Hi John,
I thought the poll was interesting. It helps explain why consumer spending and stock valuations have held up as well as they have. American's self-confidence, their belief that the future will be better than today, has not been shaken, in spite of war and recession. Those who are waiting for 1974 or 1980-type valuations, will have to wait till America's self-confidence is as low as it was then. We are nowhere near that point, and many never get there. The Beliefs in Technology and Progress are as strong today as in 1999 or 1995. We shall see whether those Beliefs are warranted. If we get to mid-2002, and the recession is over, and the war is still being won, then stocks will keep going up. On the other hand, if the recession isn't over, or we have a "profit-less" recovery, or the war goes badly, then that confidence (and consumer spending and stock valuations) could take a huge step down. I'm still betting on the rosier scenario, but watching warily, and beginning to hedge my bets.
Re: The Gorilla Game: It really is a worthwhile book to read. Just ignore all the many rationalizations for high valuations ("Gorillas are always undervalued", is the book's basic statement on valuation). The book says that, in each tech sector, in each supply chain, there is one (only one) company who gets most of the total available profits. These companies own a Proprietary Technology which the market has adopted as the Global Standard, and this creates insurmountable barriers to entry, which allows the Gorilla to have permanently high margins. MSFT, INTC, CSCO, QCOM are examples. Gorillas get dethroned, when a Discontinuous Innovation (in the technology on which the Gorilla's products are based) makes the Proprietary Technology obsolete (or turns it into a commodity).
Also, simply having large market share or a strong brand name or being the lowest-cost producer, does not make a company a Gorilla. Dell or Micron, for instance, are not Gorillas.
It could be argued that the examples you give, either (1) never were Gorillas, or (2) were dethroned by a Discontinuous Innovation. The switch to digital photography, which makes Polaroid's patent portfolio obsolete, is an example of a Discontinuous Innovation. |
