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Hey GGer's,

I have a question about competitive advantage period (CAP), so I thought I would post it here in hopes of getting a response from some GG folks out there (some of the great investing Fools out there). First, I have not read GG...yet (Hey, it's busy here at the Fool, give the poor guy some slack). However, on three occasions, I have read Competitive Advantage Period - The Neglected Value Driver by Michael Mauboussin at CSFB and Paul Johnson (co-author of Gorilla Game).

My question is in several parts. First, I would assume that Johnson talks about CAP in the Gorilla Game, is this correct? Second, is there anyone out there in the GG world that is actually calculating CAP? Or, are you folks just using some gut feel as to the CAP?

From reading the Mauboussin and Johnson piece, I understand CAP conceptually and I realise its importance in the valuation process. But, I cannot really calculate it. They show some CAPs for the Food Industry, but unless I am really dense (always a possibility, afterall I like No Brainer investments where I don't have to think too hard!), there was not enough information to calculate the CAP (even though a formula is present. I know how to calculate NOPAT for instance).

Now, CAP to me seems in no way predictive of anything. But, knowing what the CAP is and applying some tests to the drivers of CAP can give the investor a feel for whether or not he/she thinks the market is right. Johnson walks though Microsoft and states the CAP was 3 years at the IPO. At the time of the article it was 20 years, and there were things you could have discovered ahead of time to see that a CAP expansion was likely (I really like to concept of Real Options that Mauboussin talks about in a later article, I think this can be tightly linked to a CAP expansion if you can figure out what the real options are. In an intuitive sense, this is why I invested in eBay despite not knowing about Metcalfe's Law, for instance). In a more recent article, MSFT's CAP was 22 years.

So, I wonder intuitively what Qualcomm's CAP was at the end of 1998, for instance. It would be a good exercise to see how much of the valuation increase was related to CAP expansion. Without at least addressing CAP, I am convinced that investors would be short-selling themselves on a useful analytical tool. However, the info. was just too sparse for me to get some numbers behind it.

Anybody with any clues or anyone who has actually calculated a CAP, please give me a holler.


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