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Author: dumaflotchie Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 71277  
Subject: The Gorilla is Dead....Long Live the Gorilla Date: 11/8/2003 3:33 PM
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There has been much written here about “Gorilla Gamers” or “Rule the Worlds” and few can deny that the quest is both noble and exciting…….yes the allure of money. Yet what prospective or retrospective evidence do we have that such searches have value from an investor's perspective.

Clayton Christensen is an often quoted author of the “Innovator's Dilemma” but in his most recent book entitled “Innovator's Solution”, there are many observations he makes (several backed by studies) that suggest the quest for the Gorilla is very hazardous:

http://tinyurl.com/u7w8

Not true you say? You know otherwise? Please take a moment to open your mind to another perspective……one that might save us all from another meltdown as one considers what the data suggests as to the odds that you/we have some particular skill at identifying a gorilla and understanding its value as an investment.

“Sustainable”………yes that holy grail of our quest for the perfect gorilla investment. It is important is it not……for that serves as the basis for such lofty valuations…………..such pretty DCF valuation models……………such high expectations for an investment worthy of concentrating our investment dollars. But what price comes “Sustainable”?

Consider the following studies and observations:

1) Stall Points Study published in 1998 by the Corporate Strategy Board identified the following:

a) If a company failed to deliver expected growth even once, it was unlikely to ever return to high growth in the future
b) Only 5% of Fortune 50 companies were able to maintain a real inflation adjusted growth rate of more than 6%
c) The other 95% reached a growth point stall to a rate no greater than the GNP
d) Of all those companies whose growth had stalled, only 4% could ever ignite their growth rates to even 1% above GNP. IN other words, once growth stalled, there was rarely an ability to ignite growth again.
e) Equity markets brutally punish stalled growth (almost a third lost 75% of their market cap and 95% lost more than 25% of their market cap). Such enormous risk in these high growth companies that fail to deliver

2) Only one company in 10 can sustain growth. The supermajority can only sustain growth a few years:

a) Zook and Allen 2001 Study (Profit from the Core) suggested only 13% of 1854 companies could sustain growth over 10 years.
b) Foster and Kaplan 2001 Study (Creative Destruction) suggested only 16% of 1008 companies could even survive 30 years and that perennial performers have really never existed
c) Collins Study (Good to Great) suggested that only 9% of 1435 companies over 30 years can beat the market averages for a decade or more


3) Companies tend to make investments in growth that most often fail

4) Faster growing firms produce higher returns only for those very early investors. Later arrival investors when future growth is already discounted in the share price, will not have above market returns (see Rappaport's “Expectations Investing: Reading Stocks Prices for Better Returns, 2001)


While I am just getting in to this book, I wanted to drop these concepts by this esteemed board for your comments. There are several readings above that may be valuable to fill in some color but this summary can be very sobering as one reflects on the odds of identifying that true “sustainable” company that is a sustainable investment.

The odds, my gorilla colleagues……………………..do not favor success in this hunt. Shall we ignore such data and declare ourselves the exceptions? Shall we refute this data with a case study or two? Shall we produce DCF analysis with growth rates that are not sustainably realistic? Shall we fall victim to our own chanting?

Respectfully…….this board has some very adept investors. Once more, this board has uniformly good people. Maybe its time to clean our attics of dusty theories and get back to what works…….probabilities based on fundamental and technical considerations. Nimble technology investors seems more compatible with high tech investing…………..the data seems to support this approach.

More to follow as I ponder these issues further……………………..

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Author: TinkerShaw Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 17355 of 71277
Subject: Re: The Gorilla is Dead....Long Live the Gorilla Date: 11/8/2003 4:33 PM
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I have heard time and time again that tech investing was over. I heard time and time again that United States economic dominance was over, et al.

This pessimism is healthy for investors who can see through the chafe. Gorilla investing is about picking companies with competitive advantages and market opportunities that are simply not priced into the stock because they are extraordinary.

This is no different from any other investing. Buy it below its true intrinsic value and you'll make a profit.

I am just not a technical investor. I don't enjoy it, although I guess I have successfully done it before, it is just not me (with the exceptions of playing the cycle, like with semiconductors, as Cor did so expertly, I will play known economic cycles). What I want is to find those very rare companies that make exceptions to the rule.

No, I don't think that the world has seen their last EMC, NTAP, QCOM, CSCO, et al. What I do think we do is pin a Gorilla label on everything and try to make it fit.

I have been looking at CREE lately, definitely not a Gorilla. CREE has reached a very difficult transition period in its existence. LEDs in cellular phones will be phasing out over the next 3-5 years as OLEDs come to the marketplace. What is CREE to do, given its dependence on handsets for LED sales?

