BusinessCulinaryArchitecture ComputerGeneral Interest ChildrenLife SciencesBiography AccountingFinanceMathematics HistorySelf-ImprovementHealth EngineeringGraphic Design A p p l i e d S c i e n c e s Psychology Interior DesignBiologyChemistry WILEYe BOOK WILEY JOSSEY-BASS PFEIFFER J.K.LASSER CAPSTONE WILEY-LISS WILEY-VCH WILEY-INTERSCIENCE 7525_Kwatinetz_00fm_ad_qxd 11/3/00 1:27 PM Page i The Big Tech Score 7525_Kwatinetz_00fm_ad_qxd 11/3/00 1:27 PM Page ii 7525_Kwatinetz_00fm_ad_qxd 11/3/00 1:27 PM Page iii THE BIG TECH SCORE A Top Wall Street Analyst Reveals Ten Secrets to Investing Success MIKE KWATINETZ DANIELLE KWATINETZ WOOD John Wiley & Sons, Inc New York • Chichester • Weinheim • Brisbane • Singapore • Toronto 7525_Kwatinetz_00fm_ad_qxd 11/3/00 1:27 PM Page iv ∞ This book is printed on acid-free paper ࠗ Copyright © 2001 by Michael Kwatinetz and Danielle Kwatinetz Wood All rights reserved Published by John Wiley & Sons, Inc Published simultaneously in Canada No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning or otherwise, except as permitted under Sections, 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 750-4744 Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 605 Third Avenue, New York, NY 10158-0012, (212) 850-6011, fax (212) 8506008, E-Mail: PERMREQ @ WILEY.COM This publication is designed to provide accurate and authoritative information in regard to the subject matter covered It is sold with the understanding that the publisher is not engaged in rendering professional services If professional advice or other expert assistance is required, the services of a competent professional person should be sought ISBN 0-471-39592-7 Printed in the United States of America 10 7525_Kwatinetz_00fm_ad_qxd 11/3/00 1:27 PM Page v Contents Foreword by Scott W Schoelzel ix Preface xiii Acknowledgments xvii Chapter The Big Tech Score Theory of Investing ● ● ● ● ● A Few Key Points Why You Can Beat the Pros Why This Book? Playing the Stock Market Summing Up Chapter 13 Concentrate Your Investments on a Handful of Companies ● ● ● ● Creating Investment Pools Scared Money Rarely Wins Timing Is Everything Summing Up v 7525_Kwatinetz_00fm_ad_qxd 11/3/00 1:27 PM Page vi vi contents Chapter 23 Buy Low, Sell High ● ● ● ● ● Feeding the Frenzy Getting Specific In and Out? The Long-Term Portfolio Summing Up Chapter 35 Don’t Invest Blindly ● ● ● The Seven Deadly Sins Summing Up Interview with Thomas G Kamp, Alliance Capital Chapter 45 Invest in Great Management ● ● ● ● ● ● ● What to Look For Hail the Founder Help Wanted Observing a Company in Hot Water Hiring the Best People, Period Summing Up Interview with Mark Kingdon, Kingdon Capital Management Chapter 67 Look for Companies with a Competitive Advantage ● ● ● ● ● The Virtual Enterprise The Economic Advantage A Product That Can’t Be Replicated The Unbeatable Brand Almost, but Not Quite 7525_Kwatinetz_00fm_ad_qxd 11/3/00 1:27 PM Page vii contents ● ● vii Summing Up Interview with Larry Solomon, Capital Group Chapter 87 Love Companies Customers Love ● ● ● ● ● ● Providing Better Service Creating an Elite Product Delivering More Value Putting It Together Summing Up Interview with Fred Kobrick, Kobrick Capital Fund Chapter 105 Look for Long-Term Thinkers ● ● ● ● ● Prime Examples of Short-Term Thinking Going Long Prime Examples of Long-Term Thinking Summing Up Interview with Roger McNamee, Integral Capital Partners Chapter 117 Always Look Forward, Not Backward ● ● ● ● Betting on the Old-Timers Betting on the New Wunderkind The Do-It-Yourself Mentality Summing Up Chapter 10 137 Pick Only High-Growth Companies ● ● ● ● What