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The Zulu Principle: Making extraordinary profits from ordinary shares
Jim Slater's classic text brought back into print
Jim Slater makes available to the investor - whether the owner of only a few shares or an experienced investment manager with a large portfolio - the secrets of his success. Central to his strategy is The Zulu Principle, the benefits of homing in on a relatively narrow area.
Deftly blending anecdote and analysis, Jim Slater gives valuable selective criteria for buying dynamic growth shares, turnarounds, cyclicals, shells and leading shares. He also covers many other vitally relevant aspects of investment such as creative accounting, portfolio management, overseas markets and the investor's relationship with his or her broker.
From The Zulu Principle you will learn exactly when to buy shares and, even more important, when to sell - in essence, how to to make 'extraordinary profits from ordinary shares'.
Jim Slater makes available to the investor - whether the owner of only a few shares or an experienced investment manager with a large portfolio - the secrets of his success. Central to his strategy is The Zulu Principle, the benefits of homing in on a relatively narrow area.
Deftly blending anecdote and analysis, Jim Slater gives valuable selective criteria for buying dynamic growth shares, turnarounds, cyclicals, shells and leading shares. He also covers many other vitally relevant aspects of investment such as creative accounting, portfolio management, overseas markets and the investor's relationship with his or her broker.
From The Zulu Principle you will learn exactly when to buy shares and, even more important, when to sell - in essence, how to to make 'extraordinary profits from ordinary shares'.
322 pages, Hardcover
First published November 28, 1992
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341 people want to read
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Displaying 1 - 8 of 8 reviews
August 21, 2018
During the summer InvestingByTheBooks will review some older books that we never got around to writing about although we think they are important. First out is Jim Slater’s The Zulu Principle written to his son who had shown an interest in investing. The book is seen as growth investing classic but it’s rather more than this – it’s an argumentation for focus investing. Jim Slater, today aged 86, is the British chartered accountant, Sunday Telegraph columnist and Leyland Motors employee who turned corporate raider before the term even existed and was during a period the dominating figure of the City of London. In his investment company Slater focused on companies with underutilized assets – be they physical or human – and then after a take-over stripped the companies of the excesses. Not a practice seen with much approval in pre-Thatcher Britain.
In the book Slater instead takes the viewpoint of his son, the minority investor. The main point that has given book its name is that to have an edge over competition an investor needs to focus on a niche that suits his temperament and then perfect his execution within this his circle of competence. By devoting a “disproportionate amount of time and effort [to] a clearly defined and narrow area” you become the expert in the field. “Investment is essentially the arbitrage of ignorance.”
Large well-known companies are thoroughly analyzed making it hard to have an edge. In general a smaller portfolio investing in smaller companies will then have an advantage. To help the reader choose among niches that have potential to be profitable, Slater lists and discusses five options: 1) small dynamic growth companies, 2) turnaround situations and cyclicals, 3) shells, 4) asset situations and 5) leading stocks. “You will achieve you objective, like Montgomery and Napoleon before him, by concentrating your attack.” After choosing a strategy an investor should hold a portfolio of 10 to 12 stocks and never have less than 50 percent of his investment assets in stocks.
The first niche is clearly the author’s own favorite choice and the description of investing in small dynamic growth companies covers almost half the book. To choose among prospective investments Slater lists a number of investment criteria that a modern day quant would describe as a combination of value, growth, size, momentum and quality factors. Chief of the factors is the PE- ratio in relation to the growth rate and the PEG- ratio should ideally be below 0,66. According to the author the best bargains can be found among under-analyzed small companies with growth rates of 15 to 25 percent. The quantitative system is relatively similar to William O’Neil’s more well known CAN-SLIM-system, but were O’Neil add technical analysis to the quantitative screening to aid investment timing, Slater add fundamental analysis of companies competitive advantage.
The other niches are described in much less detail. With turnarounds timing is paramount and triggers like a change in management could imply a rebound. In investing in “shells” the investor buys a basket of companies with “nondescript businesses of little account and occasionally some cash” and wait for them to be taken over by someone who whants a back-door quotation for his company. Asset situations refers to the Ben Graham type of asset based value investing and Slater requires the Price- to-Book and the Debt-to-Equity ratios to be max 0,5 and the company must show some profit and it should be in an industry with okay prospects. Finally, “leading stocks” is basically applying the same type of quantitative checklists to large cap companies trying to improve the investment track record in this area.
