Skip to main content

The Gorilla Game by Geoffrey A. Moore

I have a bizarre passion for reading investment books that were written for past market cycles. I suppose I like the humiliation of it--it keeps me humble and helps me remember the fundamental truth that investment styles that look brilliant at one time can quickly destroy your wealth at other times.

It also helps me maintain an attitude of contrarianism and cynicism in my investing. I almost always avoid or trade counter to strategies that I consider trendy, overly popular, or too widely embraced by other investors. Ironically, this has turned out to be one of my most dependable strategies for staying alive in the stock market over the past 15 years.

Thus it is with a deep sense of irony that I say this: The Gorilla Game is exactly the kind of book that would have crushed you if you read when it was published, but it might be a perfect time to apply the strategies in this book right now.

The thing is, books on investment strategies tend to come into the marketplace exactly when their strategies are about to go stale. This happens for a variety of reasons: the investment style may not get widely disseminated or understood until too late in the game, the lead time for publishing books tends to be long, etc. And when this book was published in mid-1998, you had just about one year to try to take advantage of an investment strategy that was about to go horribly, horribly wrong.

It's a bit sad, because there's a lot of wisdom in this book's key general principles:

1) Look for industries that are in or about to begin a period of hypergrowth. Identify companies that provide new products or services that can bring about a sea-change in how companies do business, where new supply chains and new spending cycles can bloom quickly and create enormous economic value.

2) Find the dominant players in these spaces, first by making field bets on all the stocks in that space, and then gradually concentrating on the few dominant players once it becomes clearer who has the best competitive position.


In short, your job as a follower of this strategy is to identify hypergrowth markets and then identify the gorillas in those markets.

Here's the problem: the stocks that were in apparent hypergrowth back when this book was published were all in technology. In fact, reading through the types of stocks the authors trafficked in is deeply horrifying: large, dominant tech companies with stocks that absolutely cratered during the tech wreck, like ORCL, CSCO, INTC; or worse, tech stocks that totally disappeared, like has-been telecom names such as PairGain, Cabletron, Ascend, and so on.

And of course the authors cited the usual monster stocks of the 1990s as conclusive "evidence" of the success of the strategy: MSFT was a two-hundred bagger! If you had invested $10,000 in CSCO in 1990, you'd be sitting on $1,285,000 now! Ugh. Another horribly rich irony. The fact is, if you had picked this book up sometime in late 1998 (again, the year it was first published), and had then invested $10,000 into CSCO say in early 1999, you'd now have... $7,200.

Yep, buying one of the most dominant gorilla companies of all time would earned you a 28% loss after twelve years. Nice. And heaven help you if you bought CSCO in early 2000--you'd be down by 66% and you'd need to have a triple just to get back to even.

The irony gets worse. The authors claim that this process of focusing on the dominant players in each sub-industry of tech provides investors with limited downside. That obviously did not work during the 2000-2002 bursting of the NASDAQ bubble. While I'll admit that the downside for dominant stocks in that era was less than the downside of stocks like Pets.com, this provides an exceptional example of how investors almost always fail to appreciate, in advance, the nature of the risks they face. The risk to these investments wasn't in the survival or dominance of the gorilla companies, it was in the egregiously high valuations of their stocks, and the demented expectations for growth that investors had banked on when they bought those stocks.

Thus you would have had your face ripped off and handed to you if you had followed this strategy right after the book was published. Like I said, the market is cruel, and from time to time it can make even really good strategies seem really, really dumb.

But when you read books like these out of their cycle, years after they were designed to be used, they often provide far more value--and far more profit. A reasonable and logical strategy that failed laughably in one era may work extremely well in other eras.

My point? This book and its strategy are perfectly suited for right now. Tech is out of favor and underowned by almost all investors, and valuations are attractive for nearly all tech stocks. Further, tech is widely seen as a low- or no-growth at a time when there are legitimate and underappreciated growth prospects in many tech subsectors. I'll leave it to you, readers, to find them.

Stay cynical my friends. The market has a cruel sense of irony. Take advantage of it.

More Posts

Perpetuity by Kevin Joseph [new fiction release]

A fast-moving, speculative sci-fi thriller, and a fun read!  After helping a fellow runner who cut her foot on a nail, a young doctor inadvertently discovers a dangerous secret in her blood, a secret that puts them in direct conflict with shadowy forces in the biotech industry. Suddenly, they find themselves running for their lives, threatened by the US government... and even more powerful enemies. Perpetuity uses several character perspectives, and the reader gradually pieces together the book's reality through various characters' eyes. I appreciate any novel that is well-structured to the point that the reader doesn't actually "see" the structure, but can just enjoy the story as it unfolds. It's harder to do than it looks. The author has a tight, noirish writing style and a knack for capturing archetypal characters. Two examples: you'll meet a smarmy, arriviste tech CEO rendered perfectly, right down to the condescending internal monologue running in hi...

The Wars of America (Vol 1) by Robert Leckie

This is a massive and capably-written history, the first of two volumes. It will fill in a lot of the cracks in any reader's historical knowledge of the USA--especially if you're like me, someone whose historical knowledge has more cracks than foundation. Recommended as either a starting point to learn about each conflict, or as a finishing point to groove and firm up what you already know. Before I get to the book itself, let me share a brief thought on the absolute necessity of reading history--but specifically, reading history from historians who lived outside your own time period.  Current history writing is subject to a variety of problems, starting with the historians themselves, who are necessarily products of the time in which they live. They hold their era's consensus narratives, and they'll have no choice but to filter their views through modernity. The modern publishing industry adds yet another layer of problems: it acts as a gatekeeping institution, both di...

Flyboys by James Bradley

"Nations tend to see the other side's war atrocities as systemic and indicative of their culture--and their own atrocities as justified or the acts of stressed combatants." After thoroughly enjoying James Bradley's book Flags of Our Fathers, a compelling history of the World War II battle for Iwo Jima, I was looking forward to reading his follow up book Flyboys, which tells the little-known story of Chichi Jima, a tiny island in the Pacific that literally--and figuratively--sits in Iwo Jima's shadow. Bradley's book tries to be quite a number of things, but at its core it's a history of a series of atrocities committed by Japanese soldiers on American airmen captured during bombing runs over the island. The atrocities were astonishing in their depravity, involving summary executions, decapitations and cannibalism. I'll state one minor weakness of the book up front: About a hundred or so pages covers historical background of the Pacific War that reader...