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No. of Recommendations: 41
Imagine if we “Gorilla Gamers” found a company that pioneered a new market in technology software AND hardware. This company:
1. Developed a discontinuous innovation that would forever change the world
2. Has proprietary, open architecture to this technology
3. Has very high barriers to entry
4. Has a relatively high switching cost
5. Developed and completely controls the value chain and
6. The market will grow at 25% for at least the next 20 years!

If I told you that this company generated over $2 Billion dollars in profits last year and owns more than 90% of the market, how much would you pay for it?

Some of you would say 25 X earnings would be a steal - $50 billion.
Some of you would say 80-100 X earnings or even 192 X earnings like Cisco would be fair - $160 - $384 billion.
Some of you would even say that that “it doesn't matter what the market capitalization of this company is – just buy it!!!!”

Regardless, most all “Gorilla Gamers” would say that you could put $500,000 into this company, not look at it and basically go fishing for 20 years – right BB?

Let's say (for arguments sake) that you got in when the market cap of this company was only $50 billion and went fishing for 20 years.

<Time elapse 20 years>

Now, you just got back from your 20-year fishing safari and are ready to retire in Style! You look up the ticker and can't find it. It turns out that your ENTIRE COMPANY was sold to Hasbro in 1998 for $5 million (with an m).

The company you just bought was Atari Inc. in 1980. At that time, they had just posted record sales and $2 billion in annual profits, occupied 80 offices in Sunnyvale, California and dominated over 90% of the video gaming community.

Your $500,000 investment is now worth

Drum roll . . . .

$50 - Have fun on your retirement.

Atari was the biggest and best example of a mature gorilla 20 years ago. They DOMINATED the video gaming world, controlled the value chain and had ALL the characteristics of a Gorilla as defined by the book and this board.

I realize that the principles of the GG say to sell when a discontinuous innovation threatens the gorilla; you may have sold Atari when you acknowledge a threat from Nintendo. The point is, you must stay informed and open-minded about evolving technologies. Most importantly, you must understand that price does matter when evaluating a stock.

Unfortunately, there is no easy answer. No book has all the answers for investing. The Gorilla Game isn't “wrong” per say, it just isn't always right. Price DOES matter and the people who said to buy QCOM in January 2000 were WRONG. If you owned it then, you should have sold.

If you own CSCO now, you should sell – it's too expensive given it's future earning potential

If you own INTC now, understand that it is both expensive and NOT a sure bet; the AMD Athlon core is a discontinuous innovation (possibly akin to Nintendo vs. Atari?). INTC does not have the laser tight focus it had 5 years ago; it's branching out into everything.

JDSU – I donno: I really don't.

I know that Price Does Matter and “Gorilla-Like” returns could mean a 10,000 fold DECREASE in your portfolio over a 20-year period.

JMHO (with some facts thrown in)


P.S. Perhaps the Gorilla Game should be re-titled “You should have bought CSCO in 1990.”
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