As you would expect of a book written to the author’s son the writing is simple and easy – and fun - to read. This doesn’t mean that Slater has backed away from writing a book that is meant to beat the investment professionals at their own game. Few books are equally well suited in helping a prospective young investor raise his game.
In the book Slater instead takes the viewpoint of his son, the minority investor. The main point that has given book its name is that to have an edge over competition an investor needs to focus on a niche that suits his temperament and then perfect his execution within this his circle of competence. By devoting a “disproportionate amount of time and effort [to] a clearly defined and narrow area” you become the expert in the field. “Investment is essentially the arbitrage of ignorance.”
Large well-known companies are thoroughly analyzed making it hard to have an edge. In general a smaller portfolio investing in smaller companies will then have an advantage. To help the reader choose among niches that have potential to be profitable, Slater lists and discusses five options: 1) small dynamic growth companies, 2) turnaround situations and cyclicals, 3) shells, 4) asset situations and 5) leading stocks. “You will achieve you objective, like Montgomery and Napoleon before him, by concentrating your attack.” After choosing a strategy an investor should hold a portfolio of 10 to 12 stocks and never have less than 50 percent of his investment assets in stocks.
The first niche is clearly the author’s own favorite choice and the description of investing in small dynamic growth companies covers almost half the book. To choose among prospective investments Slater lists a number of investment criteria that a modern day quant would describe as a combination of value, growth, size, momentum and quality factors. Chief of the factors is the PE- ratio in relation to the growth rate and the PEG- ratio should ideally be below 0,66. According to the author the best bargains can be found among under-analyzed small companies with growth rates of 15 to 25 percent. The quantitative system is relatively similar to William O’Neil’s more well known CAN-SLIM-system, but were O’Neil add technical analysis to the quantitative screening to aid investment timing, Slater add fundamental analysis of companies competitive advantage.
The other niches are described in much less detail. With turnarounds timing is paramount and triggers like a change in management could imply a rebound. In investing in “shells” the investor buys a basket of companies with “nondescript businesses of little account and occasionally some cash” and wait for them to be taken over by someone who whants a back-door quotation for his company. Asset situations refers to the Ben Graham type of asset based value investing and Slater requires the Price- to-Book and the Debt-to-Equity ratios to be max 0,5 and the company must show some profit and it should be in an industry with okay prospects. Finally, “leading stocks” is basically applying the same type of quantitative checklists to large cap companies trying to improve the investment track record in this area.
As you would expect of a book written to the author’s son the writing is simple and easy – and fun - to read. This doesn’t mean that Slater has backed away from writing a book that is meant to beat the investment professionals at their own game. Few books are equally well suited in helping a prospective young investor raise his game.
March 10, 2021
A book well worth reading. My notes below.
Jim Slater was the former auditor and controller who in the 1960s introduced “asset stripping” and “takeover battles” to the London Stock Exchange. During the happy 1960’s and until the stock market crash in 1973, the stock market value of his acquisition platform Slater Walker increased 100-fold. In the aftermath of the stock market crash, Slater lost everything, after which he started again investing privately and wrote some books – one of them being “The Zulu Principle”.
THE ZULU PRINCIPLE. In short, the principle says that if you choose a narrow subject and study it carefully, you quickly become one of the most knowledgeable in the field. The name comes from an example where his wife read an article about the tribe “Zulu” in South Africa. If you read an article in the newspaper, order some books on the subject and then travel to South Africa to meet them, you are quickly one of the country’s most familiar with the subject.
“It is only necessary to be six inches taller than the other people in a room to see above everyone’s heads. Applying the Zulu Principle helps you grow those extra six inches.”
ELEPHANTS DO NOT GALLOP. Slater advocated investments in smaller companies. The reason’s were several; the largest institutions are not there and small companies, precisely because they are small, have better growth opportunities than the large ones. For the past 50 years (the book was written in 1992), small companies outperformed the market by 3.8% annually. However, they are often “out of fashion” for periods of up to several years.
HAVE A SYSTEMATIC APPROACH. By being systematic, you can beat the market by a good margin over time. The important thing, however, is to “walk the line” – you must not change strategy just because it underperformed a year or two. Slater’s “Zulu Principle” is a growth strategy based on the PEG (price / growth). The criteria are briefly described: (1) a PEG ratio below 0.75, (2) a P/E ratio below 20, (3) EPS growth above 15%, (4) positive relative strength to the market, (5) ROCE> 12% and (6) a market capitalization between £20-100m. In addition, he wanted to see low indebtedness, a dividend, the opportunity for a change in perception (we want to buy before a stock becomes a growth darling) and a positive-sounding chairman’s words.
