Mark Slater, Chairman of Slater Investments tells us about the highs and lows of being a fund manager, his best and worst investments and what private investors can do to become better investors.
How did you get into fund management?
I was always interested in investment from a young age because my father would talk about it in an exciting way.
I made my first investment around the age of 16. I was keen to be involved in that world but wasn’t quite sure how. I briefly worked in a large investment firm but I didn’t particularly like that. So I moved into financial journalism, which was very good. The bulk of the time I spent in financial journalism was at the Investors Chronicle, where you meet four companies every day. You had to write about them so it was a really good way of covering the whole market. At the end of a year doing that, you really have got a lot of exposure to a lot of different types of companies. And during that period and from the age of 16, I was investing my own money.
When I was a journalist, I also discovered leverage, which was a very exciting thing. At the time, you could get 33-1 leverage – you can’t get that any more. But there was a put and call option structure you could use to create gearing. Particularly in ‘92/’93, I had a very, very strong period. I had all that audited and then I used the audited numbers to talk to potential clients, and then I set the business up in 1994.
In those days, you could do it relatively straightforwardly. Nowadays, you would need many millions of pounds to set up a fund management business because of all the regulatory headaches and costs. In those days, you needed very little capital. The regulator was very keen to have new entrants into the market. I had a friend who became involved who had a lot of experience on the regulation side, which was important, but you didn’t need vast amounts of capital. So as long as you could demonstrate that you had an income into the business, and obviously, we kept our costs incredibly low, you could get authorised. The hard bit is finding the clients. But with a couple of small clients, we were able to demonstrate enough revenue to start.
What does a typical day look like for you as a fund manager?
One of the big changes in the last 20 years has been the number of times companies report each year. They used to report an interim, a final and maybe one other statement during the year. Now they report six or seven times a year. So part of the work is responding to the relevant announcements of the day. You obviously have to look at them if you own them or if they are on the watch list.
The other part of the work is following up on companies that come out of our searches. There’s a lot of overlap obviously. We’ve been doing it a long time so it’s not as if there are dozens of new companies we need to look at each day. There is a small number that emerges from searches that we haven’t already looked at. Reacting to results and companies’ news flow, and some days, you could get eight companies on the same day – you could even get a dozen – and some days, there are none. There are certain seasons that are busier than others and certain weeks in the year that are incredibly busy and others are less so.
I would say on a normal day, the team will be meeting somewhere between four and eight companies. I won’t meet all of those companies personally obviously. We’ll have a meeting as a team every day as well; some of those meetings are longer than others and we have at least one a week which is a much longer, deeper dive into what we’re doing. There is a lot of reading. In addition, we have to devote some time to meeting existing and prospective clients.
How do you find having meetings via video conference versus meeting face to face?
You do get to know people better if you’re in a room with them. It’s different. It’s quite hard to pin down quite why that is, but it just is different.
Having said that, video is more efficient. When a company has results normally, they might spend up to a week doing meetings; if they’re in London, they’re going back and forth between the City and the West End, and each time they do that, it can take them up to an hour to go the four miles between the two. Now, they don’t have to do all that, so it’s much more efficient for company management.
We’re very lucky in our industry that we’ve been able to adapt relatively easily, compared with most other businesses. You do lose something as a team if you’re not together, but it works pretty well because of the work that went in prior to Covid to ensure that everybody’s working well together. If you had a brand new team that hadn’t worked together, it’d be a very different story. It’d be much more complicated. I think that’s an important caveat.
We’ve been able to adapt pretty quickly and easily. We have a morning meeting, which is online. We meet companies and we can read about them. So our key day to day activities are the same but slightly different.
What are the best things about being a fund manager?
The best parts are finding a great business and being right.
Identifying a business very early or relatively early that turns out to be a phenomenal success, where you’ve taken a view, you’ve done a lot of work, and you’ve been proven right. Now you also make money doing that and that’s an important part of it. But it’s a very satisfying feeling to identity something, take a view that isn’t necessarily completely obvious at the time, or is not obvious to everybody, and for it to play out well. It’s a great thing when you see a small business become a much larger business. It is an exciting thing in and of itself. So I think identifying companies and being proven right is very satisfying.
