors dealings; it's good to see directors buying shares in their own company
• He likes “clonable" businesses; Dominos Pizza is a classic example where it has been able to open more and more franchised stores at little capital outlay thus driving increasing cash flow and returns. Tremendous operational gearing in the company from new openings.
• He doesn't like IPO's; the odds are stacked against you! He showed a compelling chart showing the poor performance of IPO's over time. They are invariably overpriced and the people who are selling the company know more about it than you. When you buy shares in an existing listed company there is every chance that you know as much, if not more than the person who is selling!  The same chart showed that the longer the listed life of the company the better performance has been. He likes “a company to have a bit of history".

Other little gems:

• Keep it simple. Simple businesses; if too complicated don't go near it.
• Einstein's 8th wonder of the world: Compounding; those who understand it receive it, those who don't pay it!
•  T-Rowe Price; cardinal sin is treating a really exceptional holding like the rest of them!
•  Don't buy hope!

He finished by talking about three stocks which he is currently keen on:

Hutchison China Meditech; it has been a great performer on the back of its exposure to growing health care spend in China which he expects to continue. In addition it has a potential pipeline of new drugs, whose development is being funded by big pharmaceutical companies, which he thinks could add $3-5bn on to the current valuation of HCM of around $1bn. Chinese companies listed on AIM do not have a great reputation or record but in this case there is a degree of comfort from it being a subsidiary of Hong Kong based Hutchison Whampoa, which has a long history of looking after its minorities.

The other two companies mentioned were Dotdigital and First Derivatives. Dotdigital is an example of a company that is currently taking a growth pause as it invests to grow its business internationally. He expects a huge payoff from this investment from mid 2016 onwards. First Derivatives is a relatively recent acquisition; the company provides software and consulting services to the investment bank market, the derivatives technology industry, the foreign exchange market and the provision of technology sales services to the information technology sector. Slater believes it is currently in a “sweet spot".

Conclusion: A highly entertaining talk with some great insights. I will follow up on some of the investments mentioned and check the JIC Portfolio against the list above; I know there are a few stocks that would fail!

To go to the Slater Investments Website click HERE