The Big Tech Score: A Top Wall Street Analyst Reveals 10 Secrets to Investing Success

256 Pages·2000·0.94 MB·English

by  Michael Kwatinetz

B u s i n e s s C u l i n a r y A r c h i t e c t u r e
C o m p u t e r G e n e r a l I n t e r e s t
C h i l d r e n L i f e S c i e n c e s B i o g r a p h y
A c c o u n t i n g F i n a n c e M a t h e m a t i c s
H i s t o r y S e l f - I m p r o v e m e n t H e a l t h
E n g i n e e r i n g G r a p h i c D e s i g n
A p p l i e d S c i e n c e s P s y c h o l o g y
I n t e r i o r D e s i g n B i o l o g y C h e m i s t r y
e
WILEY
B O O K
WILEY
JOSSEY-BASS
PFEIFFER
J.K.LASSER
CAPSTONE
WILEY-LISS
WILEY-VCH
WILEY-INTERSCIENCE
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The Big
Tech Score
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THE
BIG
TECH
SCORE
A Top Wall Street Analyst
Reveals Ten Secrets to
Investing Success
MIKE KWATINETZ
DANIELLE KWATINETZ WOOD
John Wiley & Sons, Inc.
New York • Chichester • Weinheim • Brisbane • Singapore • Toronto
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(cid:2)∞
This book is printed on acid-free paper.
Copyright © 2001 by Michael Kwatinetz and Danielle Kwatinetz Wood.
All rights reserved.
Published by John Wiley & Sons, Inc.
Published simultaneously in Canada.
No part of this publication may be reproduced, stored in a retrieval sys-
tem or transmitted in any form or by any means, electronic, mechanical,
photocopying, recording, scanning or otherwise, except as permitted
under Sections, 107 or 108 of the 1976 United States Copyright Act, with-
out either the prior written permission of the Publisher, or authorization
through payment of the appropriate per-copy fee to the Copyright Clear-
ance Center, 222 Rosewood Drive, Danvers, MA 01923, [phone],
fax [phone]. Requests to the Publisher for permission should be
addressed to the Permissions Department, John Wiley & Sons, Inc., 605
Third Avenue, New York, NY 10158-0012, [phone], fax (212) 850-
6008, E-Mail: PERMREQ @ WILEY.COM.
This publication is designed to provide accurate and authoritative infor-
mation in regard to the subject matter covered. It is sold with the under-
standing that the publisher is not engaged in rendering professional
services. If professional advice or other expert assistance is required, the
services of a competent professional person should be sought.
ISBN 0-471-39592-7
Printed in the United States of America.
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Contents
Foreword by Scott W. Schoelzel . . . . . . . . ix
Preface . . . . . . . . . . . . . . . . . . . . . . . xiii
Acknowledgments . . . . . . . . . . . . . . . . xvii
Chapter 1 . . . . . . . . . . . . . . . . . . . . . . . 1
The Big Tech Score Theory of Investing
(cid:2) A Few Key Points
(cid:2) Why You Can Beat the Pros
(cid:2) Why This Book?
(cid:2) Playing the Stock Market
(cid:2) Summing Up
Chapter 2 . . . . . . . . . . . . . . . . . . . . . . 13
Concentrate Your Investments on a Handful
of Companies
(cid:2) Creating Investment Pools
(cid:2) Scared Money Rarely Wins
(cid:2) Timing Is Everything
(cid:2) Summing Up
v
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vi contents
Chapter 3 . . . . . . . . . . . . . . . . . . . . . . 23
Buy Low, Sell High
(cid:2) Feeding the Frenzy
(cid:2) Getting Specific
(cid:2) In and Out?
(cid:2) The Long-Term Portfolio
(cid:2) Summing Up
Chapter 4 . . . . . . . . . . . . . . . . . . . . . . 35
Don’t Invest Blindly
(cid:2) The Seven Deadly Sins
(cid:2) Summing Up
(cid:2) Interview with Thomas G. Kamp, Alliance Capital
Chapter 5 . . . . . . . . . . . . . . . . . . . . . . 45
Invest in Great Management
(cid:2) What to Look For
(cid:2) Hail the Founder
(cid:2) Help Wanted
(cid:2) Observing a Company in Hot Water
(cid:2) Hiring the Best People, Period
(cid:2) Summing Up
(cid:2) Interview with Mark Kingdon, Kingdon Capital
