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Roy,

I'm glad I drew you out of lurk mode. These 6 are the standard criteria in the FAQ over at the Silicon Investor G&K thread.

1. discontinuous innovation
2. proprietary open architecture
3. high barriers to entry
4. high switching costs
5. strong value chain formation
6. tornado market existant or foreseeable

The "ten rules for playing the gorilla game" on page 193 of the revised manual would be more applied after the above criteria were met so that we know 'what kind of technology' to buy.

Those 10 rules were (with examples I added):

1. If the category is application software, begin buying in the bowling alley. (CRM examples would have been Clarify, Vantive, Siebel, Remedy a few years ago or SCM examples would have been i2, Manugistics, Red Pepper, Datalogix)

2. If the category is enabling hardware or software, begin buying after the tornado has formed. (Qualcomm would have been a recent example of this as the CDMA tornado showed that it had formed. Buying Microsoft and the basket in the 80's would have been done once the PC tornado was formed)

3. Buy a basket comprising of all the gorilla candidates-usually at least two, sometimes three, and normally no more than four companies. (Example is the current SAN fiber channel switch market which would include Brocade, Gadzoox, Ancor, Vixel)

4. Hold gorilla stocks for the long term. Sell only on proven substitution threat. (Long term examples would be Oracle, Cisco, Microsoft, Intel and now we would consider Siebel, Qualcomm in that long term group)

5. Hold application software chimp stocks as long as they exhibit potential for further market expansion. Do not hold enabling-technology chimps. (CRM chimp Remedy is an example and SCM chimp Manugistics is an example of application software chimps.)

6. Hold kings and princes lightly, selling individual stocks on a marketplace stumble and the category upon deceleration of hypergrowth. (PC OEM's might be the best example of this. Compaq was the King and stumbled. That was the sell point. The PC OEM's are still quality growth stocks, but certainly past the hypergrowth stage)

7. Once it becomes clear to you that a company will never become a gorilla, sell its stock. (If you are playing the basket and one appears not to be winning or have a chance to win - sell. Using the CRM basket, selling Clarify or Vantive once they were acquired would have been the strategy provided one had waited that long.)

8. Money taken out of non-gorilla stocks should immediately be reinvested in the remaining gorilla candidates. (In the basket, if one appears to be developing the 'chimp' role - sell it and consolidate in the stronger candidates. Using the example above of the fiber channel switch market, Vixel, Ancor and Gadzoox appear to be getting their lunch eaten by Brocade. However, Ancor may have a chance in the large switch market, but I'm watching closely and will see how this game plays out)

9. In a gorilla collision, hold your gorilla candidates until there has been a definitive outcome. (The book talks about this and mentions on page 147 about the possible collision between Microsoft and Cisco)

10. Most news has nothing to do with the gorilla game. Learn to ignore it. (Clear enough)

BB
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