Free Money Finance Interview with Fred Kobrick, Author of The Big Money, Part 3

Here's part 3 of Free Money Finance's interview with Fred Kobrick, author of The Big Money:

Free Money Finance (FMF): I read in your press release that you said investors should have most of their money in mutual funds. Can you elaborate a bit on your views in this area?

Fred Kobrick (FK): The book says put a lot of your financial portfolio in mutual funds or with a good investment manager so that you can avoid the almost impossible task of managing your entire retirement fund, but concentrate just all your investment time and energy just on looking for true wealth stocks so that in an era of low returns you can still hope to build financial security.

FMF: What do you think of index funds as investments (and the general index fund philosophy advocated by John Bogle)?

FK: John Bogle still has great ideas, and he helped train me when I got out of school, and I still know him and admire him. But, even though index funds have a place for some people, I do not think that they should be used as an excuse to do nothing else at all.

After all, if people had only used index funds and never been in the funds that I managed as I led the pack, many who told me they put their kids through college, bought houses, and had strong retirement assets, could not have done those things. Now, in The Big Money, I am passing on the best techniques of how I generated those returns, by showing how my best growth stocks were picked.

FMF: What was your best stock pick ever, why did you buy it, and what did you learn from it?

FK: Many of my best stocks, including Molex and Dell, and Sun Microsystems when it rose by 26,000 percent over only 14 years, and other big ones are in the book. Cisco might be the best, since I had such deep knowledge though my BASM concept, I kept adding money to the holding as it went up, and so the gains were huge. I learned that just like the great battles in history, everything repeats, and can be recognized by knowing how the winners did it in earlier “games.”

Generals know military history, and football players watch game tapes of opponents before NFL Sunday, yet investors have to try and relearn investing with each new year, it seems, since they generally do not know how the best companies became that way. Those are my lessons learned, and those are lessons I want to pass on.

FMF: What was your worst stock pick ever, why did you buy it, and what did you learn from it?

FK: Well, there were some stocks like Sunglass Hut that I made a lot of money from, and then failed to recognize it as a sale, and so lost a lot of the money back. I learned that even after a company is dong what you hoped for, you must use the same framework to check periodically and see if the management is still fully awake and competitive. I made lots of little mistakes, of course, but kept them little with the use of my sell disciplines. I always use three simple sell disciplines to limit risk, and those are in the book, naturally.

FMF: I’ve found that my investment philosophy has changed as I’ve gotten older (and hopefully wiser). How has your yours changed/been refined throughout your life?

FK: As I explain in my book, I found that I learned and refined all my techniques such as BASM over my years in the business—they did not appear to me one day, or even in my first couple years. I learned what I learned from experiences, and from the greatest teachers of all in private meetings with them---people such as Bill Gates and Michael Dell and Phil Knight (Nike), and Bernie Marcus (Home Depot), and on and on—even to a great meeting with a great CEO just yesterday. What I do is a labor of love, particularly using the methods I teach and write about.

I learned the knowledge is the antidote to fear, and that you need a focus to have the right knowledge. I learned that the right knowledge brings risk way, way down, even as you make more money. I also learned that the same stock can be very risky for an investor that has no focus and does not have the right knowledge, and much less risky for an investor who does have proper focus and knowledge.

FMF: Any hot stock tips for Free Money Finance readers? ;-)

FK: My book explains the problems with tips and so-called hot stocks, yet I will still say that with Dell way down, it is a great blue chip that will make lots more money for investors over time, and with Sirius Satellite down recently, this pioneering company that is gaining market share on its rival looks gangbusters to me.

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A good, insightful interview from Fred Kobrick. Thank you, Fred, for sharing your thoughts with Free Money Finance readers.

Next week, we'll be hearing a bit more from Fred as the first-ever guest blogger here at Free Money Finance. Stay tuned.