Management
Chapter 6 . . . . . . . . . . . . . . . . . . . . . . 67
Look for Companies with a Competitive
Advantage
(cid:2) The Virtual Enterprise
(cid:2) The Economic Advantage
(cid:2) A Product That Can’t Be Replicated
(cid:2) The Unbeatable Brand
(cid:2) Almost, but Not Quite
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contents vii
(cid:2) Summing Up
(cid:2) Interview with Larry Solomon, Capital Group
Chapter 7 . . . . . . . . . . . . . . . . . . . . . . 87
Love Companies Customers Love
(cid:2) Providing Better Service
(cid:2) Creating an Elite Product
(cid:2) Delivering More Value
(cid:2) Putting It Together
(cid:2) Summing Up
(cid:2) Interview with Fred Kobrick, Kobrick Capital Fund
Chapter 8. . . . . . . . . . . . . . . . . . . . . . 105
Look for Long-Term Thinkers
(cid:2) Prime Examples of Short-Term Thinking
(cid:2) Going Long
(cid:2) Prime Examples of Long-Term Thinking
(cid:2) Summing Up
(cid:2) Interview with Roger McNamee, Integral Capital Partners
Chapter 9. . . . . . . . . . . . . . . . . . . . . . 117
Always Look Forward, Not Backward
(cid:2) Betting on the Old-Timers
(cid:2) Betting on the New Wunderkind
(cid:2) The Do-It-Yourself Mentality
(cid:2) Summing Up
Chapter 10 . . . . . . . . . . . . . . . . . . . . . 137
Pick Only High-Growth Companies
(cid:2) What Spurs Growth?
(cid:2) The Stockholder Screen Test
(cid:2) Growth Is Hard to Maintain
(cid:2) Summing Up
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viii contents
Chapter 11 . . . . . . . . . . . . . . . . . . . . . 151
The Best Stocks Are Cheaper Than You Think
(cid:2) The Game
(cid:2) Applying Guidance Bias to Valuation
(cid:2) A Word of Warning
(cid:2) Summing Up
Chapter 12 . . . . . . . . . . . . . . . . . . . . . 171
Mike and Danielle’s Portfolios
(cid:2) Mike’s Portfolio
(cid:2) The Unknown Portion of the Portfolio
(cid:2) Summing Up
Chapter 13 . . . . . . . . . . . . . . . . . . . . . 183
The New Technology Era
(cid:2) A High-Tech Primer
(cid:2) Linux
(cid:2) Solid, if Not Sexy
(cid:2) Summing Up
Chapter 14 . . . . . . . . . . . . . . . . . . . . . 203
The Fourth Wave of the Web
(cid:2) History Lesson
(cid:2) The Fourth Wave and You
(cid:2) The Future of the Fourth Wave
(cid:2) Place Your Bets
(cid:2) Summing Up
Epilogue. . . . . . . . . . . . . . . . . . . . . . . 221
Index. . . . . . . . . . . . . . . . . . . . . . . . . 223
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Foreword
T
here are people that each of us meet over the course of
our lives who are truly extraordinary at what they do. Such
a person might be a doctor, an architect, or a teacher you had in
high school. They come from all walks of life. While you’re not
always exactly sure what it is that makes them extraordinary, you
recognize it when you see it. You don’t need to spend even five
minutes with John Chambers, of Cisco, to realize: Hey, this guy
isn’t just good, he’s spectacular. I put Mike Kwatinetz in that upper
echelon of extraordinary people.
I met Mike in 1991. I don’t actually remember what stock we
first talked about. Mike was an analyst at Sanford Bernstein and I
was immediately impressed with the depth of his knowledge.
Before becoming an analyst, Mike was a mathematician and a soft-
ware engineer. It was apparent from our first meeting that he had
a true first-hand sense of the software industry and the complexi-
ties inherent in technology investing.
We have talked about dozens of companies over the years, as
well as the whole technology landscape—Microsoft, Dell, Cisco, the
recent rise in the popularity of Linux, Sun Microsystems, the frag-
mentation of Unix, IBM, Apple, and many more. With respect to
Microsoft and Dell, two positions in which we both made a lot of
money for our clients and shareholders, we debated everything—
from various new products to their respective Internet strategies,
ix