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A Review of “The Big Money” by Frederick R. Kobrick
By JLP | May 11, 2006
I recently finished reading Frederick Kobrick’s The Big Money
Frederick R. Kobrick has managed money for more than thirty years. He spent fourteen years as an investment analyst at Wellington Management Company, then joined State Street Research & Management in 1985. He managed the State Street Research Capital Fund, which was one of the five best-performing funds in the country for fifteen years, according to USA Today. Kobrick’s Capital Appreciation Fund was included in Money magazine’s “Six Funds of the Decade” in 1996, and cited in USA Today as among the five best funds for the entire bull market.
Kobrick left State Street in 1997 to start his own firm, managing three public mutual funds as well as Kobrick Capital, a hedge fund for wealthy individuals and institutions. He was cited by The Boston Globe as one of the top three investors of the 1990s. