………………FAQ. Version 2.03. Part I. Last updated 01/28/2001………
………………(Gorilla Stock Hunter's Survival Guide)…………
"The general who wins a battle makes many calculations in his temple before the battle is fought. The general who loses a battle makes but few calculations beforehand. Thus do many calculations lead to victory, and few calculations to defeat; how much more no calculations at all!" - Sun Tzu
1. Opening Statement: Welcome New Visitors to the G & K candidates thread.
Before beginning, we'd like to make 4 points:
First, we wish you a warm welcome, and hope that your investing experience will be enriched by the effort it takes to become acclimated to this thread.
Second, everything you need to know begins with our header. We'll show you how to make the fullest use of the thread as an investment guide, and we hope you'll follow the thread as you work your way through the header. Until you've done that, we request that you follow along with the current posts, but hold your questions until after you've completed the prep, which also includes a full reading of "The Gorilla Game" by Goeffrey A Moore.
Third, please don't confuse the total realm of hunting for potential Gorillas with the much more limited focus of this thread. That this thread is focused only on a portion of Gorilla hunting does not imply that people shouldn't address other aspects on their own or as part of another thread. For the purpose of achieving an informed discussion in this thread, we are purposely devoting our energy only to the aspect of Gorilla Gaming that involves a pure royalty or gorilla play in which a mass market and a tornado already exists or will soon appear. We don't feel the other areas of Gorilla Gaming can be discussed along with our intended topics without adding confusion, especially for the novices.
And fourth, we really do want you eventually to post. Now, we realize people lurk for any number of reasons and, if it is simply a question of being more comfortable listening and learning, then lurking is just fine. But it is important to realize that someone here must post, or we'll all end up looking a blank screen. So, if you lurk because you are not sure of what's going on, or you are afraid of being embarrassed, then that's a problem that can be fixed.
If you have a question, first check the header, or this message, and then, if you think it's necessary, check with a regular or two via Private Mail. I, for one, will be glad to help.
So when the time comes, please post.
2. Objective: To ease the conversion from lurker to poster.
3. Index:
Part I
....1. Opening Statement.
....2. Objective.
....3. Index.
....4. Definition of Terms.
Part II
....5. Frequently Asked Questions (FAQ).
....6. Thread Projects.
....7. Thread Resources.
....8. Closing Statement.
4. Definition of Terms:
Basket of Stocks = "A tactic to invest in a market of gorilla candidates, eliminating the need to guess which one if any will be ultimately crowned the winner." - Mike Buckley.
Bowling Alley = A tactic for those companies already across the Chasm, by which they hope to become the leading contender when and if the tornado starts. That is, they attempt to invade one niche market, or bowling pin, at a time.
BTE = Barriers to Entry. The wall Gorillas build around their domain. Ironically, Kings, do not build such barriers, and therefore their domains are that much weaker. "BTE" prevents potential competitors from competing with a Gorilla in its home domain.
btw = By the way.
CAP = Competitive Advantage Period. "CAP is defined as the length of time a company can generate excess returns on incremental investment that exceed its cost of capital. Mauboussin and Johnson called CAP "the neglected value driver." It is neglected by most for two reasons. First, most market participants use accounting-based metrics to estimate value, for example, multiplying a projected future EPS by a P/E multiple to estimate value. Second, for strategic planning, most companies use a period of three to five years, but the CAP of the U.S. stock market is estimated to be 10 - 15 years, with the better companies at 20 years or more. Most DCF analysis also uses EPS estimates of five years taken from Value Line, yielding too large a terminal value. However, empirical data reveal that the stock market not only deems cash flow to be more important than earnings but also implicitly recognizes cash flow many years into the future. " - Don Mosher
"CAP is really called SVA or "Shareholder Value Added", and is a type of free cash flow. It's basically reverse engineered so that rather than coming up with the value of the company, you come up with the number of years that justifies the value of the company based on market forecasts. The best resource [for CAP] is Alfred Rappaport's book called Creating Shareholder Value. The other name for CAP is 'value growth duration. ' " – johndelvecchio.
Chasm = The transition a company must go through before its product's demanded by the mass market. Once across the chasm, a tornado (and possibly a gorilla) may develop. As Stockhawk (Sir Plutus) has said: "The Chasm is that point in a company's development where tech-savvy early-market types have bought into its product, but the mass market is still not biting. On the other side of the Chasm lies the 'Bowling Alley,' where each niche market is seen as a pin to be knocked down. When enough pins fall a Tornado develops, which is the time of mass market adoption or hypergrowth (that's the fun part)." Not all "Shiny Pebbles" are able to cross the "Chasm."
