Book Review: "The Zulu Principle: Making Extraordinary Profits from Ordinary Shares"
The Zulu Principle was first published in 1992 with several reprints having been distributed since. Be aware that the new editions don’t vary much from the original so if you have a copy of the original then don’t purchase a newer edition. Also, some of the material is out of date, such as asking your broker for a "Datastream relative-strength chart" as well as the photos (old technology etc.). However, don’t be mistaken: the principles contained in this book remain as valid now as they were back in 1992.
The author is Jim Slater (b. March 13, 1929) who founded Slater Walker an investment company famous for corporate raids and the subsequent stripping of company assets. Slater Walker ran into difficulty and was taken over by the Bank of England in 1975. It was during this time that Slater declared himself a "minus millionaire" where his debts exceeded the GBP1m barrier. The debts were repaid with interest in a few short years.
The name of the book is derived from an experience that Slater’s wife had when she read a four-page article about Zulu people. Jim realized that if his wife then had gone to the library and carefully read all those books about Zulus then his wife would be more knowledgeable about Zulus than most people in her county. If his wife had then gone to live in a Zulu kraal and studied all the literature on Zulus at a South African university then she would be a leading authority regarding Zulu’s in Britain and perhaps the world. Slater then compares this approach to studying small-cap stocks showing that a little research can go a long way.
The Zulu Principle is primarily a book about investing in growth stocks although there are chapters regarding strategies such as cyclical, turnarounds, shells, asset situations and value investing. The book is British so all examples and text are based on FTSE constituents and denominated in British Pounds. The word "shares" is a British term for "stocks."
There are 20 chapters in the book as follows:
1. Winning
2. Small Dynamic Growth Shares
3. Earnings, Growth Rates and the PEG Factor
4. Creative Accounting
5. Liquidity, Cash Flow and Borrowings
6. Something New
7. Competitive Advantage
8. Momentum and Relative Strength
9. Other Criteria
10. Weighing the Criteria
11. Cyclicals and Turnarounds
12. Shells
13. Asset Situations and Asset Stripping
14. Leading Shares
15. Overseas Markets
16. Your Broker and You
17. Portfolio Management
18. The Market
19. Ten Guidelines
20. Glossary
The first chapter introduces the advantages of the private investor such as investing in smaller companies as they are researched less than the major index stocks and having smaller amounts of cash to work with than institutions. The chapter also details the two basic reasons for stock price growth: the multiple and the EPS and how they relate to each other.
Chapters 2 to 10 detail the main strategy of the book which is namely to invest in growth shares, via low multiples and a low PEG, with additional safety features such as director buying, technical analysis, competitive advantage features, balance sheet strength and what Slater terms "something new" such as acquisitions, new management, new products, etc.
The basic premise of these chapters is that Slater searches for stocks which are growing at a larger rate than the market. For example if the market is forecast to grow at 5% then Slater might target stocks which are currently growing at 15% per annum. Using his criteria the 15% growth stocks can then be vetted with those stocks passing Slater’s criteria being ripe for investment.
Slater lays out his criteria in easy to read and follow form. Most of the chapters end with numbered highlights for a quick review and summary.
There is a lot of useful information in these chapters and if growth shares are your thing then this book is mandatory reading for the beginner/intermediate investor, although very new beginners might find this book a little overwhelming due to the amount of information
My own copy has been read many times and the pages have numerous highlighted and underlined passages. It is the book which made me understand the multiple/EPS relationship and other basics such as calculating the market capitalization, basic balance sheet calculations, looking at creative accounting somewhat in depth, etc.
Just the first 10 chapters make this book worthwhile if Slater’s strategy is followed exactly.
The remaining chapters in the book also provide good tips for investing in different areas such as cyclical and asset situations. The "Asset Situation and Value Investing" chapter covers three systems as used by Ben Graham; however, they barely cover two pages. Strategies with greater risk are covered as well and these include investing in shell situations.
Slater also shows how his PEG system adjusts and works for FTSE 100 constituents. This is an excellent chapter and I have personally made many quick gains on FTSE 100 companies using these details. Overseas stocks are covered too as is portfolio management. Both these chapters contain good points especially the portfolio management chapter which also discusses Warren Buffett’s ‘hold forever’ strategy.
The glossary is different than most glossaries. Usually a glossary is complied by listing important words relevant to the topic. Slater however describes a company and uses terminology in context which makes them much easier to understand.
The book also includes a further reading list as well as a chapter on the market which highlights specific points on signs of both a bull and bear market.
On a personal note I have used Slater’s strategy many times with a very high success rate. Usually my fault has been taking profits prematurely as a few random results show (results picked by opening my Zulu trading book at a random page):
My best gain using this strategy was on West China Cement (HK:2233) where I made a gain of several hundred percent in the space of one year.
I have also used this strategy for a few constituents of my website's portfolio, which is up nearly 50% in just over a year.
In short: This method works.
Personally I have found the book to be very good and useable, enabling me to make healthy profits. The only downside that I can find is that there could be a little more detail about when to sell shares according to technical analysis and that the strategy works best in a bull market. Therefore, it involves trying to time the markets somewhat.
An interview with Jim Slater can be found here: http://www.youtube.com/watch?v=ces3-UaGDAc
The book’s ISBN is 1-58799-095-4.