I would also say that just meeting different businesses and understanding how the world works through those businesses is also very interesting. Just in one’s day job, one is always finding out what makes things work, because you’re meeting companies that make all kinds of weird and wonderful things that one takes for granted in one’s normal life. That’s interesting, really understanding the plumbing of how things work.
What’s been the most interesting sector you have invested in?
Most of our businesses are relatively easy to understand but we occasionally look at sectors that have wildly different characteristics, and being on a learning curve is interesting. Having to understand the dynamics of a business in the medtech world or a business that’s involved in the mining world. We haven’t got anything like that now but we have in the past. Those are radically different businesses. Most businesses that we focus on are quite niche. They tend to be doing one or two things very well. They could be operating in a global market but in a relatively narrow area. Most of the businesses we get involved in are actually relatively easy to understand, even if the businesses may be different and the sectors may be different.
But the lens through which we see things is the same. We’re always looking for businesses that have a good record of profitability, that generate cash, where there’s a high level of forecastability as to that continuing and accelerating going forward. We’re looking at things through that lens, which does simplify the process a lot, because there are a whole lot of businesses that are quite complicated, which we don’t go near because we’re not able to tick those boxes early in the process.
Do you ever get actively involved in the companies you invest in?
The ideal business is one where you’ve got a good business and a good management team, and you have to do very little. That’s ideal. So that’s what we aspire to. We aspire to doing as little as possible.
That doesn’t mean doing nothing in the sense if you have a good idea, you meet management, you talk about it and just stress test their ideas. If you’ve got a good management team and good business, you shouldn’t be doing more than that really. You try and understand things. You occasionally suggest things, but it’s not more than that.
When things go wrong, then you have a choice as to whether you get out, and if you can get out at a good price, that’s normally the right thing. Or if you can’t get out at a good price, you’ve got to fight your way out, and that’s where we’ve been more active in the past.
That’s where we’ve become sort of activist, if you like, when something’s gone wrong and we’ve had to roll our sleeves up and try and make it right. There have been a number of examples that can be from removing a key director to removing pretty well a whole board, which we’ve done on one occasion – I think we’re the only fund manager to have actually removed an entire board of a fully-listed company. Bringing a new director in who we think will add something and be able to help strategically. We’ve done all of those things when we’ve had to, and it’s worked very well. I think it’s quite good fun, it’s interesting, but we aspire to a simpler life.
One of the challenges in becoming more activist is getting other fund managers to act. Despite all the noise about activism, people are very reluctant normally to actually do anything. You have to literally gift wrap a solution and take it to people, and then they might come along, but they’re pretty loath to do much most of the time. There’s an element of herding cats in a hostile situation if you’re fighting an EGM or keeping people who said they will support you in line is hard. Partly because you can be up against a management team for whom it’s their day job, and they spend their whole day trying to get shareholders to support them whereas we are not able to focus on only one company.
What’s the worst thing about being a fund manager?
Regulation is a very big problem in fund management. When I started in ’94, our rule book was well-spaced print on A5 paper; the whole rule book was probably three-inches thick. Today, if you printed off the FCA rules on A4 and you used small print, I would think you’d be at 20 feet and still printing.
We rang the regulator in about ‘07/’08 and said we couldn’t find something, could they help us find the index, and they said, “No, no, just use google.” They’d given up, 13 years ago, they’d given up on trying to index their own stuff. That is a runaway train now. They’re adding 25% per annum compound to the amount of paperwork and they can’t be stopped because it’s a body that’s able to create new law but with no Parliamentary scrutiny to slow the process down. It’s a great sadness because, as I said earlier, you know, you would need a lot of funding to start a fund management business today. We started with £25,000 of capital and I would think you would need at least a hundred times that, just to start a very small fund management business today.
I’m not saying there should be no regulation; I think it’s very important. I just think the balance is wrong. When you go from a few inches of rule book to 20 feet in a relatively short period of time and it’s growing relentlessly and no one’s getting rid of old rules, they’re just adding. When I started, if you had a concern or a problem, you’d ring up your regulator and they would answer your question. That doesn’t happen anymore. The response is, “We refer you to the rule book.” Well then you say, “Well, we’re obviously ringing because we don’t think the rule book’s clear enough,” and they go, “We refer you to the rule book.” It’s not helpful anymore.