Answer: Move to general state lighting. CREE is bumping up against the edge of its existing marketplaces and into the chasm of its new marketplace. As in informed investor do you buy now or do you wait to see if they succeed?

You can also look at it from the perspective that over the next 12-18 months, this trend should not negatively affect CREE, and CREE's earnings should grow very nicely. So you might want to buy for just the next 12-18 months, take profits, and then wait it out.

Just an example of that Gorilla game analysis tools allows us to analyze.

Tinker

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Author: dumaflotchie Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 17356 of 71277
Subject: Re: The Gorilla is Dead....Long Live the Gorilla Date: 11/8/2003 5:40 PM
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Just an example of that Gorilla game analysis tools allows us to analyze.
Tinker

Dunno Tinker.......I am not so sure my post really delivered the intended message based on your reply.

It should be clear from the data presented that being wrong on a gorilla game process will have devastating effects on one's net worth.

Remember, we are advised to concentrate our holdings to gorillas.

It is also of interest that the "early bird" wins the most whereas those late arrivers may have returns that only match the market.

Most of all, it is remarkable how many companies fail at reigniting growth once it has slowed. On top of this, the majority of companies will go flat after just a few years of growth.

These statements don't mean "technology investing is dead, etc." as you refer.

They do suggest that many of the prospective Gorilla Hunt theories would not be supported by data.

The tools you suggested for Cree do not seem to be "gorilla game" at all IMHO.



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Author: VicFontaine Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 17357 of 71277
Subject: Re: The Gorilla is Dead....Long Live the Gorilla Date: 11/8/2003 9:23 PM
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Duma,

IMO, the flaw in your conclusion - as based upon the evidence you've cited - is that these studies make no distinction between "Kings", "Princes" and "Gorillas". That is, they've lumped them all together as high growth companies.

That high growth companies are brutally punished for failure to execute is not news; but that is most often true of companies engaged in Royalty games - Kings and Princes - companies that have no proprietary architecture that represents an industry standard. What else have they got, other than to continue to execute? For reasons that we all know, Gorillas may fail to execute yet still retain their competitive advantage.

<< 4) Faster growing firms produce higher returns only for those very early investors. Later arrival investors when future growth is already discounted in the share price, will not have above market returns >>

This is not consistent with Moore's theory, which says that investors need not be "in" as Early Adopters...that the market almost always undervalues Gorillas. So, your studies disagree with Moore...how's that old saying go? "Opinions are like a-holes - everybody's got one."


How early did investors have to invest in Cisco in order to realize mega returns?

http://finance.yahoo.com/q/bc?s=CSCO&t=my

Clearly, there was plenty of time to get in and get rich.


What about Intel?

http://finance.yahoo.com/q/bc?s=INTC&t=my

Same story?


This isn't anything new...we've always known that there was a tremendous difference between Gorillas and Kings.

<< 3) Companies tend to make investments in growth that most often fail >>

As Christensen himself notes, that's because they go about it wrong; they either wait too long or they fail to devote the necessary resources to disruptive technologies, choosing instead to put the bulk of their dollars into sustaining technologies. As Gorilla Game investors, we look for the exceptions to that behavior.



Vic Fontaine
Holosuite 1


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Author: trenchrat Big funky green star, 20000 posts Top Favorite Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 17358 of 71277
Subject: Re: The Gorilla is Dead....Long Live the Gorilla Date: 11/8/2003 9:26 PM
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u only need to find one...just one...even a large chimp wold do..they are out there..right now....in the midst of the mist....sometimes a GOrilla does it's thing in 1-3 years...them baggers we love to look for...if someone bot a SONS at .30..and sold it at 9.00...he may have not found the quintessential GOrilla....but he sure made GORILLA returns...and the returns is what we are really looking for...let's face it....tr

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Author: dumaflotchie Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 17359 of 71277
Subject: Re: The Gorilla is Dead....Long Live the Gorilla Date: 11/8/2003 11:19 PM
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IMO, the flaw in your conclusion - as based upon the evidence you've cited - is that these studies make no distinction between "Kings", "Princes" and "Gorillas".
Vic

Could be but what if I am really suggesting that your argument is all too easy when you merely defend it with a well established historical King. As Christensen himself proclaims, we are often too quick to justify our theories based on a few success stories rather than better understand all those failures. There is probably much more to be learned from the failed "gorillas" than the few success stories.

I would also point out that there is very often little agreement amongst even the gorilla enthusiast of which companies deserve King or Gorilla status (that is until is obvious to everyone).

