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Aridian,
I am one of those types who LOVES examples

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Aridian,

I prefer throwing them in a pile and piecing it together in whichever way makes the most sense to me.

I bet you're the world's greatest at putting together jig saw buzzles. :)

--Mike Buckley



(LOL)

Yep I like examples. If you can work you're way through this with the help of the gorilla book you should be well onto you're way.



Gorilla investing follows the same rules of good investing but adds on a few more queries. Gorilla stocks are almost exclusively hi-tech stocks however for my examples I will use mainly the Jigsaw industry ( such as it is) to aid in understanding because it strips off the confusion with technology and leaves only the frame work for gorilla investing.


Question 1 ) You're niece wants to go into the puzzle industry, in particular jigsaws. However being young she wants you to "front" the organisation. Is there a chance that this will become a Gorilla. Give reasons. Give examples of non-gorilla companies


Answer No. The puzzle industry does not have any large barriers of entry. You're industry position is at risk of being encroached by up-starts. If the company does well it will be because it out executes everyone.

Company Examples
AOL - They are in entertainment but so are many other companies. A stong company but no Gorilla.
Other examples - Wal-Mart , DELL


Question 2) Buckley Trading has just announced it has 100 patents over Jigsaws and their production methods and has started collecting royalties from the puzzle industry. Although you're niece took him to court his patents were upheld. Seeing the opportunity you have invested in Buckley Trading. However you're niece finds out and starts having a tantrum. Explain to the child using Gorilla terminology you're reasons for investing. Give examples of similar companies.


Buckley trading has become a patent gorilla. Anyone who wants to do a jigsaw will have to pay a royalty to Buckley. The patents are numerous and wide in the industry and have been up held in court. This suggests that there are very high barriers of entry.

Company Examples
QCOM - see below
GMST - Known as a patent terrorist. They have a death grip hold on interactive television and the recently titled T-commerce


Question 3) You're niece has been listening a learned analyst on "the street." Buckley has had a nice run up in share price after the court victory. She wants to use her sweet money to "short Buckley until he bleeds" because it is "over priced garbage". After correcting her English you have to stop her doing such a silly thing and instead encourage her to "go long". You're answer should take into account the Competitive Advantage period ( CAP ). Give examples of "overpriced" companies.


Buckley is a gorilla stock. As a gorilla stock it has high barriers of entry into the business which means that investors can be confident that it will still be a player several years hence. More than most stocks. In addition the high barrier of entry gives a monopoly status which will be used to maintain a good net margin. A stock with long term survival and high margins will be rewarded a high price in the markets. We should expect Buckley to be rewarded with a premium price tag.

In addition Buckley will have plenty of money to finance the company into new areas and increase the production methods ( more patents ) in his current jigsaw company. With time the company may become even stronger.


Company Examples
QCOM - Gorilla of CDMA - a method of wireless transmission superior in some respects to current methods (GSM)
SEBL - A gorilla in an industry known as CRM it has a chance to forge itself into eBusiness
CREE - possibly - good example of patents on production method


Question 4) The puzzle industry has become vastly successful leading to hundreds of factories being set up. Many reliant on one another products. Foresters , Timber merchants, printing presses , Shops all rely on one another. What was at first easy to manage on a spread sheet has become complicated and inefficient to manage. Seeing the opportunity a number of start up firms are offering a way to automating the supply. This is done by tortuous algorithms which is taking months to get right and which each are developing independently. Could this lead to a gorilla? You're answer should address if this is a discontinuous technology.


Yes it could. There is a high barrier of entry, the creation of a difficult algorithm taking months to complete. However it may not lead to a gorilla. There are many start ups involved. They could all just compete a take a percentage of the market and no-one dominating.

The problem it solves is organising business to work together. This is currently being solved on a spreadsheet. So we know their is a need. However, it will require the users to change from a spreadsheet to the program. However it is a discontinuous technology. The spreadsheet manufactures will loose the companies business which would now go to the algorithm companies. What we are interested in from a gorilla perspective is if we start to see this technology adoption. If it happens there will be a fast uptake - called a Tornado.

We will investigate all the algorithm companies. Which ones are contenders. Depending on our risk aversion we might buy a basket of the algorithm companies or we may watch them for sign of one of them becoming a Gorilla and buy them then.

ITWO - a gorilla of supply chain management. Their algorithms to make companies work together smoother are complicated. They out competed other companies in the space to become the gorilla in the space.
SEBL - once again did the same.

BRCD looks as though it has won in the fiber channel area. Note the high revenue growth compared to the competetors ( see link). If we had bought a basket of the companies. We would now sell all the other companies and use this sum to buy more BRCD.

http://boards.fool.com/Message.asp?id=1360002000227000&sort=postdate

Currently we investigating the optical networking space some potential candidates are JNPR, SCMR , RBAK.



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