This is the last book I read. Copypasting its review from my investing blog
Book Review  The Little Book That Makes You Rich by Louis Navellier
Introduction:
This is 3rd book I read in “Little Book Big profit” series. The 1st one was “The little book that beats the market” by Joel Greenblatt where he explains his magic formula based on ROE and Earning Yield (1/PE). The 2nd one was “The little book that builds wealth” by Pat Dorsey, where he rightly advocated on investing in stocks with moat.
In this book Navellier explain his growth investing stock approach, which at surface looks like a extension of Greenblatt’s magic formula. Rather then using just 2 variables of magic variables, he uses 8 parameters to select stocks. Those are:
 Increasing EPS revisions
 Positive EPS surprises
 Increasing Sales growth
 Increasing Margin
 Strong Cash Flow
 Earning growth
 Positive earning momentum
 High ROE
Rational behind Navellier’s Approach:
Navellier is very good in maths, and he use a pure number based approach. His approach will be a big disappointment for those who feel number based approach only tells story about the fact, and nothing about the future growth potential. His rational for using number based approach comes from behavioral finance and human’s psychological limitations, along with some nice observations on how market works. Here are his reasonings
 Using numbers one can see slowing earning growth/price volatility (Enron was a huge growth story before its earning slowed down and gone kaput)
 Numbers doesn’t have emotions. Human’s emotional shortcomings which can be overridden by numbers
 Gambler’s fallacy : Believing that the probability of getting a head is higher after getting 5 consecutive heads
 Falling in love with stocks/idea : People tend to fall in love with stocks and idea, especially the one have rose heavily.
 Hindsight theory : Everyone see in coming (like subprime crisis). No one exit at right time and loose money. Using a number based approach one can see these trends well in advance
 **Rearview mirror effect **: People are usually more influenced by what happened recently than by what is happening now – Buying @peak, Selling @Bottom
 80% of the folks thinking they are better than the average
 Like to have our views confirmed by other/socalled experts.
 Congradulating ourself for our success and blaming others for our failures
Details on the parameters he uses:

Increasing Earning Revisions : <<Mostly a US market theory>>
 Analyst tends to be on the lower side so as not to be blamed when the real result is far less than estimate
 Too many bullish estimate missing the target  the analyst will loose a well paying job
 Hence analyst don’t revise target unless there is a compelling reason to do so

Earning Surprises :
 Growth stocks are valued on expected future earnings; future earnings are found out by using models by the analysts
 Earning surprises forces the model upgradation, resulting in increased future earning estimate, and hence increased price
 Regular earning surprises → Growth mega star

Sales Growth :
 Sales numbers are usually very difficult to massage by accounting glimmics
 Key observables : QoQ sales growth, Yoy sales growth
 2 reasons why there can be sales growth
 Popular product → best selling stuffs
 Supply demand imbalance
 Company that shows lasting growth in sales are going to produce returns that are not dependent on overall market or economy
 Slowing sales growth is ==> Fastest way to get kicked out of his portfolio

Free Cash Flow
 More free cash flow implies
 financing of new business by internal accruals
 pay and raise dividends
 Stock buyback
Details on the parameters he uses:
 More free cash flow implies

Risk
 He don’t use beta as a measure of risk
 He measures reward/risk as alpha/Standarddeviationofalpha as the measure of risk. SD is calculated on last 1 yr data
 He grades all the stocks as A, B, C, D, E based on reward/risk ratio

Zigzag approach of investing
 Observation : Few of the stocks have positive beta, few have negative beta
 Approach : Multiobjective optimization of selection of stock with the aim of
 Maximizing alpha
 beta as close as zero
 60/30/10 approach
 60% : conservative stock
 30% : Moderately aggressive stock
 10% : Aggressive stock
Conclusion:

It is a well known fact that growth investing outperform value investing in long run; and being the 1st book I am reading on growth investing, I loved it

One area where I differ with it is on risk. Though I am not a big fan of use of greek bearing formula for calculating risk, but his measure of reward/risk make sense to me. I prefer to have a smooth positively growing difference between my portfolio return and sensex return with minimum volatility in the curve. This boils down to something like alpha/SDalpha approach

Many reviews present in the web, tends to tell that they didn’t enjoy this book as the other book in this series. I must say I enjoyed this book till the chapter on zigzag investing. After that I pretty much skimmed through rest of the chapters, which I found not so educating.**
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Other reviews of same: 
http://www.thesimpledollar.com/2007/10/19/reviewthelittlebookthatmakesyourich/

http://www.onlineinvestingai.com/blog/reviewofthelittleblackbookthatmakesyourrich/

http://behaviouralinvesting.blogspot.in/2007/11/littlebookthatmakesyourich.html **
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