That being said, I have no argument with you that if I had recognized CSCO in the early years as a durable investment, it would have been high return. But....we already know that outcome. What about the other much more common failed companies? Would we have known to avoid them as a longer term investment?

This is not consistent with Moore's theory, which says that investors need not be "in" as Early Adopters...that the market almost always undervalues Gorillas. So, your studies disagree with Moore...how's that old saying go? "Opinions are like a-holes - everybody's got one."

Thanks for the complement but these are not my studies nor would I take any credit. But...they are studies of thousands of companies. IMHO, the shear volume of companies and independent studies that have similar conclusions are far more reliable than Moore's proof of the Gorilla Game. Just what was that proof BTW?

As Christensen himself notes, that's because they go about it wrong; they either wait too long or they fail to devote the necessary resources to disruptive technologies, choosing instead to put the bulk of their dollars into sustaining technologies.

Very true and one could also assume that a change in CEO approach could alter these results. Hence, it may be important to really understand management and its philosophy to growth.

As Gorilla Game investors, we look for the exceptions to that behavior.

Hey....I would really like to hear more about just how you do that.

Please understand that I am not trying to tell anyone that their kid is ugly. Rather.......there is some compelling data out there to suggest that the risk of being wrong is high and the punishment severe.






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Author: dumaflotchie Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 17360 of 71277
Subject: Re: The Gorilla is Dead....Long Live the Gorilla Date: 11/8/2003 11:30 PM
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if someone bot a SONS at .30..and sold it at 9.00...he may have not found the quintessential GOrilla....but he sure made GORILLA returns
Rat

Exactly Rat!

SONS is not a "Gorilla". Hell....it doesn't even make any money......may never. But that enormous gain of 3000% occurred before it would have been categorized as a gorilla, king, prince, etc.

It really is about the market's expectations for growth that resulted in those gains rather than the growth itself. But then, you saw this stock in the charts from way back.

My point (and I believe yours as well), is that some of one's best returns in technology are likely to come from shorter term holds and for companies that do not have classic gorilla classification.......that is, if one lends credence to the studies referenced in Christensen's book.

Just making conversation guys................


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Author: captainccs Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 17361 of 71277
Subject: Re: The Gorilla is Dead....Long Live the Gorilla Date: 11/9/2003 12:41 AM
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Christensen uses AT&T as an example of failed company growth and I think that was a very unfortunate pick. Before Judge Green broke up Ma Bell, AT&T had government mandated profits. They set their rates according to their expenses and they spent as much as they could to make as much as they could. By ripping off their customers in this government sanctioned way Ma Bell became the world's largest company. Of course, management was totally unsuited for the world of competition that they lived in after Judge Green took away the government protection they had lived under for decades. In a word, AT&T was clueless.

Even if Christensen is right in his writing, it is unfortunate that he spoiled it's credibility by using AT&T as an example.

Christensen is right in that no living being lasts for ever. But I don't see how you move from that observation to the conclusion that Gorilla gaming is dangerous. Please remember that the gorilla game tells you when to buy and when to sell. As opposed to Christensen's investor who wants growth for ever, the gorilla gamer is quite happy to move from the old gorilla to the new gorilla when the old gorilla suffers a substitution threat.

I wish you would read Chapter 7 of the Gorilla Game, Capturing the Gorilla: The Buying and Selling of High-Tech Stocks. In this chapter Moore moves you in and out of a series of stocks based on the premise of the book. At no time do you ask management to grow for ever. You exit the company stock when their architecture is substituted for something else.

I have often asked myself how it is possible to discount the future and yet stock prices grow. If you have truly discounted the future of a stock then you have taken all but the risk free return out of it. Clearly that is not the case because stocks appreciate more than the risk free rate does. When people do a DCF calculation they set themselves a series of safeguards. They lower growth rates in far away years and they use a high risk rate for the discount. The investor who does not leave him self a margin for error is not an investor but a gambler. I believe this is the reason why early investor don't take all the extraordinary profits out of a growth stock.

A curious note: In Chapter 4, Understanding the Stock Market: The Valuation of Competitive Advantage, Moore compares Lucent and Cisco. Lucent had a P/S of 4.9 while Cisco's stood at 19.1

Market CAP Revenues P/S
Cisco $175,489 $9,178 19.1
Lucent $147,892 $30,147 4.9


The explanation Moore gives:

Actually there are three reasons, and each is important to understand both gorilla competitive advantage and the price/sale ratio as an indicator thereof;

1: Lucent is a gorilla in a category that is aging. Going forward, in the converged nvoice/data network, data traffic will dwarf voice traffic, and so voice optimized equipment will cede pride of place to data optimized gear. As these two behemoths clash, then, advantage Cisco.