Spurs Growth? The Stockholder Screen Test Growth Is Hard to Maintain Summing Up 7525_Kwatinetz_00fm_ad_qxd 11/3/00 1:27 PM Page viii viii contents Chapter 11 151 The Best Stocks Are Cheaper Than You Think ● ● ● ● The Game Applying Guidance Bias to Valuation A Word of Warning Summing Up Chapter 12 171 Mike and Danielle’s Portfolios ● ● ● Mike’s Portfolio The Unknown Portion of the Portfolio Summing Up Chapter 13 183 The New Technology Era ● ● ● ● A High-Tech Primer Linux Solid, if Not Sexy Summing Up Chapter 14 203 The Fourth Wave of the Web ● ● ● ● ● History Lesson The Fourth Wave and You The Future of the Fourth Wave Place Your Bets Summing Up Epilogue 221 Index 223 7525_Kwatinetz_00fm_ad_qxd 11/3/00 1:27 PM Page ix Foreword T here are people that each of us meet over the course of our lives who are truly extraordinary at what they Such a person might be a doctor, an architect, or a teacher you had in high school They come from all walks of life While you’re not always exactly sure what it is that makes them extraordinary, you recognize it when you see it You don’t need to spend even five minutes with John Chambers, of Cisco, to realize: Hey, this guy isn’t just good, he’s spectacular I put Mike Kwatinetz in that upper echelon of extraordinary people I met Mike in 1991 I don’t actually remember what stock we first talked about Mike was an analyst at Sanford Bernstein and I was immediately impressed with the depth of his knowledge Before becoming an analyst, Mike was a mathematician and a software engineer It was apparent from our first meeting that he had a true first-hand sense of the software industry and the complexities inherent in technology investing We have talked about dozens of companies over the years, as well as the whole technology landscape—Microsoft, Dell, Cisco, the recent rise in the popularity of Linux, Sun Microsystems, the fragmentation of Unix, IBM, Apple, and many more With respect to Microsoft and Dell, two positions in which we both made a lot of money for our clients and shareholders, we debated everything— from various new products to their respective Internet strategies, ix 7525_Kwatinetz_15epi_ad_qxd 11/3/00 1:33 PM Page 221 Epilogue S o there you have it Class dismissed All that remains is for you to start investing Over the course of this book I’ve thrown a lot of rules and measuring sticks your way It may take awhile for you to turn those theories into practice Be patient The market rewards the informed investor Most of all, remember to think long term The Dow and the NASDAQ can be finicky bedfellows Many a pauper awakens one day to find himself a millionaire, but the reverse is also true As I write this, in fact, Wall Street has experienced another tech wreck, and shares in some of technology’s hottest companies are trading at an all-time low The good news is that you now have the tools you need to make turns like this one irrelevant If you’ve done your homework, a market crash is nothing more than a fantastic opportunity to buy low Whatever the market is doing at any given time, keep your wits and confidence about you Observe panic, but rise above it And don’t forget what you’ve learned in this book: Concentrate your investments on a handful of companies 221 7525_Kwatinetz_15epi_ad_qxd 11/3/00 1:33 PM Page 222 222 epilogue Buy low, sell high Don’t invest blindly Invest in great management Look for companies with a competitive advantage Love companies customers love Look for long-term thinkers Always look forward, not backward Pick only high-growth companies 10 The best stocks are cheaper than you think Playing the stock market is like playing an instrument—practice makes perfect Devote enough time each month to allow yourself to identify great companies, and to keep an eye on them Don’t get discouraged if a few of your picks don’t as well as you’d like—we all make mistakes Besides, it only takes one superstar to make up for a handful of washouts Good luck And happy hunting Index A American Express, 95 America Online (AOL): Buddy List as competitive advantage, 71 content on, 204, 219 as portal, 215 undervaluation of, 40–41 Amortization, Analysts: estimates, effect on system, 147–148 role of, 152–153 Annual reports, 165 Apache, 188 Apollo Computer, 115–116 Apple: Jobs and Sculley at, 53–54 laptop design, 56 versus Microsoft, 71–72 vertical integration, 68 Application service providers (ASPs), 194, 196 as segment to watch, 185 Applied Materials, 172–173, 176–177 appreciation of, 181 Adobe Postscript, 81–82 Advertising, Internet, 204 Airbus, 178 Airline industry, customer benefit, 95 Akers, John, 55 Allaire, 192 Allchin, Jim, 55 Alliance Capital, 43 Amazon, 5–6, 80 business integration Web software applications, 192 competitive advantages, 207–209 customer base, 219 customer benefits, 205 management, 45–46 visionary long-term thinking, 114 warehousing and inventory costs, 209 AMCC, 194 AMD, 76–77 American Airlines, customer loyalty, 88 223 224 index Applied Materials (Continued): negative impact on portfolio, 44 Ardsley Partners, xiv Aristasoft, 185 Arrogance (thinking you know enough not to the homework), 38 Art Technology Group, 185, 192 Ashton-Tate, 49, 74 Asian crisis, 25 Ask.com, 101 Ask Jeeves, 38, 113, 185 AT&T, 39, 73 AT&T Mail, 204 Audi, 89–90 Audible, 185, 215, 219 audio books, 209 Automatic Data Processing (ADP), 196 Auto PCs, 214 Avantgo, 185 Avon, 118 Azure Capital Management, 169 B Bandwidth, need for, 193, 211, 216 Banyon, 55 Barnes & Noble, 45, 219 Bezos, Jeff, 46, 52, 114 Bloomberg, 123 Blue Martini Software, 192 BMW, 94, 108 Boeing, 172–173, 181 mismanagement at, 178–179 Borland: frenzy surrounding, 48–51, 83, 98 loss of market share, 50–51 Quattro Pro, 49 Brand image, 91 Brand name, 79–80 Brands: customer loyalty to, 92 on the Web, 46 Brick and mortar: versus fourth wave of Web development, 211 incorporating Web into, 191 Web advantages over, 45, 207 Brience, 185 Broadband: content over, 215 as segment to watch, 185 Broadvision, 192 Brokers, fees of, 17–18 Brown, Michael, x BSQUARE, 215 Buddy List, 71 Business to consumer (B2C), as segment to watch, 185 Buy and hold strategy, 32 Buy.com, 205 Buying opportunities: and bad news, 27–32 and investor panic, 25–27 Buy low, sell high, 23–25, 28, 32, 121 C Cable modem, 198, 216 Cadillac, 108, 124 Caldera Systems, 187–188 Calix, as segment to watch, 185 Canal Plus, set-top boxes from, 200 Capital Group of companies, 83 Capital International Research, 83 index Cash flow, CDNow, 205 Chambers, John, ix Ciena, 193 Cisco, 5–6, 172–173, 181 as infrastructure supplier, 174, 219 lead over competition, 102 undervaluation of, 40–41, 174 Clarion, 215 Clean room replication, 77 Click and mortar, 191 CNET, 101 Cobalt, 120, 132 Coca-Cola, 118 advertising for market share, 80 brand name of, 79–80, 91–92 negative guidance bias, 159–161, 168 Coffee culture, 37 Commissions, broker, 17–18 Commodore, 68 Communications, via Web, 203–204 Company predictions, dependence on, 153 Compaq, 172–175, 181, 189 appreciation of stock, 54 forward P/E ratio, 158–159 growth forecasts of, 142–143, 164 guidance bias of, 158 inventory costs, 72–73 purchase of Microsoft operating system, 71 sales service and support, 100–101 slowdown of, 58 Comparable companies (comps), 132–134 