Free Money Finance Guest Blogger, Fred Kobrick, Author of The Big Money, Post #4

This week, Fred Kobrick, author of The Big Money, is guest blogging -- writing one post a day. Here's Fred's entry for today:

Technology is very sexy with lots of buzzwords, hot products and hot stocks to match. Some think that is where all the money is made. Others think it is all too mysterious and risky, since they know so many investors that make a lot and then lose it back along the way.

Once again, knowing stocks instead of using gross generalities is how big money is made, regardless of whether it is technology or elsewhere.

When personal computers came on the scene, it was the great technology of the day. We had a repeat of what happened over a half century earlier with the automobile, when the internal combustion engine was the dominant technology of its day. About 1,000 companies sprung up around the globe to take advantage of the opportunity, but in both cases, could hot products really separate out the short-term winners from the long-term marathon companies that made people rich?

The shakeouts were inevitable, but some investors only used earnings—those report cards—along with new product announcements to guide them while others knew earlier that GM and Ford, and Dell and Compaq Computer, would be survivors and maybe champions.

The ability to show repeatability to both customers and investors sprang from BASM (business model, assumptions, strategy and management), and those things created the long-term product, earnings, and market share successes. This works the same for technology and others that did better than most tech stocks, such as Wal-Mart or Nike.

Bill Gates made big assumptions about how people would buy software, and we talked about that when he came to see me. Assumptions create the right business model, and that creates winning product strategy.

Numbers and value approaches do not win for tech investors while the BASM approach truly does.

Comments

[FMF]

Fred --

Building on our discussion from yesterday, what tech companies do you see having the combination of:

1. Great management
2. Strong performance on all othe BASM factors
3. Small enought that there's significant upside potential