make lots of profits on each unit if it didn’t open it up. If Apple licensed the Mac OS, there would be competition, and maybe Apple wouldn’t make as much money.
Here lies a major difference in philosophy. Whereas Apple felt it was better to make more money on each of hundreds of thou- sands of units, Microsoft felt that it would eventually sell 100 mil- lion units and make plenty of money.
In a way, Gates was heir to the throne of the great monopolists like Henry Ford. In 1908, Ford changed the future of the auto- mobile industry, not only by inventing the Model T but by figuring out a way to produce it so inexpensively that it would be affordable to the masses. Ford’s assembly line process changed the entire eco- nomics of automobile production and sales.
Bill Gates could well be called the Henry Ford of his generation.
Conceptually, Microsoft has thought things through for software in precisely the same way that Ford did for automobiles. The car man- ufacturers before Ford handcrafted each car and made it to the specifications of a single customer. Similarly, before Microsoft, a lot of the software manufacturers created a custom piece of software for a single type of hardware. Software development costs per unit were astronomical because all software was proprietary.
even worse. Technical support was awful. On two different occa- sions, phone support people gave her incorrect information that actually crashed her machine. One of these episodes nearly wiped her hard disk.
You don’t need to buy a product to test it, but it’s a good idea to sample the buying experience. Call the company’s order hot- line or check out its Web site. Go to a store that carries the line.
See what the buying experience is like as a customer. How long do you have to wait? Do the sales advisors know the product line inside and out? Are your questions answered intelligently? Is every- thing in stock?
Customers tend to gravitate toward award-winning products.
They’re status items, elite. Check out the company’s Web site.
Look at the investor relations page for any customer service or related awards. Don’t limit your Web tour to your potential invest- ment’s site. See how its competitors tout themselves, and check if they’ve won acclaim. Look in industry magazines and analyze product and customer satisfaction ratings. Use your favorite search engine (www.ask.com, www.yahoo.com, www.excite.com, and www.google.com are my top picks) for articles. If the com- pany produces a consumer item, browse through Consumer Reports magazine. If it makes tech products, check out ZDNet, Forrester Research, CNET, Wired magazine, or HotWired. Compare your pick to its competitors, and see how it matches up in value and characteristics.
Most important, ask yourself if you would love this company.
Would you stay true? A good customer relationship is like a good romance—hard to find and even harder to maintain.
S UMMING UP
To acquire customers and encourage commitment, businesses need to do at least one of the following things:
● Provide better service.
● Offer an elite product.
● Deliver more value:
Introduce a new product that’s easier to use.
Improve an old product to expand customer benefit.
Offer a package deal.
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Fred Kobrickwas an equity portfolio manager at State Street until 1997, when he left to start his own firm. Since that time, the Kobrick Capital Fund has been selected for USA Today’s 25 All-Star Funds each year. For two years out of three, it was Fund of the Year. Moneymagazine called the Kobrick Capital Fund one of the six best funds of the decade, and USA Today called it “one of the best five funds for the entire bull market.” In 1999, the Kobrick Capital Fund returned 89.1 percent; during the 1990s as a whole, the funds Kobrick managed have had returns of more than 500 percent. He appears regularly as a stockpicker in Peter Lynch’s Worthmag- azine roundtable.
What was the most you ever made on a single stock?
The best stock I ever owned was Cisco. I thought it would double in a year after the IPO, but that it would then see competition catching up. The stock doubled from 11 cents to 22 cents, but Cisco actually lengthenedits lead over the competition. I could see how well it was managed, and how and why the company’s customers loved it, and its great culture and management, so I added to the position and did a 17-bagger after the double!
What was your worst investment in recent memory?
Sunglass Hut. It was a great growth story for some time, but blew up and went down 60 percent. The company bit off far more than it could chew and failed to execute. It was also far too optimistic. My mistake was that after enjoying much success with the company, and knowing top manage- ment was good, I didn’t press to see if it had the middle management to execute what it was trying to do. The big lesson I learned was that the sex- ier the story, the harder—not easier—it is to execute, and that companies must have a great management team and execution culture to continue to succeed.
What is your most important criteria when looking at investing in a company?
There are thousands of buy recommendations from Wall Street, television, magazines, your best friends, and at cocktail parties every year. They are mainly based on a good earnings story and good valuations. Most do not work out because they don’t have a good enough management team to
execute the plan and win the game. To me management is 80 percent of the story. I have developed the management interview and the analysis of man- agement’s ability to execute as both an art and a science. It is the heart of what I do best.
If you had five minutes in which to impart your wisdom to the individual investor, what advice would you give?
Most individual investors buy some of the greatest companies—Microsoft, Home Depot, Sun Microsystems, Dell Computer—from their childhood to older age, and don’t differentiate those companies or great mutual funds from ordinary companies and ordinary mutual funds. They don’t understand what a great manager or great company is. They buy and sell on momentum.
Because of that, they never get the long ride. My best advice is to do lots of investigating before and during the holding period and do that differentiat- ing, looking most of all for the long ride.
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H
ave you ever heard the fable of the scorpion and the frog? If so, forgive me while I butcher it. If not, here’s an approximation:Once upon a time, there was a scorpion who needed to get across a river. The river was deep, and the scorpion couldn’t swim. He knew that if he tried to cross it on his own, he’d drown. Just as the scorpion was beginning to get discouraged, he saw a frog sitting on the bank. “Frog,” he said, “let me ride on your back while you swim across the river. For this I will be grateful.”
The frog was suspicious of the scorpion. “If I let you ride on my back, who says you won’t bite me?” he replied.
The scorpion laughed and assured him that biting was out of the question. “How could I bite you?” the scorpion said. “Then you’d be poisoned and both of us would drown.”
The frog thought things over and decided that what the scorpion said made sense. So he knelt down, let the scorpion climb aboard, and started heading across the river. About a mile from shore, the scorpion bit. As the frog
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