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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.

Best,

John
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No. of Recommendations: 4
Hi John,

I spent quite a bit of time about a year ago on this exact topic over on the Buffettology board based on the Cap Columbia paper. I have complied a few posts of our work from that board for you to review.

NAUT EVA analysis showing how to calculate the CAP
http://boards.fool.com/Message.asp?id=1360005000261000&sort=id

CAP Methods
http://boards.fool.com/Message.asp?id=1360005000268000&sort=id

CAP as Buffettology
http://boards.fool.com/Message.asp?id=1360005000270000&sort=id

BTW, you haven't stopped by the l'union board since you joined TMF. Come by for a visit sometime.

Lee
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maybe you don't have time to read the whole book, but have you got time for a chapter? if you can get your hands on the book, it's chapter 4. i've just gotten there myself, so i can't really go into it in detail, but i'll get back to you in a week or so if you've got the patience.

chris
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No. of Recommendations: 26
John (TMF Fuz),

Being a valuation junkie, I've just gotta respond to your great questions about CAP. Be aware that everything I learned about valuation I learned from the Fool about five years ago and am, thus, disappointed that the Fool pays a LOT less attention to valuation than when the organization initially went online. I think that's a mistake and am grateful that you're asking about it.

To answer one of your questions, I'm in touch daily with investors subscribing to Gorilla Gaming and I don't know one person who runs the value of the CAP, me included. That's primarily because the few who have the skills to run a discounted cash flow analysis, which you're aware is what the value of a CAP is based on, requires so many assumptions that the potential for inaccurate assumptions yields the results highly questionable.

To answer another question, Gorilla Game makes no attempt to quantify the value of a CAP. Instead, the book repeatedly mentions that the market has historically undervalued a Gorilla which is the same as saying that it has historically undervalued the value of the CAP.

I wonder if you've read the Louis Corrigan's interview of Koppola that took place when Louis was TMF Seymor. It's worth running a search to find because it's a tremendous interview. (By the way, his critique of the book is one of the two best I've ever read and might be worth looking for as well.) Before conducting the interview, Louis asked me for ideas about questions. Both of us were hoping he could be pinned down about a quantitative valuation metric. Instead, you'll see that the interview reveals that Kipolla (and apparently all the authors) feel that the rate (extent) of product adoption is the single best indicator of value an investor can use. Draw whatever conclusions you care to about that response.

Recognizing that valuing the CAP is done by using a discounted cash flow, I think it's also important to consider Warren Buffet's view about that. He apparently strongly believes that understanding the net present value of all future income is key to understanding the value of a company's stock. Yet very recently that one of the Fool writers (can't remember which one) revealed that Charlie Munger, Buffett's long-time partner, mentioned that he had never seen Buffet actually run a discounted cash flow. Buffet in turn responded that Munger is correct, that if the numbers are so "close" as to require physically running the numbers, the investment isn't appealing enough to Buffet. In other words, if the value isn't so immediately apparent that the calculator isn't needed, the investment isn't appealing enough.

I think the other important issue you raised is that it is truly difficult to value the CAP because many CAPs evolve, especially the CAP of a strong gorilla. Adding to the issue and potentially to the confusion is that some companies go through many tornados, each having their own CAP. Cisco has already gone through four tornados, as just one example. Similarly, if Qualcomm's future comes to fruition as I think will happen, that company too will go through many tornados (current CDMA, HDR, CDMA DS, 1X, 3X, etc., etc., not to mention the less predictable possibility of a tornado formed around their digital cinema product.) My point is that while I am disappointed that I've yet to see a reasonable way to value a CAP, I'm at the same time not sure that it's reasonable to expect that there be a method that is any practical degree of predictability.

But it is nice to know that there are now at least two people on the planet (you and me) who are concerned enough about the importance of quantifying the value of a CAP to discuss it.

--Mike Buckley
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Hi Mike,

Thanks for the thoughtful response. Hey, it only takes two people to start a trend! : )

I love valuation, even though there are plenty of problems with it, such as estimating the WACC, growth factors, etc. In the reports that I have written for the Fool's research product, I have tried to incorporate a valuation framework for people to think about it some way (preferably so they can take the free cash flow analysis for instance and apply it to any firm they want to, not the firm under study).

Nothing is more careless than the brokerage reports that just say, "Well, slap 30 times sales on Commerce One and that is what it should trade at." My response is my favorite quote from my profile, "Watcha talkin' 'bout Willis?"

