The Big Money: Seven Steps to Picking Great Stocks and Finding Financial Security - Softcover

Über die Autorin bzw. den Autor

Frederick R. Kobrick has managed money for more than thirty years. He spent fourteen years as an investment analyst at Wellington Management Company, then joined State Street Research & Management in 1985. He managed the State Street Research Capital Fund, which was one of the five best-performing funds in the country for fifteen years, according to USA Today. Kobrick's Capital Appreciation Fund was included in Money magazine's "Six Funds of the Decade" in 1996, and cited in USA Today as among the five best funds for the entire bull market.

Kobrick left State Street in 1997 to start his own firm, managing three public mutual funds as well as Kobrick Capital, a hedge fund for wealthy individuals and institutions. He was cited by The Boston Globe as one of the top three investors of the 1990s. Kobrick Capital was named USA Today's All-Star Fund of the Year in 1998 and 1999, the only mutual fund ever to win twice.

A frequent guest on financial programs on television, Kobrick currently advises institutions on a pro bono basis and also lectures. He teaches investment management part-time at Boston University, where he has served as a trustee.

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CHAPTER ONE

ANYONE CAN

BECOME RICH

One Stock, BASM, and the Seven Steps

America won the Revolutionary War. Although the reasons are complicated and involved strategy, perseverance, supplies, and more, we know from our school days that the British relied on an outmoded way of fighting. They were very well organized, marched in a straight line, and stood tall in their bright red coats when they fired.

In contrast, the Colonials were more free-form, hid behind trees, and fired when ready. Comedian Bill Cosby had a routine in which he played the captains of two teams, the Red Coats and the Settlers. When the captain of the Settlers won the coin toss, Cosby then asked him what he wanted.

The Settlers' captain said that the enemy team had to wear those bright red coats, approach the Settlers in a straight line, and fire only when commanded to, while the Settlers could hide behind rocks and trees and fire at will. We have always laughed at this, and put a lot of faith in that part of what we learned in school. The regimentation of the British undermined their ability to fight this type of war. The Colonials' flexibility and new ways of fighting were instrumental in helping them win a war against a much larger and better-equipped army.

America won its independence.

What if I told you that most investors today are practicing a form of "Red Coat Investing" that undermines their ability to become truly wealthy?

I would add that there is a way to win your own independence from inflexible, counterproductive investing. It is through very easy yet solid techniques that I and many other investors with top records have used for decades to capitalize on great stocks. It is not magic, nor does it work while you sleep. You have to actually learn the key techniques of how to recognize a great company and a future winner and then know how to hold on so you can create wealth.

First you have to free yourself from old ways of thinking. Next, you need a "compass," so that you can direct your attention to some critical but simple things. Haven't you always wanted to recognize, buy, and hold one of the companies that have made stock investors 100X (100 times) their money? (Throughout the book I use X to denote multiples -- thus here it means "one hundred times the value of the original investment.")

This book is about the compass, and about Seven Steps that are the simple but highly effective procedure you use, so you can stop beating yourself. It is not a manual with complex instructions, but in contrast, it uses entertaining true stories from my decades as a stock picker, with lessons. This is the way most of us learn most quickly and effectively.

Over time, you'll be able to work with more confidence and less frustration, and have a far better chance of making the big money. While this can be triples and quadruples, I think of the "big money" as more like making 10X, 25X -- even 100X or 200X -- your investment by owning the greatest companies, and owning them with true insights and patience over the long term. This will reward you with a second form of independence: being independently wealthy.

Since computers arrived on desktops in the early to mid-1980s, investing has not improved, nor has it improved with the arrival of the information age. For most people, information overload has simply made it much tougher to pick stocks in order to become wealthy. People look for almost everything, lacking focus and the secrets of what to look for. Those secrets of how and what to focus on are revealed herein. By simplifying and focusing, your chances of getting rich go up enormously.

My college English-literature teacher taught us that there were only seven great themes in all literature, so every book, movie, or play embodies one of those themes or a derivative of one of them. Well, there are a few more than seven themes (or principles) in all of investing, but not many. Almost all of the best growth-stock investing revolves around certain themes of how a company makes its money, grows, and thereby provides great stock wealth to its shareholders.

When we can recognize things that have occurred before, investing becomes much more simple. Each great company has a business model that it should describe in very straightforward terms: how it will grow, be very profitable, and protect itself from competitors. Learning to recognize the things that really matter gives you that critical focus and helps you avoid drowning in the flood of information available in this information age. Thus you can concentrate on the relevant aspects of that business model, the strategy and key assumptions a company makes, and, of course, how good its management is. I will outline how you go about finding this relevant information and how to focus on four critical factors, or BASM: Business model, Assumptions, Strategy, and Management. Investors who learn to focus on BASM become the investors who invest for the greatest gains.

The earnings that companies generate do create the stock gains over a relatively long period of time, but there is a lot of confusion and noise in the short term. The reporting and accounting techniques in the "numbers game," and even fraud and lying, can all seem like one of those English garden mazes to most of us at times. Thus I regard earnings as the "golden eggs" that create stock gains, but what I call the "golden goose" -- BASM -- is actually responsible for generating those golden eggs.

Still, our universal human instincts, foibles, and responses often get in the way of good investing. These foibles include greed, which can be a positive force if controlled, but a negative force when emotions run high. Next come lack of patience and lack of regard for time horizons, or insensitivity to benchmarks. Another critical and very human mistake is trying to predict short-term market moves and basing all good stock investing on high-risk factors, a strategy that almost always torpedoes great investing. Central to all great investing is substituting knowledge for emotions and building the right kind of knowledge to make the big money.

To use BASM and the tools and concepts of successful investing, we need to stop doing the things which, although typical of human behavior, constitute beating ourselves. We need, then, to follow the Seven Steps:

? knowledge

? patience

? disciplines

? emotions

? time horizon

? market timing

? benchmarks

The Seven Steps and BASM combine in a very fluid and natural way to allow you to invest for the big money. Learning to use these things is not very hard. You can see how they work in the examples I offer in this book. You will be using what is, in effect, the case method, which is the core learning tool of Harvard Business School, many of the other top business schools, and most great law schools (although my own experiences, recounted here, and yours will be much more effective than anything you learn in school). It seems to work far better than other methods. It is experiences that make investors great, and these experiences can help to make you great -- meaning rich.

Did you make an early prediction that the Asian crisis would hit in 1998, or that the bull market would peak in March 2000? Most of the time, people cannot accurately predict early in a season the two teams that will be in the Super Bowl or World Series; nor can they predict the weather, or even some of the most important things that happen in their personal lives. We all like to feel that we can predict certain things, but we also know that reality says we rarely can do it accurately.

But when I get to know the CEO of a company well, I can start to understand how he or she will react to new situations. Although you may not be able to actually meet with CEOs, you can certainly read up on their...