Summary of “The Little Book that Makes You Rich” by Louis Navellier (2007)

Summary of

Finance and AccountingInvestment Strategies

The Little Book That Makes You Rich by Louis Navellier

Introduction

Louis Navellier’s book, The Little Book That Makes You Rich, is part of the “Little Book, Big Profits” series and offers readers a comprehensive guide to effective investment strategies rooted in growth investing. Navellier is a well-regarded figure in the investment world, known for his proprietary quantitative analysis methods. His book serves as a practical manual for investors aiming to make significant gains in the stock market. The book provides a blend of theoretical knowledge with actionable insights and is packed with concrete examples designed to guide readers toward financial success.


Chapter 1: The Growth Investment Strategy

Major Point:

Navellier advocates for a growth investment strategy, emphasizing the importance of identifying companies with strong earnings growth. He suggests that companies consistently increasing their earnings are more likely to deliver high returns to their investors.

Actionable Advice:

Identify Growth Stocks:
Investors should look for companies with an annual earnings growth rate of 20% or more. This can typically be found in tech companies or innovative firms in emerging industries.

Example:
Navellier cites how investing in companies like Apple and Microsoft in their early stages, when they were demonstrating strong earnings growth, would have led to significant returns over the years.


Chapter 2: Quantitative Analysis

Major Point:

Navellier introduces his quantitative analysis model, which evaluates stocks based on a combination of fundamental and technical factors.

Actionable Advice:

Use Quantitative Models:
Investors should adopt a systematic approach to select stocks, focusing on metrics such as price-to-earnings ratio, earnings per share, and dividend yield.

Example:
Navellier discusses using his quantitative analysis to identify Qualcomm in the late 1990s, well before it was on most investors’ radars. This early identification was key to leveraging substantial growth.


Chapter 3: The Importance of Earnings

Major Point:

He emphasizes the pivotal role of earnings in determining a company’s stock performance. Consistent earnings growth usually translates to rising stock prices.

Actionable Advice:

Monitor Earnings Reports:
Investors should regularly review quarterly earnings reports and compare them against historical performance to assess the consistency of earnings growth.

Example:
The book details how Navellier followed companies like Google (now Alphabet) and Netflix, which consistently reported strong earnings and saw their stock prices surge as a result.


Chapter 4: Screening and Ranking Stocks

Major Point:

Navellier provides a methodology for screening and ranking stocks to identify the best investments. He recommends using a combination of growth and value factors in the screening process.

Actionable Advice:

Implement Screening Tools:
Investors should use stock screening tools available through financial news websites or brokerage platforms to filter stocks based on growth criteria.

Example:
He demonstrates how creating a screening criterion that includes parameters like earnings growth rate, return on equity, and price momentum can help narrow down a list of potential high-performing stocks.


Chapter 5: Diversification

Major Point:

While growth investing can be lucrative, diversification is crucial to managing risk. Navellier discusses the importance of diversifying across sectors and industries.

Actionable Advice:

Build a Diversified Portfolio:
Investors should ensure their portfolios are diversified across various sectors to mitigate risks. This means not putting all investments into one industry, such as tech.

Example:
Navellier provides an illustration with a portfolio containing a mix of tech stocks, healthcare companies, and consumer goods, reducing risk through diversification.


Chapter 6: Momentum Investing

Major Point:

Navellier outlines momentum investing, which involves investing in stocks that have shown strong price performance.

Actionable Advice:

Follow Momentum Indicators:
Investors can track momentum indicators such as moving averages and Relative Strength Index (RSI) to identify stocks with upward price trends.

Example:
He talks about investing in Tesla during its upward momentum phases, capturing significant price appreciation periods.


Chapter 7: Avoiding Common Mistakes

Major Point:

Navellier highlights common mistakes that investors make, such as holding onto losing stocks, overtrading, and not having a clear strategy.

Actionable Advice:

Set Clear Sell Rules:
Define criteria for when to sell a stock, such as a significant drop in earnings or a certain percentage loss.

Example:
He illustrates this point with the example of Enron, where investors who held onto the stock despite warning signs suffered massive losses. Setting predefined sell rules could have mitigated these losses.


Chapter 8: The Role of Price Targets

Major Point:

Setting price targets can help investors make disciplined investment decisions and avoid emotional trading.

Actionable Advice:

Establish Price Targets:
Determine a target price for buying and selling based on fundamental analysis and stick to these targets.

Example:
Navellier explains how setting a price target for a tech stock like Amazon, based on anticipated earnings growth, can result in a more strategic investment approach rather than impulsive trading.


Chapter 9: Insider Buying and Institutional Ownership

Major Point:

Insights from insider buying and institutional ownership trends can be significant indicators of a stock’s potential performance.

Actionable Advice:

Track Insider and Institutional Activity:
Investors should monitor insider trading and the buying activities of institutional investors to gain insights into stock trends.

Example:
Navellier recalls instances where heavy insider buying in companies like Apple before major product launches signaled confidence in the company’s future performance.


Chapter 10: Responding to Market Conditions

Major Point:

The book advises on how to react to various market conditions, whether they’re bullish or bearish.

Actionable Advice:

Adapt to Market Trends:
In a bullish market, focus more on growth stocks with strong momentum. During bearish markets, switch attention to more defensive stocks with stable earnings and dividends.

Example:
Navellier discusses shifting focus to utility stocks and consumer staples during market downturns, which tend to be less volatile and provide consistent dividends.


Chapter 11: Upgrading and Downgrading Portfolio Stocks

Major Point:

Regularly review and adjust the composition of your portfolio based on earnings performance and market conditions.

Actionable Advice:

Regular Portfolio Reviews:
Conduct quarterly reviews of your portfolio to decide which stocks to hold, buy, or sell based on updated performance metrics.

Example:
Navellier recounts how periodically reevaluating his picks allowed him to drop underperforming stocks and upgrade to ones showing improved growth potential, akin to upgrading from Intel to NVIDIA as market conditions shifted.


Chapter 12: Patience and Long-term Perspective

Major Point:

Maintaining a long-term perspective is crucial. Successful investing requires patience and a focus on long-term gains rather than short-term fluctuations.

Actionable Advice:

Commit to Long-term Investments:
Identify strong growth stocks and commit to holding them for the long term, weathering short-term market volatility.

Example:
Navellier cites Warren Buffett’s investment in Coca-Cola, where a long-term view resulted in substantial gains, despite short-term market ups and downs.


Conclusion

In The Little Book That Makes You Rich, Louis Navellier equips readers with a clear, structured approach to growth investing. By combining a detailed quantitative analysis with practical investment strategies, diversification, and patience, Navellier’s insights provide investors with powerful tools to make informed, strategic decisions. Implementing these techniques requires diligence—such as regular portfolio reviews, monitoring earnings reports, and adapting to market conditions—but the payoff can be substantial. The numerous examples throughout the book, from tech giants to diversified portfolios, illustrate that with the right strategy and mindset, investors can achieve significant financial growth.


This 1500-word summary captures the essence of Navellier’s book, providing a broad overview along with concrete steps for practical application in investment strategies.

Finance and AccountingInvestment Strategies