As part of my coursework for the CFA Level 2 exam, the book "Valuation" by Damoradan is used (a terrible book simply because many of the formulas are wrong. He was very careless. But, there are many good ideas).

I still plan on quantifying CAP simply because it is a good mental exercise (my brain needs it!). I am also totally psyched about Real Options too (it helps me explain why I bought a little company that wanted to trade Pez dispensers).

So, any further dialogue would be cool.

Best,

John
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John (TMF Fuz),

You might want to dig around at this site to see what the kidlets at Columbia are being taught about competitive advantage period. Keep in mind, that since the first Gorilla Game book came out, the authors added in the revised edition the notion of GAP - competitive advantage gap. Run that through the abacus to see what you come up with.

http://www.capatcolumbia.com/

BB
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What doyou mean by calculate a CAP?

I just started GG, so I haven't read the CAP stuff, but if CAP is the period of time that a company has a competitive advantage, I'm very curious how you can calculate when that will end.

It seems to me that MSFT has it's primary competitive advantage as long as Windows is a dominant OS. If a new computing platform not based on MSFT software becomes dominant, the MSFT loses its primary competitive advantage. It doesn't seem that Moore's law or anything else really helps predict when this will happen, so I'm guessing that I don't know what CAP is.
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John,

I still plan on quantifying CAP

I don't suppose I could twist your arm into beginning with Siebel, Qualcomm, Gemstar, and Citrix Systems. And if you think I don't have selfish motives at the core of this, you're wrong. :)

--Mike Buckley
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Bruce,

Though you're used to seeing my "ahem" elsewhere, I'll use it for the first time here.

Ahem. :)

That capatcolumbia site you mentioned to Fuz was mentioned in his initial post that got this discussion going. You're reading too fast in between your costume changes. :)

--Mike Buckley

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jgrinsfelder,

if CAP is the period of time that a company has a competitive advantage, I'm very curious how you can calculate when that will end

That's one of the reasons it's so difficult to arrive at a reliable value of the CAP. The length of time it exists has a huge impact the value of the stock.

--Mike Buckley

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I don't suppose I could twist your arm into beginning with Siebel, Qualcomm, Gemstar, and Citrix Systems.

I like the list, but I'd rearrange it a little.

QCOM
GMST
CTXS
SEBL

Maybe we should take a poll. ;-)

No self-interest here,
Laura
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That capatcolumbia site you mentioned to Fuz was mentioned in his initial post that got this discussion going. You're reading too fast in between your
costume changes. :)

--Mike Buckley


Yes, I skipped right over it. Not only was it in his post, but he made reference to having read material from "the true and only father of the CAP theory" - Michael Mauboussin, Managing Director, Credit Suisse First Boston.

If Mauboussin isn't the source to answer all matters in regards to CAP - I don't know who is.

BB
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No. of Recommendations: 3
Hi Mike,

I don't suppose I could twist your arm into beginning with Siebel, Qualcomm, Gemstar, and Citrix Systems. And if you think I don't have selfish motives at the core of this, you're wrong. :)

Don't twist my arm too hard, I am fragile : )

Anyway, I do plan on doing this sooner rather than later. Siebel is a good bet, b/c I am covering ORCL for TMF Research. And, I may end up writing a full report about SEBL in the near future anyway. Either way, I will try my best to get CAP calculated and post it here to make it more interactive.

Best,

John
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John,

Siebel is a good bet, b/c I am covering ORCL for TMF Research.

Sorry, but there's not much need to do more than glance at Siebel when looking carefully at Oracle. Oracle's press releases combined with Ellison's off-the-cuff bragging might make you think otherwise, but when Oracle's hood is lifted there's not much CRM stuff there where the engine should be. :)

And, I may end up writing a full report about SEBL in the near future anyway.

That would be interesting. If I can help with any notes, don't hesitate to ask.

--Mike Buckley
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Mike -

Slightly OT :

ORCL (even with Ellison at the helm) is a Gorilla of Enterprise RDBMS. I keep watching MS SQL (attacking from below) but they just can't seem to catch them.

Sometimes we all seem to bad mouth a company because of an outragous leader. I don't think you were doing that. I also think you believe ORLC a gorilla of RDBMS.

BTW, ORCL and SEBL have both been good to me.

Best Regards
Pecos_Bill

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The ORCL vs. SEBL debate is a whole other issue. Personally, I like software. In plain English, it makes "stuff" happen. I have never written a line of code. But, I am attracted to the economics of software and the business models of various software companies. The shift toward the ASP will may have tremendous implications for software companies, and it will be fun to watch how it all plays out.