2: Lucent's core culture was developed under monopoly rules of market engagement, whereas Cisco's was tempered by fierce competitive wars from the begining. [snip] ...advanatge Cisco.

3: The law of smaller numbers is operating here. Note that Lucent is three times Cisco's size. [snip] So, not so big an advatage Cisco, after all.


That was 1999. Now, 4 years later let's compare market caps:

Market CAP Revenues P/S
Cisco $155.22B $18.88B 8.3
Lucent $13.73B $12.32B 1.6

I guess the market wasn't so far off and Moore's explanation seems fitting.

http://finance.yahoo.com/q/bc?s=CSCO&t=5y&l=on&z=m&q=l&c=
http://finance.yahoo.com/q/bc?s=T&t=5y&l=on&z=m&q=l&c=

Denny Schlesinger
Caracas - Venezuela
denny@softwaretimes.com



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Author: agnes1938 Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 17362 of 71277
Subject: Re: The Gorilla is Dead....Long Live the Gorilla Date: 11/9/2003 4:11 AM
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Duma

I have learned a lot from Moore. It makes so much sense to me. For other investors it doesn't make any sense at all. As we all know there are many ways to make moeny in the market.

We have had that discussion many times in the past, especially when Andrew was still around.

I have adapted the GG to fit my investment style.

I'm up almost 5-fold since October 2002, but still down 52% since 2000.
I'm up 40% since 1996. Having survived the worst tech bear market ever compared to many tech investors that almost lost everything.

As you probably know my core holdings today are Bea, jnpr.

Here TWO little anecdote:

-One investor I know invested in IBM, MSFT, apple and DEC in 1989. He lost a lot on DEC and Apple. With IBM he did OK, due to his MSFT investment he stopped working at 50...

-Another investor i know invested in 1994 in IBM, SAP and MSFT. He still holds them today and I think he is still up almost 6 times. He bought those companies because they were the leader in their field. when I explain him the core of GG theory, he is even more convinced than I of its usefulness. nevertheless, he agrees with me it is time to look to possible emerging Tech leaders...

Alexander


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Author: agnes1938 Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 17363 of 71277
Subject: Re: The Gorilla is Dead....Long Live the Gorilla Date: 11/9/2003 4:14 AM
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Duma

I think that the problem with GG is that many investors don't really understand the core concepts of it. In conversations with many investors I have realised that in a very obvious way.

Alexander

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Author: agnes1938 Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 17364 of 71277
Subject: Re: The Gorilla is Dead....Long Live the Gorilla Date: 11/9/2003 4:17 AM
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Denny

I learned much more from Moore and Brian Arthur than from Christiansen. No doubt about that.

Christiansen doesn't focus on architectural control and the related network effects, which are some of the criteria in tech investing

Alexandre

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Author: NoamX One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 17365 of 71277
Subject: Re: The Gorilla is Dead....Long Live the Gorilla Date: 11/9/2003 5:30 AM
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We have had that discussion many times in the past, especially when Andrew was still around.

Andrew resurfaced recently on Foolish Collective Board:

http://boards.fool.com/Message.asp?mid=19775964&sort=username

Michael

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Author: dumaflotchie Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 17366 of 71277
Subject: Re: The Gorilla is Dead....Long Live the Gorilla Date: 11/9/2003 9:06 AM
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Thanks Denny and yes of course I have read chapter 7 of Moore's book and have always found this the weakest aspect of the gorilla concept. One sells predominantly on recognizing that a company is losing its gorillahood with little to no consideration of valuations.

That chapter also has several inconsistencies in thought process as to the consolidation. For example, rule 7 states that once it is clear a company will not be a gorilla, sell its stock. That really narrows the universe of great investments. Rule 4 states to hold gorillas for the long-term, selling only on substitution threat. In fact there really are only 5 paragraphs starting on page 187 that specifically address selling.

I think much of what I like about the gorilla game is really based on prior art (specifically Michael Porter) and that is the very powerful stock selection criteria. But this is really not unique to gorilla investing or even original thought.

I would also again point out that using a few case studies (CSCO, LU, DELL, Oracle, and SEBL) doesn't prove a theory at all. It can substantially misconstrue the elements that determined success. What about the failed selections? What about the challenge of identifying gorilla game sectors, TALC, actual stocks and all before others have already run up the stock?

The graphs are somewhat misleading as well because you assume that one was an "early" investor. What if one came into to CSCO in 1999 or 2000.....compare that to the market index.

It may also be instructive to remind oneself of the stocks that the authors acknowledged they held in the preface of the book:
Arbinet
I2
Rubric
VerticalNet
Critical Path
INternet Capital Group

Where are these companies now and why were they not invested in the "obvious gorillas for the long haul" as they were preaching in their book?

Outside of case studies, where is the evidence that gorilla gaming prospectively practiced actually works? Case studies do not prove anything.

Many here have invited this board and the Gorilla King SI board to engage in a gorilla hunt by identifying tornado prone markets, defining their TALC and selecting baskets of stocks. Perhaps it would be informative to invite all posters to throw out those tornado's and defined TALC to see how easy this comes prospectively. I don't mean this to be confrontational, rather, it is just too easy to pull out the CSCO, DELL, MSFT case studies to justify what is purely theoretical.

One of the difficulties with discussing this topic is that much of this book is in fact based on prior art and many of these concepts are sound and tested. It can be very enlightening to try to discover what about Moore's book was actual original (as compared to say Michael Porter). IMHO, this is certainly not a clean, novel or remotely scientific work. It is theory.............and like all theories that are not proved............we shall forever agree to disagree on its significance.








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Author: agnes1938 Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 17367 of 71277
Subject: Re: The Gorilla is Dead....Long Live the Gorilla Date: 11/9/2003 9:59 AM
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Duma

The GG has given me a framework on which i select the companies I invest in.

Sustainable competive advantge, Architectural control, new value chain formation, network effects, open proprietary architecture and other are key concepts that have helped me tremendously in avoiding companies that went to zero!

Finding gorillas in their early stage is extremely difficult, hence the possible huge gains.

Again, either an investor feels stronly about Gorilla dynamics or he thinks it is purely theory. That has been my experience over and over again.

In the discussion a year ago it was very clear that there were two camps: one in favor and another doubting seriously the added value of GG.

Alexander

PS Made a fault earlier: I'm up 70% (not 40%) since 1996.

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Author: TinkerShaw Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 17370 of 71277
Subject: Re: The Gorilla is Dead....Long Live the Gorilla Date: 11/9/2003 12:39 PM
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Duma,

A venture capitalist is successful if he gets one home run investment out of 10. The stock market tends to value away competitive advantage so that returns for any company over time are returns of the market.

We want to beat market returns. We therefore look for competitive advantage that is not recognized by standard criteria. It is essentially an exercise in finding undervalued assets.

Gorilla methodology is an excellent tool for attempting to find said assets, and to do so at a rate that is much greater than the venture capitalists 1 in 10 if they are to be successful.

It also provides tools for deciding when that companies run on the market is over with. As an example, if it is a DELL or JDSU, sell when the Tornado is over. That ended in 2000 for DELL and 2000 for JDSU.

If a QCOM, sell when there is a substitution threat. This rule I think is wrong, it should be sell when the there is a substitution threat or sell when the valuation gets too high too justify.

In the case of QCOM today we have a high valuation, but one that is justifiable. In the case of QCOM and JNPR in 2000 we had valuations that were justifiable only if you wanted 0 return going forward for 10 years as the price had 10 years of growth built into it. At least that is my rule for Gorillas.

As for QCOM today, do we have a substitution threat? CDMA wins, but is W-CDMA a substitution threat? I think it is ambiguous and the game will not necessarily apply in total. Except that, we can be confident (if not certain) that a W-CDMA Tornado will occur, probably will a CDMA2000 Tornado, and QCOM will be the beneficiary of both Tornadoes. Given my rule, I think I would sell QCOM when the W-CDMA Tornado slowed down, unless QCOM managed to keep a Gorilla marketshare in the industry.

At least that is my rule, starting with Gorilla gaming, on that point.

In other fields it is just recognizing the Tornado and buying into it. As an example is OVTI. Certainly a Tornado in its marketplace, even though the economic profits are lower than one would like as are the competitive barriers to entry. As long as the Tornado in this industry continues to blow, you can somewhat ignore valuations (to an extent), as long as your not on the back side of that Tornado. But once the industry starts to settle in, sell ASAP. You probably will not sell at the top, but you'll probably sell much higher than you bought at, if you bought in the beginning or middle of the Tornado.

You brought up the example of SONS before. I and several others on this thread have been talking about SONS for 3 years. I analyzed SONS to discover what portion of its markets were Tornadoing, and it was not VoIP, but rather trunking. However, SONS rose from the dust due to industry talk of VoIP. It took, if memory serves, over 6 months for SONS to respond to all the industry discussion of VoIP coming real-time before its stock rose. I posted many an article on it. There was a large amount of lead time, one just had to have faith in the system, and be willing to buy a "dead" stock (below $5 per share, statistically speaking, said stocks rarely make it above that level again).

