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No. of Recommendations: 4
Hi Dan,

Great thoughts. I was reviewing the book this morning and I really liked what Paul Johnson did with the Cisco case study (much better than with ORCL). When the annual growth rate exceeded 100% and the Q/Q growth rate was accelerating, you have a tornado forming (or potential tornado b/c I think other factors are important too). So, you can see it forming!

Using this methodology helps to identify the exact time period that the tornado formed. But, you need a few past quarter's worth of data to see it swirling around. Then, in case you happen to miss the beginning of the tornado, you know the duration of the tornado. According to the book, you don't need to micro-manage things. So, even after the tornado has formed you still have time to analyze the situation and decide what to do.

However, I do not know if there are any screening tools that set up this situation. Unfortunately, Market Guide does not. The data is there, but not in a way in which we can use it for GG purposes. Shucks!

I like your other ideas about gross margins, debt, etc. However, those should be secondary considerations in my opinion. These factors may matter when you are doing some fundamental analysis. It should probably not become a primary consideration when trying to analyze the tornado.

Why? Because these factors could influence your decisions in a harmful way. What the #@$% does TMFFuz mean? Well, based on the theory of complexity (the underlying theory of the Gorilla Game) the winner is formed almost at random. So, the purchasers of the technology may want to analyze the sustainability of the firm they are buying from (e.g. I am buying a router from this company called Cisco that I have never really heard of, are they going to be around in a year?), but they may not have certain thresholds for gross margins or debt or whatever. I would just use other fundamental data with care at this point in the firm's development. Hopefully this makes sense.

And, you are going to still have to look at market share too.


John Del Vecchio
Investment Research Fool
The Motley Fool
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