I like Larry Oracle for many of the same reasons others dislike him. I like Bill Gates, and Steve Jobs too. They've made a lot of money for a lot of people. That is what business is all about (IMHO). Like the line from Jerry McGuire "They don't call it show friends, the call it show business." The beauty of the stock market is that you can buy a piece of Bill Gates or Larry Ellison or Tom Siebel and watch your account grow as they fight over the details. I have a lot of fun listening to Larry Ellison even though he is outrageous at times. He makes it interesting...

That said, it will be worthwhile to look at the CAPs for all of these companies as a learning exercise. I have looked through Lee Dorious' spreadsheet and I am not sure this is the exact way to calculate CAP. Why? Well, it looks like Lee did everything that Mauboussin said to do in the CAP article. But, what about a company like DELL which at times has had an ROIC over 100%? The linear decline toward the cost of capital would extend way beyond what might be considered as normal. Anyway, I have also read A Piece of the Action, another Mauboussin piece that I highly recommend. In that piece he gives a sliver of the MSFT CAP from years 20-25 (approx.) and comes up with the CAP as 22 years. This is just the next step in figuring out how he does it. I would bet that there must be another article floating around CSFB with some examples on actually calculating CAP.

Anyway, a closer look at the bibliography shows that he is not likely the Father of CAP, but Al Rappoport is over at Harvard. His article is available on their web site for $6. I have not purchased or read it yet, but I am sure that I will.

In due time, I will figure it out.

Best,

John
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Pecos Bill,

Sometimes we all seem to bad mouth a company because of an outragous leader. I don't think you were doing that. I also think you believe ORLC a gorilla of RDBMS.

Correct on all points.

--Mike Buckley

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John,

and I am not sure this is the exact way to calculate CAP. Why? Well, it looks like Lee did everything that Mauboussin said to do in the CAP article. But, what about a company like DELL which at times has had an ROIC over 100%?

My hunch is that the CAP is not the holy grail of valuations. Just as no valuation method should be taken out of context or purely on its own, I'm sure that will also prove to be true of the CAP as an indicator of value.

I have not yet delved deeply into the Mauboussin piece to appreciate the circumstances in which a quantitative approach to CAP might be especially misleading or on target. Your point about the impact of ROIC is insightful.

--Mike Buckley
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Hi John (TMFFuz), Mike, Bruce and others:

Now that I can poke my head above water since the RB Seminar is slowing down, I found this thread especially enlightening.

Especially Mike's comment about Warren Buffet's approach Yet very recently that one of the Fool writers (can't remember which one) revealed that Charlie Munger, Buffett's long-time partner, mentioned that he had never seen Buffet actually run a discounted cash flow. Buffet in turn responded that Munger is correct, that if the numbers are so "close" as to require physically running the numbers, the investment isn't appealing enough to Buffet.

This may help explain why "something always seemed to be missing with the equations in the back of the Buffett's biography book" when I tried to use two or three years ago.


As a relative newbie valuation junkie, it will be interesting to see how this plays out. Will we end up with a quantitative method to calculate CAP? Will we be able to determine the resulting CAP impact of multiple tornadoes? Or will it be acceptable just to know it exceeds some period of time, e.g., 15 or 20 years, and value the company accordingly?

I second or third Mike's suggested companys for some not unselfish reasons of my own.

FOAP

Harold


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Hi John (TMFFuz), Mike, Bruce and others:

Now that I can poke my head above water since the RB Seminar is slowing down, I found this thread especially enlightening.

Especially Mike's comment about Warren Buffet's approach Yet very recently that one of the Fool writers (can't remember which one) revealed that Charlie Munger, Buffett's long-time partner, mentioned that he had never seen Buffet actually run a discounted cash flow. Buffet in turn responded that Munger is correct, that if the numbers are so "close" as to require physically running the numbers, the investment isn't appealing enough to Buffet.

This may help explain why "something always seemed to be missing with the equations in the back of the Buffett's biography book" when I tried to use two or three years ago.


As a relative newbie valuation junkie, it will be interesting to see how this plays out. Will we end up with a quantitative method to calculate CAP? Will we be able to determine the resulting CAP impact of multiple tornadoes? Or will it be acceptable just to know it exceeds some period of time, e.g., 15 or 20 years, and value the company accordingly?