Which goes to the statistics you raised. The dropping below $5 stock, statistically, only rarely, if ever, recovers. Yet there are tens of stocks that have recovered this time around, in total non-compliance with the statistics.

In regard to reversing dead growth, there are tens of stocks that we follow these days that have done just that.

I am not denying the statistics in total, but what I am denying is the generalization. No one is going to be correct 100% of the time. What we try to find is stocks, given our knowledge of how markets work (both business and stock) that are undervalued based on this knowledge, and this undervaluedness is not generally recognized by investors who do not utilize such methods.

Generally speaking, we are going to find many more of these than will the typical mutual fund. What we also had to add to the theory was when to sell.

Tinker
P.S. as you mentioned, there are many ways to make money. Cor, for instance, seems to like buying the #2 stock like AMD and trading it, and also playing known economic cycles like the semiconductor cycle.

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Author: dumaflotchie Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 17372 of 71277
Subject: Re: The Gorilla is Dead....Long Live the Gorilla Date: 11/9/2003 1:03 PM
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Tinker:

Thanks for your kind reply.

I actually agree with most everything you have stated. In fairness to my original post though, you have developed a modified version of the GG that makes sense to you and would be more compatible with many of the cited studies (recall that these were longer duration studies examining the sustainability of growth as one might apply that growth to gorilla-like valuations).

As examples of this, you mention OVTI.......a gorilla in the Moore sense?.......not a chance...........but you invested because of good "tornadic dynamics".

QCOM hold forever?.............not hardly................valuation must come into play.

SONS you rightly pointed out many times but it is unproven and unprofitable yet the stock is up 3000% from its lows this year. A gorilla?......obviously as we know it presently......no.

What this leads to me conclude (and I interpret from your post as well) is that you/we are using good investment candidacy screens that may be masquerading as GG'ing but in fact are simply age old techniques for identifying optimal investments period. That is....this is prior art not a new theory espoused by Moore.

Perhaps in that sense we should speak more of the elements of sustainable competitive advantage, open proprietary control, tornados, TALC, disruptive innovations/technologies, barriers to entry, substitution threats, buyers power, etc........most of which are "prior art".

Your important caveats would suggest that no one needs to be pigeon holed into a literal interpretation of Moore's book.

In the same vane, my comments should not be interpreted as an "all or none" commentary on GG'ing. There are aspects of the prior art mentioned above that have great appeal and supportive data.

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Author: captainccs Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 17374 of 71277
Subject: Re: The Gorilla is Dead....Long Live the Gorilla Date: 11/9/2003 1:24 PM
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... I have read chapter 7 of Moore's book and have always found this the weakest aspect of the gorilla concept. One sells predominantly on recognizing that a company is losing its gorillahood with little to no consideration of valuations.

That chapter also has several inconsistencies in thought process as to the consolidation. For example, rule 7 states that once it is clear a company will not be a gorilla, sell its stock. That really narrows the universe of great investments. Rule 4 states to hold gorillas for the long-term, selling only on substitution threat. In fact there really are only 5 paragraphs starting on page 187 that specifically address selling.
Duma


You also bought with little to no consideration of valuations so selling by the same criteria seems entirely consistent to me. The weakness I see, and on which I have commented before, is that the book, as written, does not consider the larger forces of the market as does the Dow Theory which depends on them for the most part. On the other hand, the book does say that you need to know your way around investing if you plan to use the book.

I don't see why you hold the fact that the universe of gorillas is small as a negative against the book. These rules apply to information technology but not to sugar water. If you want to invest in sugar water you follow Buffett.

Moore is a Silicon Valley marketing man and the Gorilla Game is a Silicon Valley marketing man's approach to finding value in the stock market. I sold IT products in Silicon Valley myself and I know that I'm very comfortable with the Gorilla Game ideas (I wish Moore had written his books earlier, while I was still in business in Cupertino). That is not to say that they are easy to apply in practice even for someone who has been in the IT business. If you don't get it I would suggest that you don't use it.

You also complain that the book is based on earlier stuff. Isaac Newton said: "If I have been able to see further, it was only because I stood on the shoulders of giants."

http://www.lucidcafe.com/library/95dec/newton.html

Moore freely acknowledges that the authors owe debts of gratitude to many people including Michael Porter and Warren Buffett. I like that fact that Moore expresses in laymen's terms much of what Brian Arthur has studied including Increasing Returns and Path Dependence. For the life of me I don't see how these are negatives. On the contrary, I like the fact that these several authorities agree with each other.