Chimps = A company that is not a gorilla, or a monkey, in a Gorilla Game market. As LindyBill said it's "a company that tried to become a gorilla but did not get picked. IBM's OS2 is a prime example of a Chimp product. Apple is a chimp." Note: they do not sell the gorilla's product.
DD = Due Diligence. The care one must take when investing money. Gorilla game players are in no hurry to decide where to invest. We look for good long-term investments and believe that it's more important to make the right decision than it is to make a decision.
We believe, as Waren Buffett noted, “investors should think of investing like a baseball game where no strikes are called. It's OK to let lots of hittable balls (excellent investments) go by untouched. What's important is that when you do swing, you swing at a gimme. This requires us to stay within our circle of competence.” - ardethan
Discontinuous Innovation = A new idea or product, not compatible with existing systems. If such a product becomes a mass-market phenomenon "a massive shift in spending accompanies it, with a whole new set of vendors coming out of nowhere to produce stunning economic returns" – (page 8) TRFM.
FUD = Fear, Uncertainty and Doubt. One of the reasons a good stock may drop on a no-news day. Occasionally, FUD's intentionally spread by a tribe of evil dwarfs (also known as "Shorts").
g or gg = grin or grin, grin.
GAP = The “Competitive Advantage Gap, or just GAP for short. It represents the potential of a gorilla to generate superior earnings based on making a superior offering. A gorilla has a much bigger GAP than a normal company for [multiple] reasons.” See TRFM page 97.
"In the Gorilla Game, a GAP is defined as an excess return above the risk-adjusted rate of return. Because the majority uses "rules of thumb," like the P/E ratio, their traditional mental models produce responses like "The P/E ratio is too high; this stock's price is extended; it is over-bought and will retrace until it reaches a realistic multiple." When high price is equated with high risk, then the majority may wait indefinitely for an 'over-valued' Gorilla to meet their price target. These gaps in expectations spell 'o p p o r t u n i t y.'" - Don Mosher.
Godzilla = A term coined by G and K thread member, Dr. Id, and selected by Goeffrey Moore for TRFM. A Godzilla company is "a hybrid between a King and a Gorilla that is riskier than a Gorilla because it doesn't possess enough of the Gorilla's characteristics." - Mike Buckley.
Gorilla = A company that owns the exclusive rights to a discontinuous, disruptive, innovation that the mass market must have, right now. They come in various types. For example, old "silverback" gorillas, such as Microsoft or Cisco, young gorillas (QCOM), and baby gorillas, such as (some believe) Gemstar. They develop in tornadoes, though not all tornadoes spawn gorillas.
gorilla-haven.org
According to Uncle Frank, a Gorilla possesses all of the following characteristics:
1. Discontinuous innovation
2. Proprietary open architecture
3. High barriers to entry
4. High switching costs
5. Strong value chain formation
6. Tornado market extant or foreseeable
GG = Gorilla Game, as opposed to the parallel King/Prince/Serf (Royalty) game, consists of Gorilla/Monkey/Chimp companies. As LindyBill pointed out: "The Gorilla Game is a form of growth investing that focuses on High-tech, and specifically on product-oriented companies that sell into mass markets undergoing hypergrowth".
"Gorilla Gaming goes beyond the typical fundamental analysis based upon financial ratio analysis, gross margin determinations, sales projections, etc. Gorilla Gaming is an effort to determine a stock's (company's really) potential to overwhelm it's competitors. Because if it is able to do so, a gorilla can become more profitable by commanding a higher market share and demanding higher gross margins than companies forced to compete in commodity markets." - Adairm
GG Validity = "Though it's a useful exercise for newcomers, we are not here to debate the merits of a Gorilla Game approach to stock selection. Regular contributors to the G&K hunt accept that Moore's metrics have proven useful in identifying exceptional investments, as judged by growth rate and low risk/reward ratio. Those who are trying to decide if the G&K approach is suitable for them are invited to rtfm, review the first few thousand posts, and ask experienced hunters for clarifications if needed. " - UF
G&K Thread = "The members of this thread form a talented community who share a common belief that is coupled with uncommon ambitions. We are dedicated to dreams of various, desirable, possible futures, believing that our imagined possibilities can be secured by long-term investing using the strategies of the Gorilla Game (GG). A consensus unites us: the belief that Moore's modeling of the GG provides a means of selecting high technology stocks that can transform our dreams into reality, a means of securing what is to come from knowing what is here now. "
"The G&K thread has developed a remarkable culture. Our integrated discussions move our investing work along when it helps us do the task of building or rebuilding and testing or retesting our models; the thread is a feedback loop for building and testing ideas and portfolios. It is part of a process of caring engagement that marks us as human beings and that propels the ascent of our species. Each of us has something to offer to all of us; together we build models that are more than the sum of our parts. As Bronowski (1981, p. 269) concluded, "The personal commitment of a man to his skill, the intellectual commitment and the emotional commitment working together as one, has made the Ascent of Man." - Don Mosher.