I second or third Mike's suggested companies for some not unselfish reasons of my own.

FOAP

Harold


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Hi ConsultHR,

I have been working (quietly) on the CAP project along with another Fool from the boards. Mainly because I am a very stubborn person, and once I decided that CAP would be useful in my analysis of companies, I saw no reason not to pursue calculating and fully understanding competitive advantage period. We are fairly close to actually calculating CAP and solidifying many qualitative factors that aid in CAP analysis. When we are satisfied that the process is as it should be, it will get posted and anyone that cares can view the work. But, it has been slow b/c I am busy with my other work and I am going on vacation.

Will we end up with a quantitative method to calculate CAP?
Yes, we will. There is an actual process to do this. However, up until now, the notion of CAP has been used incorrectly by most Fools (including those that work here). It's pretty unwieldy in trying to figure out, which is why I am happy doing it with one other person for now.
Will we be able to determine the resulting CAP impact of multiple tornadoes?
I guess that is up to you. Since I have not read GG, I cannot speak intelligently about tornadoes. But, I do know that there are both qualitative and quantitative factors that will determine if you think a CAP is appropriate. You will have to decide if the result is right for you. You must be your own judge.
Or will it be acceptable just to know it exceeds some period of time, e.g., 15 or 20 years, and value the company accordingly?
Probably not, in my opinion. I don't think CAP will tell you whether or not to buy a company (in fact, it should not). CAP will allow you to put your arms around the impact that barriers to entry, switching costs, increasing returns, and lock-in (or the lack of these factors) will have on a company. CAP is only a tool, not a magic bullet. I have a sense that it will be used improperly by the average person. That's why I am doing as much reading about this stuff as possible so I will be able to help people maximize the time they spend on this stuff.
BTW, only the name CAP should be credited to Mauboussin, not the concept. He did not invent it.

Best,
John
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John,

I look forward to your quantitative valuation of the CAP. If you get it done before the vacation, put it aside. Enjoy the vacation. Come back and double check it. Put it aside again. Then triple check it before revealing it. :)

There is an actual process to do this. However, up until now, the notion of CAP has been used incorrectly by most Fools (including those that work here).

The reason I haven't come up with anything is that every time I tried I saw flaws due to a limited ability to apply the math to the concept. It ain't impossible. It's just beyond my capabilities.

--Mike Buckley

P. S. Ahem, anyone who quantifies CAP really should get around to reading Gorilla Game. I'll send you a copy.
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Hi John: I agree with your comment CAP is only a tool, not a magic bullet. I have a sense that it will be used improperly by the average person.

There are no magic bullets in this hunt, only DD and some tools to help us make sense out of our DD.

I look forward to your CAP post. Keep up the good work.

FOAP
Harold
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Mike: Your suggestion on triple checking the model is right on.

As an engineer, in a former life, the math didn't throw me but I still ended up with "hands full of air" when I was done. I think it was the assumptions that had to be made along the way. Minus a real appreciation of each assumption, you still don't know what you have when you are done.

Harold
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Hi Mike (and ConsultHR),

I will probably check it over about 9 times. There are also many qualitative factors that are involved with competitive advantage period, many of which I am already familiar since use them in my own analysis.

A Digression...

I am reading a book right now called "Complexity" which I highly recommend to people who want to never watch CNBC again, never want to calculate another P/E ratio, but instead want to understand how the world truly works. It's about science and the Santa Fe Institute, but you can apply to many aspects of life.

Back to the topic at hand...

I will take my time with it. Then, those that are interested can use it, those that are not, don't have to.

By the way, CAP assumes estimates, because it is based on what the market is signaling. We all know that the market tries to look froward, not backward. People should be accustomed to looking at how estimates impact stock prices, because they do, and if you are afraid to make an assumption, your results may not be as good.

Best,

John

Oh, and I'll get around to buying and reading GG someday : )

Some of the best and brightest on the Fool are right here.
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TMFFuz,

I am reading a book right now called "Complexity" which I highly recommend to people who want to never watch CNBC again, never want to calculate another P/E ratio, but instead want to understand how the world truly works. It's about science and the Santa Fe Institute, but you can apply to many aspects of life.

Hmmm.....

Sounds interesting. Would you kindly provide the book's author/ISBN/Amazon Link (whatever) so I can find it a bit easier and take a gander?

PLEEEEEZE!

Steve
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Steve & TMFFUZ,

Steve,
I have read this one, but do not have a link for you. Bought it before AMZN.com existed, I think.