From reading your posts about the Gorilla Game it seems that you are taking a go-nogo attitude. If it is not perfect it is dangerous. That is a religious view of the matter and cannot be debated, You believe or you don't. Richard Feyman makes the point that science is perfectly happy with uncertainty, with doubt. That is why then call things "theories" because they are not established facts. If you expect to have true facts at hand to invest in the market then you'll never put your money at risk in the stocks. I have also covered that subject before:

Right and Wrong
In one of my previous lives, as a management consultant, I was professionally interested in finding the difference between good and bad managers.


http://www.softwaretimes.com/files/right%20and%20wrong.html

Since I'm not and never plan to be an evangelist, I'll just drop the subject.

Denny Schlesinger
Caracas - Venezuela
denny@softwaretimes.com



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Author: dumaflotchie Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 17375 of 71277
Subject: Re: The Gorilla is Dead....Long Live the Gorilla Date: 11/9/2003 1:40 PM
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From reading your posts about the Gorilla Game it seems that you are taking a go-nogo attitude. If it is not perfect it is dangerous. That is a religious view of the matter and cannot be debated, You believe or you don't.
Denny

Perhaps not surprisingly, this could be what I might conclude about the Gorilla investor. It seems to be an all or none proposition of belief or disbelief for many. I have a moderated view.

While you have suggested I am "complaining" about Moore's dependence on prior art.......actually far from it being a complaint. I am rather suggesting that there seems to be little original thought at all.

Hence, when someone says "you either believe or you don't", yet this is largely based on prior art, what is there to believe?

Many seem to being giving much more credit to Moore for some hugely innovative concept instead of a loosely associated compilation of others' works.

Ok.....its a quiet Sunday and I thought I'd look under the hood……………enough for now.






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Author: MikeBuckley Big red star, 1000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 17379 of 71277
Subject: Re: The Gorilla is Dead....Long Live the Gorilla Date: 11/9/2003 2:37 PM
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A few months ago when we were attempting to arrive at a consensus regarding the direction of the folder, someone suggested that discussion about the superiority of fundamental analysis over technical analysis or vice versa should be discouraged. Similarly, I've come to the conclusion that the same should be said of discussions regarding the helpfulness or unhelpfulness of Moore's framework. I've participated in or observed countless discussions of both and I don't remember anyone ever mentioning that they resulted in any particularly helpful outcome.

--Mike Buckley

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Author: agnes1938 Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 17380 of 71277
Subject: Re: The Gorilla is Dead....Long Live the Gorilla Date: 11/9/2003 2:47 PM
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Moore introduced the concept of "Whole product".

By the way, IMO I think Christensen's disruptive technology is a good framework for traditional industries, but for tech Moore's discontinuous innovation makes much more sense.

Alexander

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Author: TinkerShaw Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 17385 of 71277
Subject: Re: The Gorilla is Dead....Long Live the Gorilla Date: 11/9/2003 3:18 PM
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What this leads to me conclude (and I interpret from your post as well) is that you/we are using good investment candidacy screens that may be masquerading as GG'ing but in fact are simply age old techniques for identifying optimal investments period. That is....this is prior art not a new theory espoused by Moore.

Duma,

For the most part I don't think Moore would disagree with you either. What Moore did with the Gorilla game was take work that was developed studying high=tech markets in the 70s and 80s and popularize it for the common investor who would otherwise invest in mutual funds. The mistake he made was making it too simple.

I do give Moore credit for the Gorilla and laying out the grounds for when to buy and sell different sorts of companies (ie, royalty vs. gorilla vs. chimp vs. monkey), outside of that however I agree fully with your post. GGing is a tool and it is a set of terminologies to help communicate and examine investments, and there are many ways to invest.

The one thing I am certain of is that people cannot consistently predict price swings in the market sufficiently to create market beating returns (except for maybe the very, very, few). But people can do fundamental analysis, combine it with valuation and other rules for buying and selling (including TA for entry and exit points) and beat the market.

I prefer finding and holding your QCOM's and ARM's of the world, but also like being in on the excitement of the Tornado. Another Tornado that we've discussed, no winds blowing, is the enormous Tornado that will be created should FTTP ever gain traction. FTTP, fiber to the premise. This will create enormous returns to some of our old favorites, should it occur in the next 2-3 years. But will it? Depends on how much the telecoms want to compete with the cable companies for programming and telephone and broadband service.

I am going to investigate Verizon some more and see just how serious they are about FTTP starting sometime in 2004. But just another suggested area to start looking at again. JDSU was never really beat up valuation wise. AVNX was, but it presently is not "cheap", but will it really matter if years of FTTP projects start making their way through the chain? That is 5-20 years of growing projects, with years of follow-up work to follow, with JDSU and AVNX being the two leading players.

