Book Review: The Zulu Principle

Jim Slater was an investment guru, who while bedridden after a viral illness, started to analyse shares - he was motivated by the fear that he would not be able to work again and was looking for an alternative income. In the 1960's, he published an article in The Sunday Telegraph, outlining the bones of his approach, and The Zulu Principle is essentially an expansion of those initial ideas.

His ideas are a modification of the ideas of great American investment guru Benjamin Graham, but where Graham looks purely to find Value shares, Slater is looking for growth shares, but underpins this search with some of Graham's criteria to protect his downside.

The book is lucidly written and easy to follow. I have tried out his main method of selecting shares - looking for shares with a high PEG factor, (P/E ratio divided by estimated growth rate in earnings per share), over the last five years. My conclusion is that it is very hard to find shares that meet the criteria (some years you don't find any at all, and usually there is just one or two), but when you do, you make a very decent profit. This method suits people who are patient and happy to stay away from the market when there is nothing worth buying (one of the great downfalls of investors is a tendency to over-trade).

The book also has a fascinating chapter on Creative Accounting - the tricks whereby companies try to flatter their accounts and persuade investors they are doing better than they really are. Given that this is the biggest risk for investors, the book is worth buying just for that chapter alone. He also goes to great lengths to explain the cashflow statement and the importance of liquidity - again something fundamental, as companies with poor cashflow inevitably do badly.

I would definitely recommend the book - it's one of the best primers on investing on the market.