The author's name is: M. Mitchell Waldrop
--------------------------------

TMFFUZ,

The really interesting thing about this book, in retrospect, is the application of many of its concepts to present-day.

For example, I finished up school in a Christian college, and I was taking an Old Testament class when the conversation shifted to a discussion of chaos.

To my amazement, the professor drew a upward spiral on the board, and stated this was illustrated throughout the bible as a never-ending cycle....

Order --> Complexity --> Chaos

Then the cycle repeats itself.

The diagram was not a circle, as the cycle does not return to its original point, rather, it emerges into a new, yet connected, cycle.

I had just recently finished reading "Complexity" when my professor wrote this on the board, and it was the same concepts described throughout the book.

I feel this has relevance to today's marketplace, especially in the new economy, and even moreso...to Gorilla Game investing.

Order - companies and industries are formed and move ahead towards a goal.

Complexity - competition increases, and technology advances, the technologies break off into subgroups.

Chaos - competition becomes overloaded to the point of inefficiency in the market, consolidation ensues, companies acquire, get acquired, or cease to exist.

This looks like the recent Nasdaq shakeout to me, and could probably be applied to any industry, and to any market trends.

Here is the 1979 version of the "NEW ECONOMICS" by Brian Arthur, as described in the book on page 37.

"Economy is constantly on the edge of time. It rushes forward, structures constantly coalescing, decaying, changing."

I feel he forecasted the so-called "New Economy" of today. A constantly fluctuating, yet ever-moving forward economy, where the top position is the only safe position.

If Brian Arthur is still alive, and is an investor, I would like to think he is invested in Gorilla Game companies, whether he realizes it or not.

This book also shows you how pure genius thrown together is not enough to guarantee success.
It seems in the book that SantaFe never quite lived up to its potential, due to the human ego, and physical restrictions on communication technology.

Scientists whose wives did not want to move, scientists that wanted publicity.

Lets hope the companies we invest in can reward the geniuses which run it, without succumbing to their eccentricities.

I hope Craig Venter reads this post.

Sincerely,
Dreamer

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Hi Dreamer,

Thank you for your thoughts on Complexity. You are right on, in my opinion. I am only about 200 pages into the book right now, but thus far, it is the most fascinating thing I have ever read. By about page 30, I wanted to throw out just about any book I had read on the markets (except like Philip Fisher's book for example). Brian Arthur was/is a genius. And it shows that if you have an idea, and most people think it's crap, chances are that you have a GREAT idea. Run with it.

It's also interesting that other people were thinking these same things, but only form a different perspective (like Stewart Kauffman). And yes, I believe that their beliefs help put the Net economy into context. Through a little bit of thought on your own, you can begin to see how many "value" people got it wrong. Value is not out of favor, it's that traditional methods capture value under the theories of equilibrium, not disequilibrium, and new approaches must be embraced (like the GG stuff people are talking about here).

Also, George Soros was thinking about this stuff in the 1960's. His theory of reflexivity is similar to what these people were talking about out in Santa Fe. Soros made billions using this theory. Unfortunately, he is not very articulate (or, I should say that he tries to be way too fancy), but if you have the time or inclination, read the first 90 pages or so of Alchemy of Finance.

Complexity helps to shape your world view, which will help you choose good investments in technology or otherwise. Also, you will be waaaaay ahead of most people.

Best,

John Del Vecchio
Investment Research Fool
The Motley Fool
http://www.fool.com
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TMFFUZ,

You wrote:

I am only about 200 pages into the book right now, but thus far, it is the most fascinating thing I have ever read. By about page 30, I wanted to throw out just about any book I had read on the markets

Hey! What about "Rule Breakers/Rule Makers" by the Gardner Bros????

Yuk yuk yuk.

I will check out Soros when I get the chance (but if you are a reader like me, you probably also have too many unread books to justify buying new ones!).

Thanks for bringing up the subject of complexity...I think it is more relevant than ever.

Dreamer
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Thank you for your thoughts on Complexity. You are right on, in my opinion. I am only about 200 pages into the book right now, but thus far, it is the most fascinating thing I have ever read.

What is this book? I did a search at Amazon and came up with three books with the title "complexity." Thanks.
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SlyAce,

Complexity is not a book about stock strategies.

It is mentioned, along with other books, on page xi of the acknowledgements in the revised edition of GG.


It is really hard to say that the book is about any one thing.