Then again, maybe it won't happen for another decade or century?

Tinker


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Author: zamyatin Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 17386 of 71277
Subject: Re: The Gorilla is Dead....Long Live the Gorilla Date: 11/9/2003 3:22 PM
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In the discussion a year ago it was very clear that there were two camps: one in favor and another doubting seriously the added value of GG.

The only "two types of people" view I subscribe to is this: There are people who divide people up into two types, and people who don't see the need to.

Regardless, I think it's fair to say that most of us who seized on Gorilla Gaming in its early years have learned out of painful necessity that every new investment strategy - however revolutionary, insightful and comprehensive it may appear at first - will over time reveal its limitations. In the case of GG, these primarily relate (so far, anyway) to lack of attention to valuation and to overall market conditions. (Also, there is an unfortunate tendency on the part of some to view it as some sort of Holy Grail, and to have difficulty aknowledging that there may be other - perhaps even better?- ways to succeed in investing.)

Another predictable - though largely unaddressed - limitation, not unique to Gorilla Gaming is: How does the existence and widespread promulgation of a strategy itself affect the market, and therefore the outcome? Most new investing strategies have a limited shelf life, increasingly shorter due to communications advances, after which their effectiveness as an investment tool decreases rapidly as more and more people employ any advantage they may have once held.

When faced with the (in hindsight!) obvious limitations of The Game, people reacted differently to the news. Some chose to ignore it, some to resist it, some to assimulate it, some to redefine it, some to throw it out altogether...or various combinations of the above. Apparently a lot are still struggling with finding their bearings. It seems to me the most appropriate and rewarding response would be not to abandon The Game altogether (the Cry Baby) or conversely, cling to it blindly (the True Believer), but to modify it as experience requires, and assimulate it into one's greater toolchest of investing knowledge.

If you are Fundamentalist, and conclude that The Game is set in stone, handed down by (Geoffrey) Moses in the GG Bible, and never intended to evolve with the times, you are IMHO dead in the water. If you are a Pragmatic, and believe that it was meant to be (or regardless, choose to see it) only as a starting point for discussion, you may still find some gas in the engine.

And now, a Confession & Contrition....

I myself chose from the start to modify The Game for personal consumption, placing much more emphasis on the theory itself and less on the strategy that Moore laid out as his recommended response to his belief in its existence. As a result, however, I (among others) have been guilty of using the term Gorilla to describe companies that are clearly not - and may indeed never be - "gorillas" in the classic (Gorilla Game) sense, an oversight that seems to only create divisiveness and distraction.

Therefore, although I will continue to use terms illuminated by the book and by the knowledgable and generous posters of this discussion board, I hereby pledge to never again use the term "gorilla" to mean anything other than than my furry simian brothers.

Like so many other buzz-words of our time (..."democracy", "patriot", "justice"...), perhaps it really is time to put the Gorilla to rest.

The Gorilla (Game) is Dead...Long Live the Gorilla (Game), indeed!

-z.


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Author: MDCigan Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 17479 of 71277
Subject: Re: The Gorilla is Dead....Long Live the Gorilla Date: 11/17/2003 1:54 AM
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<<It really is about the market's expectations for growth that resulted in those gains rather than the growth itself. But then, you saw this stock in the charts from way back.>>>>

I could not have said this any better. It is market expectations and perceptions of future growth that drive stock appreciation much more so then actual results. Once the actual results are reported, the lion share of the gains are already to be had. This really is the essence of the expression, "the market is a discounting mechanism". This is so powerful, yet so few ever fully realize and embrace this.

This realization explains what often appears to many as illogical stock price reactions to reported results. It is why a company that trades at a P/E of 80 falls 10%+ when they "only" beat earnings by .01, and why a company trading at a P/S ratio of .2 jumps 10% when they "only" lose .02 when the expectation was a greater loss. Being able to reverse engineer market expectations and determine whether they are too high, too low, or about right is where the real money is made IMO.

I think the real strength of the Gorilla Game and really its source of value is that it helps with identifying companies where the market expectations are likely to always be too low except for bubble periods like 98-00.


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Author: agnes1938 Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 17481 of 71277
Subject: Re: The Gorilla is Dead....Long Live the Gorilla Date: 11/17/2003 10:07 AM
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It's all about seeing the opportunity before too much have seen it...

Michael Steinhardt:

I defined variant perception as holding a well-founded view that was meaningfully different from market consensus…. Understanding market expectation was at least as important as, and often different from, the fundamental knowledge.

Alexander

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