TIMING AND MOMENTUM. Slater believes that a share’s relative strength to the stock market is of great importance when timing the purchase. The stocks that perform best tend to behave like winners already at the time of purchase – that is, have rising share prices. Jim O’Saughnessy, who examined 43 years of data from the Compustat database, found that of the ten highest-yielding strategies, all contained elements of relative strength to the market over the past year.
PROFITABILITY – ROCE. A company’s ROCE (return on capital employed) should be compared with the cost of borrowing capital. If the ROCE is significantly higher, additional borrowing will result in higher EPS, if ROCE is lower, increased borrowing will result in lower EPS. Profitability determines the company’s opportunities for capital raising and expansion. It is important to adjust for intangible assets when calculating ROCE.
INDEBTEDNESS – GEARING. Slater prefers to see a relatively low level of indebtedness in the companies he invests in. Net gearing in excess of 50% can cause problems, especially if a large part of the liabilities are short-term. A heavily indebted company is likely to be fully invested and operationally committed, and thus much more vulnerable than an ungeared company. In addition to the security that redundant funds provide, it also increases the opportunities for opportunistic business in the event of a changed business climate – an option that indebted companies, which may be forced to make forced sales, do not have.
DON’T BE CHEAP ON THE SPREAD. Slater knew that he was often one of the major players in the small company shares he traded in. If you are the largest in the order book, you cannot be so pricey if you want to get through with some transactions. He therefore used to “pay up” a little at the time of purchase and give a little extra discount at the time of sale. This is the price for trading in small company shares, a price that is more than offset by a carefully investigated case.
Jim Slater was the former auditor and controller who in the 1960s introduced “asset stripping” and “takeover battles” to the London Stock Exchange. During the happy 1960’s and until the stock market crash in 1973, the stock market value of his acquisition platform Slater Walker increased 100-fold. In the aftermath of the stock market crash, Slater lost everything, after which he started again investing privately and wrote some books – one of them being “The Zulu Principle”.
THE ZULU PRINCIPLE. In short, the principle says that if you choose a narrow subject and study it carefully, you quickly become one of the most knowledgeable in the field. The name comes from an example where his wife read an article about the tribe “Zulu” in South Africa. If you read an article in the newspaper, order some books on the subject and then travel to South Africa to meet them, you are quickly one of the country’s most familiar with the subject.
“It is only necessary to be six inches taller than the other people in a room to see above everyone’s heads. Applying the Zulu Principle helps you grow those extra six inches.”
ELEPHANTS DO NOT GALLOP. Slater advocated investments in smaller companies. The reason’s were several; the largest institutions are not there and small companies, precisely because they are small, have better growth opportunities than the large ones. For the past 50 years (the book was written in 1992), small companies outperformed the market by 3.8% annually. However, they are often “out of fashion” for periods of up to several years.
HAVE A SYSTEMATIC APPROACH. By being systematic, you can beat the market by a good margin over time. The important thing, however, is to “walk the line” – you must not change strategy just because it underperformed a year or two. Slater’s “Zulu Principle” is a growth strategy based on the PEG (price / growth). The criteria are briefly described: (1) a PEG ratio below 0.75, (2) a P/E ratio below 20, (3) EPS growth above 15%, (4) positive relative strength to the market, (5) ROCE> 12% and (6) a market capitalization between £20-100m. In addition, he wanted to see low indebtedness, a dividend, the opportunity for a change in perception (we want to buy before a stock becomes a growth darling) and a positive-sounding chairman’s words.
TIMING AND MOMENTUM. Slater believes that a share’s relative strength to the stock market is of great importance when timing the purchase. The stocks that perform best tend to behave like winners already at the time of purchase – that is, have rising share prices. Jim O’Saughnessy, who examined 43 years of data from the Compustat database, found that of the ten highest-yielding strategies, all contained elements of relative strength to the market over the past year.
PROFITABILITY – ROCE. A company’s ROCE (return on capital employed) should be compared with the cost of borrowing capital. If the ROCE is significantly higher, additional borrowing will result in higher EPS, if ROCE is lower, increased borrowing will result in lower EPS. Profitability determines the company’s opportunities for capital raising and expansion. It is important to adjust for intangible assets when calculating ROCE.
INDEBTEDNESS – GEARING. Slater prefers to see a relatively low level of indebtedness in the companies he invests in. Net gearing in excess of 50% can cause problems, especially if a large part of the liabilities are short-term. A heavily indebted company is likely to be fully invested and operationally committed, and thus much more vulnerable than an ungeared company. In addition to the security that redundant funds provide, it also increases the opportunities for opportunistic business in the event of a changed business climate – an option that indebted companies, which may be forced to make forced sales, do not have.