Header, The = The message from Uncle Frank that introduces the thread when you log on. It's also hoped that each message would come with its own subject header line so that Erick's life would be that much easier (see Thread Projects below).
High Switching Costs = The flip-side of BTE. "HSC" prevents those already captured by a Gorilla from leaving its domain.
Hyper Growth = Growth greater than 100% yoy. - uf
I.A. = Intangible Asset. – Dale Russell.
See the Homepage for Baruch Lev:
stern.nyu.edu
Plus, there is an interview discussing intangible assets, which he also calls intellectual or knowledge capital at:
stern.nyu.edu
Additionally, there are message numbers 32160, 31420, and especially 32493 and 33894
IMHO = in my humble opinion - uf
sixpak.cs.ucla.edu
IPR = Intellectual Property Rights: the actual bricks that make up the walls Gorillas build around their domain. However, for GG purposes the only important patents are those that actually prevent a competitor from duplicating a product.
jmho = Just my humble opinion.
King = Not a gorilla. (And it isn't going to become one, either). As LindyBill pointed out a king is "the Market leader, properly with a two-times lead or better over its closest competitor. If the lead shrinks too far, the king becomes a prince, and we have a kingless market. Because they lack architectural control, and because switching costs are low, they cannot force competitors onto the defensive the way Microsoft, Intel, or Cisco can. Seagate is a king of hard drives."
In "Living on the Fault Line" (page 172) Geoff defines a King as "The market leader in an open-systems tornado, this company has outexecuted its competition early on and is now enjoying the increasing-return effects of market-share leadership. But unlike gorillas, kings have no proprietary technology to keep customers from exiting or competitors from entering their market. As a result they can always be replaced, and thus the valuations of kings are significantly lower than gorillas. "
LindyBill = Co-founder of the thread, along with Uncle Frank, JRH and Mike Buckley. He's also known as "Dancelot."
sixpak.cs.ucla.edu
murrayontravel.com
LOL = laughing out loud - uf
LTB&H = the surest way to grow your portfolio - uf
It's also known as 'Long Term Buy and Hold'.
And as Philip Fisher said, "If the job has been correctly done when a common stock is purchased, the time to sell it is -- almost never," or for those who prefer Rafael Sabatini: "Who goes slowly, goes soundly."
For a more detailed discussion of the advantages of LTB&H see message numbers 34281 and 34283 by Sir Lyre.
Main Street = In the fm, p35, Moore says, "the tornado lasts only a few years, perhaps three to five, the time it takes for the initial surge of demand to be absorbed, after which the market reestablishes equilibrium with supply. We call this new state Main Street. . . . "
Manual, The = "The Gorilla Game." Also known as TFM or TRFM.
Margin = The investor's version of Russian Roulette. The more you play with it, the more you risk having to liquidate your holdings at the worst possible time and incur permanent, quite possibly irreparable, losses. Carrying large amounts of margin, like holding large quantities of short-term options, makes it impossible to sleep or hold through downturns (which always occur, and which hit gorillas along with everything else). These approaches are thus incompatible with gorilla gaming.
-tekboy/Ares @ dowhathesays,notwhathedoescom
Remember, strategy dictates tactics.
Momo Players = Momentum players. Investors who believe that if a stock increased 10% yesterday it's sure to increase 10% today. The comings and goings of the Momo players are one of the reasons for the volatility of the Nasdaq.
Monkey = A company that is neither a gorilla, nor a chimp, in a Gorilla market. It makes the "gorilla's product and sells it for less. AMD is Intel's monkey. Ascend and Fore are Cisco's monkeys" - LindyBill.
OT = off topic - uf
OTOH = On the other hand.
PM = Private Message - To send a private message check question "P" below.
Pongid = Gorilla-like. A term used by the grognards. (Just kidding.)
Prince = A company in a royalty market where there is no clear market leader. Princes have the potential to become Kings but not Gorillas. It's a market challenger and potential co-leader. – Eric Jacobson
Prince with Attitude (PWA) = A market leader in a royalty market that does not have twice the market share of its closest competitor and is therefore not a King. It is considered the first among equals and has the potential to become a King if it can leverage its management, size, production efficiencies, or other advantages to capture at least twice the market share of its closest competitor. - Eric Jacobson
Proprietary Open Architecture = One of the 6 characteristics of a gorilla. TRFM states (page 52) that "the power of the gorilla is based on its control over a value chain. That control, in turn, has its roots in what the high tech community calls architecture. . . . Architectures define the way in which various parts of a system hook into one another in order to make the whole thing work. They are incredibly significant because, once an architecture has been agreed to, it is very hard for a competing architecture to gain adoption. . . .Architecture is proprietary when it is under the control of a single vendor, in this case the gorilla. It is open if its interfaces are published and other vendors are encouraged to integrate their products with the gorilla product to create a whole product for a target customer."
