In Brief
Zulu Investing is a GARP investing style which uses a combination of growth and value, looking for shares where brokers are forecasting high earnings growth, but which are currently valued at a price that is low relative to their forecast earnings. As Slater puts it: "I have always been attracted to growth shares, particularly those that can be purchased at what I perceive to be a discount to their proper value”.
Background to Zulu Investing
Jim Slater is a UK investment guru who specialises in growth investing. He believes growth shares to be the most rewarding investments, with unlimited upside if the right companies are picked. Slater originally rose to prominence with a share column, “The Capitalist” in the Sunday Telegraph. In 1990 he published his book articulating the strategies and investment criteria that underpinned its success. He called the book The Zulu Principle to illustrate the importance of specialisation, the key to his investment strategy - the name was triggered when his wife started to read up on Zulus and quickly became an expert.
Jim Slater recommends that you specialise in a certain aspect of investing and concentrate your efforts as that way, you should be able to exploit share opportunities that elude the generalist. He also prefers smaller companies that have been undervalued by the market on the basis that:
“Most leading brokers cannot spare the time and money to research smaller stocks. You are therefore more likely to find a bargain in this relatively under-exploited area of the stock market.
In 1993, Jim Slater teamed up with Hemscott to create Company REFS (Really Essential Financial Statistics) to help investors to apply his system by listing key ratios and company information.
What are the Zulu Investing Principles?
Slater’s Zulu Principles are split into categories based on their relative importance. They have been through various incarnations – the list below is based on the 2011 Kindle edition of Beyond The Zulu Principle:
Mandatory Criteria
- A low PEG (price-earnings ratio relative to the growth rate) below, say, 0.75
- A prospective price-earnings ratio less than 20 – “the preferred range for a P/E is 10-20 with forecast growth rates of 15-30%”. He is wary where growth exceeds these levels, as that sort of growth rate is usually unsustainable.
- Strong cash flow per share in excess of earnings per share (EPS), both for the last reported year and for the…