225 Competitive advantage, 78 brand name, 79–80 economic advantage, 72–75 of fourth wave, 207–208 products, nonreplicable, 75–79 from virtual enterprise, 68–70 Compound annual growth rate (CAGR), 119 Compound annual returns, 2, 119 Compuserve, 71 Computer aided design, 194 Computer memory, cost of, 30, 44, 197, 216 Connections, Internet, 216 Consensus earnings estimate, 124–125, 152, 156 Consensus revenue forecast, 131 Consumer group, performance of, 159–160 Consumer marketplace, understanding of, 85 Consumer Reports magazine, 101 Content, on the Web, 204 Corel WordPerfect, 99 Corning, 78 Corvis, 193 Covering stocks, xv Crayfish, 65 Crisis, stock, 25–27 Critical mass, advantages of, 71 Cross pens, 93 Customer: benefits to, 95, 206–207 brand perception, 92–94 loyalty of, 88 retention of, 92 Customer base, product line diversification for, 80 226 index Customer service and support, 91, 100–101, 207 Customer value, increasing, 94–95 Cutler, David, 55 Cyras Systems, 193 D Datapro, 188 Deadly sins, 35 Dell, Michael, 56–58, 72 vision of, x, 52–53, 112 Dell Computer, ix, 24, 103, 172–173, 176, 181 appreciation of, 54 compound annual return of, 126–127 cost advantage, 72 customer support, 207 e-commerce services, 205 economic advantage, 72–73 growth rate of, 127, 139, 146–147 guidance bias, 159, 165–167 Linux in software bundle, 190 long-term thinking at, 110, 112–113 overhaul of laptop design, 56–57 sales staff and service, 91, 207 whisper number, 167–168 Department of Justice (DOJ), lawsuit against Microsoft, 28, 39 Depreciation, Diamond Multimedia, 214 Digital Equipment, 52, 55, 142 Digital music, 214–215 Digital photography, 212 Digital picture frame, Sony, 212 Digital piracy, 214–215 Direct-sales model, x, 72–73, 112 See also Dell Computer Diversification, 14 Doshay, Glen, xiv Doubling, law of, 144–145 DRAM (dynamic random-access memory), 30, 44, 197, 216 DSL, 216 DWDM (dense wavelengthdivision multiplexing), 170 E Earnings, expected, 41 versus guidance, 160 per share, 123–124 quarterly, 162 Earnings power, 133 eBay, 38, 205 EBITDA (earnings before interest, taxes, depreciation, and amortization), E-books, 212–213 E-commerce, 46, 194, 205 as third wave of Web development, 205 Economic advantage, 72 E-mail, 203–204 EMC, 218–219 Emmy Awards broadcast technology, 200 Employees: ownership in company, 62–63 stock options for, 63–64 Encryption technology, 215 Equivalent P/E (EP/E), 157 Ericsson, 84 Ethernet, 78 eToys, 205 e-Trade, 124–125 index Excel (Microsoft), 50, 110 Excite.com, 101 Expectations, meeting or beating, 164–165 Expected price earnings ratio (EP/E), 159 Experts, recruiting, 55–58 F Fannie Mae, 172–173, 178–181 Fast-forward thinking, 129–132 Feature team, 62 Federal National Mortgage Association (FNMA, Fannie Mae) See Fannie Mae Federal Reserve Board, 183 Fool See Motley Fool Ford, 172–173, 178, 180–181 Ford, Henry, 100 Forecasts, 153–154 Forrester Research, 101 Fortune magazine, 39, 151 Fourth wave, 205–207 versus brick and mortar, 211 competitive advantages of, 207–208 effects of, 210, 212–213 enablers of, 211, 215–216 future of, 213–218 product production costs, 209–210 security for, 214–215 winners in, 218–219 G Gap, 160 Gates, Bill, x depth of knowledge, 61 long-term thinking, 109–111 pricing for the masses philosophy, 99–100 227 vision of, 52–53, 61 work ethic of, 61–62 Gateway Computer See also Waitt, Ted downturn of, 28–31 growth rate of, 128 P/E of, 128–129 positioning of, 46–47 Gemstar, 76, 200, 219 General Electric, 158 General Instrument, set-top boxes from, 200 General Motors (GM), 180 cheapness versus quality of products, 107–108 market share, 