I don’t think there’s enough thinking. I think there’s a lot of paperwork and not a lot of common sense. There is too much box ticking.
The solution is very complicated. The old system was principles-related whereas now we have a combination of principles and rules, with a much greater emphasis on rules. The regulatory burden has exploded yet the position is less clear for participants than before. It could be a lot better.
Do you remember the first thing you invested in when you were 16?
I remember investing in the jewellery company Ratners.
I got out in ’87 so I did fin. I sold everything I owned on the day of the October ’87 crash. I was actually working in a stockbroking firm at the time in my year before university, and I was able to get people to answer the phone and get out of everything I owned very easily with very little impact.
At the time I bought Ratners, it was growing very quickly and it was lowly valued. There were some flaws with the business that became apparent a couple of years later. But it did okay for me. That wasn’t by any means my best, that was just my first.
What’s been your worst investment so far?
I’ve had a number that have gone to zero or close to zero in my life – a handful that by definition are the worst. The worst I had was in ‘94/’95. I didn’t do enough work on the way in and I trusted way too many people who certainly should not have been trusted.
And what about the best? What’s been your best investment so far?
There have been lots we’ve had that have gone up ten times or more, which is a good threshold for something where you can feel pretty happy. Over the years, we’ve had quite a lot like that, Hutchison China, one of our holdings, is a 25-bagger. Future, our largest holding, is probably a ten-bagger. Cape went up 35 times in a few years, but that was coming out of the last crisis. They got to a very, very low price where we bought a lot more shares and then they shot up over the next few years. Galahad, which was a company that I was involved with as a director, was a 20-multiple on cost. There have been a lot of really good ones, which are great when they happen.
What do you think about Future’s bid for GoCompare?
It’s not immediately obvious, that deal, but we are comfortable that it makes a lot of sense. In fact, we had a meeting with the company today and we had one before they announced the transaction. So I’m comfortable but as it’s not immediately obvious, people need reassuring. There is an awful lot they can monetise in GoCompare, a lot of things they can probably monetise better than GoCompare can. It takes them into some new markets, which is interesting. I think it’ll prove to be a very good deal.
What is your favourite book on investing?
The one that was most useful for me was my father’s book, The Zulu Principle. I did all the editing and the research for that book, which, at a formative stage in my life, was incredibly valuable.
It’s stood the test of time, not all the examples in the book but the principles are still highly pertinent and very, very well explained and very clear, and have absolutely stood the test of time. I would highly recommend that book. If you want to invest in fast-growing small and medium-sized companies, that is a brilliant book.
Prior to that, I read things like Intelligent Investor, which is a must-read in my view. I really enjoyed, I remember when it came out – this came out in about ‘89/’90 – Peter Lynch’s book, One Up on Wall Street, a superb book. There are lots and lots of others but those early on for me were all very important books.
What do you think is the most common mistake that investors make when managing their portfolio or looking for investments?
The biggest challenge is normally running profits and cutting losses; sounds incredibly simple but I think that is fundamentally an area where there’s a natural tendency to want to take profits early and there’s a natural tendency not to accept one’s wrong and run a loss.
You see that with both professional and private investors and it is incredibly important to try and make sure that you run profits. You’ve got to be confident enough in the proposition to do that, but equally, you’ve got to cut losses. I think that’s the most important.
The other issue also applies to professional and private investors, probably equally, is being faddish. People find it very difficult to resist the latest fashion, the latest theme, the latest fad, and occasionally, these things get very out of control. That’s something I think people need to bear in mind. If they’re going to get involved in a fad, they should at the very least do it early.
Those two things I would say you see quite often.
What would be your golden rule of investing?
If you’re going to invest successfully, you’ve got to have a method.
There are a lot of different methods out there – a lot of them work in different ways – but I’d say you’ve got to have a method that you believe in and that suits you temperamentally. If you want to trade every day, don’t adopt a long-term investment strategy. You’ve got to match your temperament to a method.
There’s nothing easy about investing. You have to put in the work. You’ve got to have a decent method. For private investors, it’s important to concentrate your portfolio in your best ideas as they have an edge in being able to do that compared with most institutional investors.
Mark Slater is Chairman of Slater Investments