DON’T BE CHEAP ON THE SPREAD. Slater knew that he was often one of the major players in the small company shares he traded in. If you are the largest in the order book, you cannot be so pricey if you want to get through with some transactions. He therefore used to “pay up” a little at the time of purchase and give a little extra discount at the time of sale. This is the price for trading in small company shares, a price that is more than offset by a carefully investigated case.
June 1, 2022
Combination of value investing on growth stocks. Some things are dated, like information sources and stockbrokers but the valuing and analysis side is spot on. The book is well worth reading, despite its age, in this current economic environment.
August 3, 2025
Jim Slater came up with The Zulu Principle when his wife read a short Reader’s Digest piece on Zulus and knew more than him in no time. If she grabbed every Zulu book from the local library, she’d likely be a top expert in that topic. Studying Zulus for six months at an University could’ve made her one of the world’s best on the topic. The Zulu Principle shows how zeroing in on a specific area, what Buffett calls a circle of competence leads to smarter investing. By sticking to a niche, you can spot unique opportunities others miss.
Whenever someone asks me to recommend books for understanding stock selection, I always suggest two: Coffee Can Investing by Saurabh Mukherjea and The Zulu Principle by Jim Slater. Before someone picks up The Intelligent Investor by Benjamin Graham, they should start with The Zulu Principle by Jim Slater. Coffee Can Investing focuses on ROCE, while The Intelligent Investor emphasizes price-to-book or P/E ratios. The Zulu Principle highlights the Price/Earnings-to-Growth (PEG) ratio and Earnings Per Share (EPS). To excel at selecting strong companies, one should effectively combine these three valuation metrics. In one example, Jim Slater’s analysis of why Coca-Cola is a company that cannot be easily replaced by other beverage brands or lose its market value (moat) is essential reading.
Whenever someone asks me to recommend books for understanding stock selection, I always suggest two: Coffee Can Investing by Saurabh Mukherjea and The Zulu Principle by Jim Slater. Before someone picks up The Intelligent Investor by Benjamin Graham, they should start with The Zulu Principle by Jim Slater. Coffee Can Investing focuses on ROCE, while The Intelligent Investor emphasizes price-to-book or P/E ratios. The Zulu Principle highlights the Price/Earnings-to-Growth (PEG) ratio and Earnings Per Share (EPS). To excel at selecting strong companies, one should effectively combine these three valuation metrics. In one example, Jim Slater’s analysis of why Coca-Cola is a company that cannot be easily replaced by other beverage brands or lose its market value (moat) is essential reading.
September 20, 2018
There's a reason that Jim Slater as been referred to as the Warren Buffett of the U.K. (United Kingdom). Slater is considered to be one of the greatest investors to have lived and The Zulu Principle explains the principles and strategies that earned him that accolade. This book is for the beginner on the more advanced investor. Apply what Slater teaches, and you are sure to become a much, much better investor. I know that I have. Read this book, if you have not already done so. This is an excellent book.
January 22, 2021
One of the few book on Investing that I have read from a British Writer, the book is a cornucopia of Investment wisdom. The author talks about five methods of investing, 1. Small dynamic growth companies with a market capitalization between £5m to £100m 2. Turnaround situations and cyclicals. 3. Shells, listed small companies (Penny Stocks) 4. Asset Situations (Asset plays) 5. Leading stocks in the FTSE-100 (Large Cap Stocks)
The first one is his favorite and he expounds a lot on that method, but he has also covered the other methods really thoroughly.
Checkout the full review of the book in my blog.
http://investments-manofallseasons.bl...
The first one is his favorite and he expounds a lot on that method, but he has also covered the other methods really thoroughly.
Checkout the full review of the book in my blog.
http://investments-manofallseasons.bl...
December 19, 2014
These great investing rules are laid out and explained in an extremely easy-to-understand way.
I like the summaries at the end of each chapter also.
I'm pretty sure all the theories are still valid. The edition I read was published in 2008 so I'm assuming Slater made a review of his original work first published (in the 80s?)
I like the summaries at the end of each chapter also.
I'm pretty sure all the theories are still valid. The edition I read was published in 2008 so I'm assuming Slater made a review of his original work first published (in the 80s?)
August 27, 2021
I like the investment philosophy this book has. It’s interesting to be exposed to new ideas like this.
Displaying 1 - 8 of 8 reviews