107–108 Gillette, 159–161 Google.com, 101 Graphical user interface (GUI), 78 Greed (not selling an overvalued stock to see how high it will go), 41 Greenlight.com, 191 Greenspan, Alan, 183 Growth, 138 factors of, 138–140 maintaining, 143–149 tracking, 41, 140 unreasonable, 144 Growth rate, 80 declines in, 145–149, 154–155 mean, 145 GSM, 85 Guidance, 153, 155 conservative, 165–168 positive versus negative, 158 Guidance bias, 156–157 calculating, 161–164 conservative, 161 shifts in, 168 valuation based on, 158–161 228 index H Handel, Nancy, 44 Handheld devices, 212–213, 215 Handspring, 185, 215, 218 Hastiness (so anxious to buy, you it immediately), 36 Hedge funds, xv Herbold, Bob, 56 Hewlett-Packard (HP), 76 participation in fourth wave of Web development, 215 relationship with Intel, 175 rises and declines in, 31–32 threat from Dell, 73, 113 Unix-based products, 189 Hikari Tsushin, 65 HMOs, 37 HNC Software, 185 Home Depot, 103 Honda, 107 Hotmail, 93 HotWired, 101 Hype, 120–121, 123 I IBM, ix, 174–175 acquisition of Lotus, 99 fall of, 68–69 Intel products use, 76 loss of market share, 59 mainframe organization, 57–59 name recognition, 127 PC division, 57–58 politics at, 54–55 Sun products use, 77 support of Linux, 187 threat from Dell, 73 Unix-based products, 189 voluntary retirement option, 54–55 IDEN, 43 Increasing feedback loop, 70–71, 81 Information technology (IT), 195 Informix, 187 Initial public offerings (IPOs), 120–121 anxiousness surrounding, 36 Integral Capital Partners, xv, 115 Intel, 68, 172–173, 175–177, 181, 183 chip shortage, 29 Dell, partnership with, 113 growth rate of, 139 patent protection, 76–77 Interactive television, 199–200 Interest, Interest rates, 183 Internet See also World Wide Web high-bandwidth access to, 198, 216, 218 Internet Explorer, 28–29, 204 Internet service provider (ISP), 71, 170, 204 Internet telephony, 200 Inventory, physical, 205 Investment goals/objectives, 14 Investment pools, 14–19 Iridium, 43 IVillage, 93 J Janus, xi Janus Twenty Fund, 47 Java, 77–79 JCPenney, 160–161 JDS Uniphase, 169, 194 Jobs, Steve, 53, 72 Jordan, Michael, 137 Just-in-time-inventory management, 53 index K Kamp, Thomas G., 43 Kellogg’s, 159–161 Kingdon, Mark, 65 Kinsley, Michael, 55 Kobrick, Fred, 47, 102 Kobrick Capital Fund, 102 Kodak, 215 Kwatinetz, Mike, ix, 171 portfolio, appreciation in, 181 portfolio of, 171–181 L Lemming phenomenon, 25, 152 Lethargy (you know the stock is a buy, but you don’t act), 40 Liberate, 215 set-top boxes of, 200 Linux, ix, 120, 184–187, 190 versus Microsoft, 187–189 Long-Term Capital fund, 169 Long-term thinking, 105–106, 108–114 Lotus, 62, 74, 98–99 Ami Pro, acquisition of, 99 Freelance, integration of, 99 Lotus 1-2-3, 49–50 Lotus Mail, 204 Lucent, 193 LuxN, 185, 194 Lynch, Peter, 102 M Managed service providers (MSPs), 195 as segment to watch, 185 Management: characteristics to look for, 47 founders of companies, 51–52 investing in, 45–47 229 reaction to crises, 54–59 strength of, 59–64 vision of, 52–54 work ethic of, 61–62 Maples, Mike, 55 Market: and growth rate, 139–140 share of, 139 Market capitalization, 130–132 Marketing, 46 Mass marketing, 95, 100, 111 Math, 8–9 McDonald’s, 96 MCI Mail, 204 McNamee, Roger, xv, 115 Medica, John, 56, 57 Memory, cost of, 30, 44, 197, 216 Mercedes, 108 Meredith, Tom, 53 MetaTV, 200 Mezzanine financing, xv Micron Technology, 177 Microsoft, ix, 172–173, 175–177, 183 See also Gates, Bill buying opportunities, 28 Class of 1989, 63–64 corporate structure, 62–63 DOJ lawsuit, 39 e-commerce, 197 employee options, 63–64 Excel, 50 expertise, exploiting external, 55–56 guidance bias, 166–167 