Chapter 1 - Anyone Can Become Rich Flashcards
What does “Red Coat Investing” mean?
Refers to the American Civil War in which the Settlers fought the British Red Coats. The Red Coats outnumbered the Settlers and had more resources, but were very regimented, wore bright red coats, marched in straight lines and fired only when commanded to do so. The Settlers could hid behind rocks and fire at will. The Settlers won their independence.
By freeing yourself from inflexible, counterproductive investing, you can win your own independence.
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How to create wealth?
Two steps
1) Recognize a great company and a future winner
2) Know how to hold on to that future winner
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How to increase your chances of getting rich?
1) Simplifying
- information overload has made it much tougher to pick stocks
- learn to recognize things that really matter
2) Focusing
- concentrate on the relevant aspects of that business model, the
strategy and key assumptions a company makes, and how good its
management is
Name the four critical factors for investment success
1) Business Model
2) Assumptions
3) Strategy
4) Management
What are the Seven Steps?
Steps
1) Knowledge
2) Patience
3) Disciplines
4) Emotions
5) Time horizon
6) Market timing
7) Benchmarks
____________ ___________ CEOs and ____________ the best corporate business models can make you very wealthy.
Identifying great CEOs and understanding the best corporate business models can make you very wealthy.
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Who impressed Fred Kobrick and why?
Dave was an unsung investment master who started with a poor background and became wealthy by purchasing a bunch of small, fast-growing companies over time.
Dave invested in Haloid, an OTC stock, in 1959. It later became Xerox. Dave knew a lot about Xerox and held it through tick and thin and eventually made over 40x his money.
How did Dave make 40x his money in Xerox?
He read all he could about the new technology and the market reception, the lack of real competition, and the potential for the company. He also talked to other companies’ purchasing people, interviewed users of the machines. In other words, he used Phil Fisher’s scuttlebutt method. Afterwards, he estimated a base case scenario, a worst case and a best case scenario and saw that the potential for Xerox was huge. As the stock climbed higher, he knew more, had greater confidence and bought more shares. In other words, Dave averaged up.
What is essential to help you hold a stock through thick and thin, even when the market fluctuates?
Deep knowledge of the company’s business model, its assumptions, its strategy and its management.
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The businesses that Kobrick names—Home Depot, Dell, Nike, McDonald’s—were they innovators or creators?
No, they weren’t.
Home Depot didn’t invent hardware stores or retailing. Dell didn’t invent computers. Nike didn’t invent shoes. McDonald’s didn’t invent hamburgers. Microsoft didn’t invent computer operating systems, word-processing software or spreadsheets.
Every one of these companies came from behind…but became industry leaders!
What what the common thread between these companies in disparate industries? How did they become cash compounding machines?
They all had ideas that were translated into strategy, business plan, and action.
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Does it matter what industry a company is in?
No, it doesn’t matter. Winners can come from the technology sector, retail companies, media companies—any industry in fact!
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Ok, industries don’t matter (much). What does matter then?
Two questions
1) Total addressible market (TAM)
- does the company have an open-ended market opportunity?
2) Does the company have a great BASM to take advantage of that opportunity?
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Just as in military battles, chess and elsewhere, all the great moves ______ ______ and _____. Business models can be virtually _____ _____, even if the products or services sold are _____.
Just as in military battles, chess and elsewhere, all the great moves repeat again and again**. Business models can be virtually **the** **same**, even if the products or services sold are **different.
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How was Kobrick able to recognize an investment opportunity in Cisco?
Kobrik learned Molex’s business model–its strength and weaknesses–and recognized the same business model in Cisco.
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