PSR = Price Sales Ratio. Stock Price divided by Sales per share. – ardethan.
ROFLMAO = Rolling on the floor laughing my a$$ off - uf
Royalty Game = Not the Gorilla Game, but the parallel King/Prince/Serf game. This is a market without a proprietary architecture. "The primary element that distinguishes a Gorilla Game from a Royalty Game is the existence of a proprietary open standard, owned and controlled by the Gorilla, of course. " – uf
RTRFM or RTFM = Read The (Revised) Field Manual. The revised (second) edition of the "Gorilla Game."
Russian Army approach = Developed by LindyBill: reinforce your winners, sell your laggards. (This strategy is similar to, but a more extreme form of, the strategy recommended by former JDSU Chief Executive Kevin Kalkhoven, "never leave a party till the booze runs out.")
Sasquatch = A figment of an excitable, overactive but, unfortunately, misinformed imagination. A company misidentified as a gorilla. – Dale Russell.
Serf = A market also-ran, in a King/Prince/Serf market. "These companies fill out the low end of the market." - LindyBill.
Shiny Pebble = A term coined by LindyBill, a thread co-founder, and picked up by UF, to describe a new young tech company that was hot, but was way too early in its cycle to consider holding. The term came from Isaac Newton's "When I look at what I have learned about the Universe, I feel like a small child, walking along a beach, picking up shiny pebbles, while a whole ocean of knowledge lies before me."
An unstated assumption of this thread is that a "Shiny Pebble" must both be above a certain minimum size and within sight of the chasm. In other words, its DNA must be suspected of containing Gorilla or King genes.
Some Shiny Pebbles, or Snowballs, can be found in the "Watch and Wait" portfolio (Year 2000 version). Also see 'Snowball' below.
Snowball = Some thread participants prefer this term to the more easily misunderstood 'Shiny Pebble.' They are synonymous.
Story Stock = A company whose greatest ambition is to become a Shiny Pebble. When investing in these companies you not only get a stock certificate but an interesting story. Titan (TTN) is a prototypical story stock. (Think "Chicken-tronics").
TALC = Technology Adoption Life Cycle. “The framework that describes how high-tech markets develop in characteristic ways that set them apart from other markets” (E.G., Technology Enthusiasts, Visionaries, Pragmatists, Conservatives, and Skeptics). – See pages xviii and 23 of TRFM.
TIA = Thanks In Advance.
TFM, TRFM = "The Gorilla Game," by Geoffrey Moore, Paul Johnson, and Tom Kippola. It's in a, revised, second, edition now (thus the added "R"). It actually stands for "The Field Manual" or "The Revised Field Manual."
Thread Bloat = A problem of "low signal-to-noise ratio, caused by a surfeit of mindless and/or irrelevant babble; something to be avoided." - tekboy/Ares
(Some of us are trying to post only relevant babble.)
Tornado = The buying frenzy that develops when large segments of the mass market must have a particular product, right now. (Think of Cabbage Patch dolls) And, to quote Mike Buckley, quoting the manual, a "consistently increasing rate of growth is an important symptom of a tornado." Also called hyper-growth. Some tornadoes, but not all, spawn gorillas. When a tornado ends a gorilla finds itself on Main Street.
As Mike Buckley pointed out "because it takes at least two quarterly reports to identify a trend, it's inherent that we will never positively identify a tornado until at least three months after it has begun. "
UF = Uncle Frank - Co-founder of the thread along with LindyBill, JRH and Mike Buckley.
sixpak.cs.ucla.edu
Value Chain = "A company's customers, suppliers and third-party marketers who rally around the company's proprietary architecture. They do everything possible to ensure the success of the proprietary architecture because doing so is critical to the success of all members of the value chain." - Mike Buckley.
Vaporware = A putative product.
1. Vaporware describes unreleased software or hardware for which specifications exist, but the product is promised for some future date. Vaporware may be presented to the marketplace, often under nondisclosure, with features and benefits – Down South.
2. Vaporware is software which is promised when it is little more than a glint in the inventor's eye, with the announcement calculated primarily to stop competitors developing such a product, to stop customers buying the competing product, and to confuse and FUDalize others. - Mqurice
VBG = Very Big Grin.
WAG = Wild A$$ Guess.
………………………… To Be Continued ………………………………. |