hiring process, 59–62 horizontal integration, 68–70 increasing feedback loop, 70–72 interactive television, 197 Internet Explorer, 28–29, 204 versus Linux, 187–189 long-term thinking at, 110–113 230 index Microsoft (Continued): NT Server, x, 56, 111, 188 Office, 62 oversold stock, 39 packaging costs, 74 P/E of, 158 product suites, 96–98 recruiting at, 60 royalties, 76 set-top boxes, 200 software for the masses, 100 Sun, threat from, 77–79 TrueType, 82 Windows CE, 215 Word, 110 WYSIWYG, 82 MimEcon, 185 Money: safe, 15–17 scared, 20 Moneyline, Monopoly power, 29 Montblanc pens, 93 Moore’s law, 216 Morningstar, 18 Mosaic, 78 Motley Fool, 124–125, 152 financials information, 165 Motorola, 43, 151, 160 MP3.com, 40 MP3 music format, 214 Multivariant analysis, Music, digital, 214–215 Mutual funds, 16–19 News, company-specific, 27–32 New York Times, 39 Nifty 50, 118 Nokia, 84–86 cost and time-to-market advantages, 85 Noorda, Ray, 52 Nortel Networks, 193 Novell, 55 NT Server, x, 56, 111, 188 Nuvo Media, 215, 219 N P Negligence (laziness preventing you from checking the facts), 39 Netscape, 38–39, 187 Netscape Navigator, 204 Packaging, 74 Paine Webber, 63, 172–173, 176 Palantir Capital, xiv Palm, 36, 215, 218 Panic, 25–27 O Office, Microsoft, 62 Offsite data centers, 194 Olsen, Ken, 52 Omission (knowledge you don’t act on), 37 ONI Systems, 193 Online brokerage, 207 Online troubleshooting, 191 Open architecture, 69 Open Source, 184–190 Open TV, set-top boxes from, 200 Operations, 52, 53 Optical Networking, 170, 193–194 Optics, 193 Oracle, 115, 187 Overconfidence, 38 Overvaluation, from guidance bias, 158 index Paradox, 49 Paranoia, of CEOs, 46 Parker pens, 93 Patent protection, 76, 78, 79 PC industry transformation, 57–59 Peapod, 37 Pemberton, John S., 79 Peoplesoft, 192 Pepsi-Cola, 80 P/E ratio, 31, 123–134 adjusting for guidance bias, 157 calculating, 130–131 forward and backward calculations, 125 monitoring, 41 Phone.com, as segment to watch, 185 Photography, digital, 212 Physical products, on Web, 205–216 Pictures, digital, 212 Pilgrim Baxter New Opportunities Fund, 169 Point-and-shoot cameras, 94–95 Polaroid, 118 Pontiac, 108 Portable devices, 212–213, 215 Portals, 204, 215 Portfolio managers, 5–6, 152, 167 Portfolios: long-term, 32–33 Mike and Danielle’s, 171–181 PostScript (Adobe), 81–82 PowerBook (Apple), 56 Present value of discounted cash flows, Price, product, 94 Price-to-earnings ratio See P/E ratio 231 Price-to-revenue (P/R) ratio, 130–131, 134 Procter & Gamble, 55, 56 guidance of, 158 Products: adding value to, 94 combinations of, 98–99 cost of production, 209–210 customer loyalty to, 92, 94 customer service and support for, 91, 94, 100–101, 207 elite, 90–94 packaging, 74 physical products, 205–206 price of, 73, 94, 96 service products, 206–207 value of, 94–100 Product suites, 96–98 Prospects, betting on, 138 Publishing, traditional versus electronic, 207–208 Q Quattro Pro (Borland), 49, 50 Quicken, 18 R Radio Shack, 55 Recording Industry Association of America (RIAA), 214 Red Hat, 120, 185, 187–188 Reference platform, 69 Regression analysis, Research in Motion (RIM), 185, 218 Reuters, xv Revenue, 130–133 estimates of, calculating, 163–164 growth in, 145 232 index Revenue (Continued): predictions of, 154–155 trends in, 161 Rio, 209 Rocket eBook, 215 Rolling five-year forecasting, 53 Rosen, Ben, 58 S Safe money, 15–17 Sales: direct, x, 72, 73, 112 service and support for, 91, 100–101, 207 Sanford Bernstein, ix, xiii S&P 500, 127, 145, 161 SAP, 56, 192 Scared money, 20 Schoelzel, Scott W., xi, 47 Schwab, 125, 185 Scientific Atlanta, set-top boxes from, 200 Screen