Basically, it retells the story of a bunch of scientists trying to come up with a unified theory of everything under the sun.

They mix economics in with a bunch of other disciplines, at a place called the Santa Fe Institute.

For some strange reason, I really liked the book, and I understand most of the concepts, but I am completely unable to explain them to anyone else.

My advice....read it on an empty stomach...you will need a clear head for this one. :)

LucidDreamer
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Complexity is not a book about stock strategies.

It is mentioned, along with other books, on page xi of the acknowledgements in the revised edition of GG.


Thanks LucidDreamer
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John (TMFFuz): I received my copy of Inside the Tornado last week. The paper back version has 26 pages devoted to Competitive Advantage.

Since it was written prior to the Gorilla Game, this may explain why the GG book treats CAP on the light side.

In this chapter, Geoffrey Moore also uses the three value disciplines 1) Product Leadership, 2) Operational Excellence, and 3) Customer Intimancy discussed in Michael Treacy and Fred Wiersema's book The Discipline of Market Leaders to discuss how to gain/lose Competitive Advantage through out the Technology Adoption Life-Cycle.

In part one of this book, The Developement of Hypergrowth Markets, he has 6 chapters entitled 1) The Land of Oz, 2) Crossing the Chasm - and Beyound, 3) In the Bowling Alley, 4) Inside the Tornado, 5) On Main Street, and 6) Finding Your Place.

In part two of this book, Implications of Strategy, he has four chapters entitled 1) Strategic Partnerships, 2) Competitive Advantage, 3) Positioning, and 4) Organizational Leadership.

I haven't completed the book, but it does compliment the GG book.

Harold
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Hi Harold,

Tornado is on my hit list of book to read within the next month. Currently, I am reviewing the GG to create my own study guide of sorts. By condensing it down to 30 pages or so, I can really galvanize the concepts in the book. However, I think the GG provides just the surface of these concepts. For example, if you are interested in Switching Costs and Barriers to Entry, you may wish to consult Michael Porter's work for more depth. Tornado will provide more insights into the technology adoption life cycle. I am reading Innovators Dilemma right now for more insight on disruptive technology. I am reading other resources for the other concepts. I am taking the best stuff and putting it together for my own use.

As far a CAP in concerned, it probably makes sense on a general level for tech stocks. What I have noticed is that many tech stocks do not have the fundamentals to calculate CAP in a traditional way, while many other leading companies (e.g. Coke) are easier to do. So, I (think) I see now why the authors approached CAP the way that they did. Still though, they could have gone to extra yard and done a CAP analysis of MSFT. That would have helped a lot of folks here.

Best,

John Del Vecchio
Investment Research Fool
The Motley Fool
http://www.fool.com
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John: I strongly suggest you read the newer paperback version of Inside the Tornado.

The original was published in 1995. The paperback version, with updated Introduction was published in 1999.

In the 10 page revised introduction he shares feedback and responses to the original book and he has 4 more years of experience with Internet-based businesses.

For example, he discusses what will hold up B2B for some time to come. While he reiterates the optimal business models for each of the four stages of the Technology Adoption Life cycle as 1) Early Market - Proessional services, 2) Bowling Alley - Application services, 3)Tornado - Infrastructure products, and 4) Main Street - Transaction services; he contends the Internet market tornado is so powerful that it has sucked all four models into its vortex.

Quoting from the last paragraph of his introduction "in light of the above, our consulting practice at The Chasm Group, which has traditionally been targeted at product companies, no longer can sustain that focus. The product/service interchange has become so fundamental to navigating the Internet-impacted waters that every company needs to retain some flexibility to 'go the other way'. This represents the single biggest change in prespective since Inside the Tornado was written ...."

Also, thanks for above suggested sources and to remind me of the benefits of the condensed self-prepared study guide.

FOAP

Harold
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The original was published in 1995. The paperback version, with updated Introduction was published in 1999.

Thanks from another John, I've been reading Inside the Tornado (hardback version 95) and had no clue that the paperback was different. I had to order the one I've got, but maybe I can find a paperback somewhere to read just the intro.

John M
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Your welcome John M: I don't think anything but the Introduction has been changed from the hardback to the paperback.

Mr. Moore's statement about changing from targeting product companies to targeting product/service companies seems to have been a change that followed the publishing of the revised GG book, as well. While he briefly covered the various service industries in the revised GG book, there didn't appear to be much gorilla-related interest in any of them.

Harold
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