The Zulu Principle was first published in 1992 with several reprints having been distributed since. Be aware that the new editions don’t vary much from the original so if you have a copy of the original then don’t purchase a newer edition. Also, some of the material is out of date, such as asking your broker for a "Datastream relative-strength chart" as well as the photos (old technology etc.). However, don’t be mistaken: the principles contained in this book remain as valid now as they were back in 1992.
The author is Jim Slater (b. March 13, 1929) who founded Slater Walker an investment company famous for corporate raids and the subsequent stripping of company assets. Slater Walker ran into difficulty and was taken over by the Bank of England in 1975. It was during this time that Slater declared himself a "minus millionaire" where his debts exceeded the GBP1m barrier. The debts were repaid with interest in a few short years.
The name of the book is derived from an experience that Slater’s wife had when she read a four-page article about Zulu people. Jim realized that if his wife then had gone to the library and carefully read all those books about Zulus then his wife would be more knowledgeable about Zulus than most people in her county. If his wife had then gone to live in a Zulu kraal and studied all the literature on Zulus at a South African university then she would be a leading authority regarding Zulu’s in Britain and perhaps the world. Slater then compares this approach to studying small-cap stocks showing that a little research can go a long way.
The Zulu Principle is primarily a book about investing in growth stocks although there are chapters regarding strategies such as cyclical, turnarounds, shells, asset situations and value investing. The book is British so all examples and text are based on FTSE constituents and denominated in British Pounds. The word "shares" is a British term for "stocks."
There are 20 chapters in the book as follows:
1. Winning
2. Small Dynamic Growth Shares
3. Earnings, Growth Rates and the PEG Factor
4. Creative Accounting
5. Liquidity, Cash Flow and Borrowings
6. Something New
7. Competitive Advantage
8. Momentum and Relative Strength
9. Other Criteria
10. Weighing the Criteria
11. Cyclicals and Turnarounds
12. Shells
13. Asset Situations and Asset Stripping
14. Leading Shares
15. Overseas Markets
16. Your Broker and You
17. Portfolio Management
18. The Market
19. Ten Guidelines
20. Glossary
The first chapter introduces the advantages of the private investor such as investing in smaller companies as they are researched less than the major index stocks and having smaller amounts of cash to work with than institutions. The chapter also details the two basic reasons for stock price growth: the multiple and the EPS and how they relate to each other.
Chapters 2 to 10 detail the main strategy of the book which is namely to invest in growth shares, via low multiples and a low PEG, with additional safety features such as director buying, technical analysis, competitive advantage features, balance sheet strength and what Slater terms "something new" such as acquisitions, new management, new products, etc.
The basic premise of these chapters is that Slater searches for stocks which are growing at a larger rate than the market. For example if the market is forecast to grow at 5% then Slater might target stocks which are currently growing at 15% per annum. Using his criteria the 15% growth stocks can then be vetted with those stocks passing Slater’s criteria being ripe for investment.
Slater lays out his criteria in easy to read and follow form. Most of the chapters end with numbered highlights for a quick review and summary.
There is a lot of useful information in these chapters and if growth shares are your thing then this book is mandatory reading for the beginner/intermediate investor, although very new beginners might find this book a little overwhelming due to the amount of information
My own copy has been read many times and the pages have numerous highlighted and underlined passages. It is the book which made me understand the multiple/EPS relationship and other basics such as calculating the market capitalization, basic balance sheet calculations, looking at creative accounting somewhat in depth, etc.
Just the first 10 chapters make this book worthwhile if Slater’s strategy is followed exactly.
The remaining chapters in the book also provide good tips for investing in different areas such as cyclical and asset situations. The "Asset Situation and Value Investing" chapter covers three systems as used by Ben Graham; however, they barely cover two pages. Strategies with greater risk are covered as well and these include investing in shell situations.
Slater also shows how his PEG system adjusts and works for FTSE 100 constituents. This is an excellent chapter and I have personally made many quick gains on FTSE 100 companies using these details. Overseas stocks are covered too as is portfolio management. Both these chapters contain good points especially the portfolio management chapter which also discusses Warren Buffett’s ‘hold forever’ strategy.
The glossary is different than most glossaries. Usually a glossary is complied by listing important words relevant to the topic. Slater however describes a company and uses terminology in context which makes them much easier to understand.
The book also includes a further reading list as well as a chapter on the market which highlights specific points on signs of both a bull and bear market.
On a personal note I have used Slater’s strategy many times with a very high success rate. Usually my fault has been taking profits prematurely as a few random results show (results picked by opening my Zulu trading book at a random page):
Company | % Profit | Time ( Weeks ) |
Healthcare Locums ( HLO ) | 24.88% | 5 |
Healthcare Locums ( HLO ) | 13.59% | 4.5 |
Petrofac ( PFO ) | 18.84% | 5 |
Petrofac ( PFO ) | 14.31% | 6 |
Immunodiagnostics ( IDH ) | 18.41% | 5 |
Immunodiagnostics ( IDH ) | 15.72% | 7 |
My best gain using this strategy was on West China Cement (HK:2233) where I made a gain of several hundred percent in the space of one year.
I have also used this strategy for a few constituents of my website's portfolio, which is up nearly 50% in just over a year.
In short: This method works.
Personally I have found the book to be very good and useable, enabling me to make healthy profits. The only downside that I can find is that there could be a little more detail about when to sell shares according to technical analysis and that the strategy works best in a bull market. Therefore, it involves trying to time the markets somewhat.
An interview with Jim Slater can be found here: http://www.youtube.com/watch?v=ces3-UaGDAc
The book’s ISBN is 1-58799-095-4.