testing stocks, 140–143 Sculley, John, 53–54, 99 SDL Inc., 169, 194 Search engine, 45 Securities and Exchange Commission (SEC): filings, 5, 165 regulations, Security, 211 for fourth wave, 214–215 Seeding, 113 Semiconductors, investing in, 177–178 Service, 88–90 Service products, 206 Sesame Street, 200 Set-top boxes, 196–200 Seven deadly sins, 35 Shigeta, Yasumitsu, 65 Shirley, Jon, 55 Shorting, xv Short-term thinking, 106–108 Silver Lake Partners, 115 Slate, 55 Slattery, Quint, 169 Softies, 62, 64 Software pricing, 99–100 Software Publishing, 98 Solomon, Larry, 83 Sony, 215 Betamax and VHS, 81 digital picture frame, 212 MP3 music clip player, 209 Southwest Airlines, 75 Sprint, 73 Starbucks, 37, 93 State Street, 102 Stickiness, 88, 95 Stock market investment challenges, Stocks, 19 in crisis, 25–27 dot-coms, 118–123 maximum number owned, Nifty 50, 118 safer, 117 screen testing, 140–143 Submissiveness (someone else tells you how to invest and you agree blindly), 40 Suites of products, 96–98 Sunglass Hut, 102 Sun Microsystems, ix, 103 growth rate of, 147 Java, 77–79 lawsuit against Microsoft, 79 Linux, threat from, 188 Unix-based products, 189 vertical integration, 68 Supply and demand, 24 index SuSe, 187 Sybase, 187 Sycamore Networks, 193 233 U.S housing industry, 179 U.S West, 215 V T Taxes, Technology, testing, 219 Texas Instruments, patent protection, 76 Text-to-speech technology, 196, 213 ThinkLink, 196 3Com, 36 Time sharing, 194 Time Warner, 197 Timing, of investments, 20 T1 lines, 216 Topfer, Mort, 53 Torvalds, Linus, 185–186 Toyota, 90, 108 Trademarks, 76 T Rowe Price: New Horizons Fund, 115 Science & Technology Fund, 115 TurboLinux, 187 Turnover, xi TV remote, 95 U Ultimate Corporation, 115 Under-/overvaluation calculations: by earnings, 147–148 by revenues, 147–148 University of Illinois, 78 Unix, ix, 77, 111, 176 preferences for, 56 products based on, 189 UPS, 205 VA Linux, 120–121, 123, 132, 185 Valuation methods: earnings power, 133 fast-forward thinking, 129–132 guidance bias, applying to, 158–168 P/E ratio, 123–129 (see also P/E ratio) Value, product, 94–100 VCR, 193 Vertical integration, 68 ViAir, 185 Video and data integration in broadband, 215 Video-on-demand, 193 Vignette, 185, 192 Virtual enterprise, 70 Visa, 95 Volatility, 20 W Waitt, Ted, 46 Wal-Mart, 48, 114, 159–161 Web, 45 Web applications, 191–194 Weblogic, 192 Web sites, intelligent, 191 WebTV, 76, 198 Whisper number, 166–167 Williams, Robin, 210 Windows, 28, 188–189 versions of, 110–111 Wired magazine, 101 Wood, Danielle Kwatinetz, 8, 171, 212 portfolio of, 177 234 index Word (Microsoft), 110 WordPerfect, 98–99 World Standard Company, 204 World Wide Packets, 194 World Wide Web, 204 communications (first wave of development), 203–204 content (second wave), 204 e-commerce (third wave), 205 physical product, replacement of (fourth wave), 205–218 Worth magazine, 103 X Xerox, 118 Research Center, 78 Y Yahoo!, 95, 101, 215 Finance section, 165 personalized content, 204 Yield, Z Zaffire, 193 ZDNet, 101 ... outline why they are poster children for the big tech score theory I measure them against the methodologies used, both today and several years ago and show you what made me believe in them in the early... 11/3/00 1:27 PM Page xix The Big Tech Score 7525_Kwatinetz_00fm_ad_qxd 11/3/00 1:27 PM Page xx 7525_Kwatinetz_01_ad_qxd 11/3/00 1:27 PM Page Chapter one ◆ THE BIG TECH SCORE THEORY OF INVESTING A... backbone of my good fortune The good news is that you can learn 7525_Kwatinetz_01_ad_qxd 11/3/00 1:27 PM Page the big tech score theory of investing the rules rather easily The bad news is that you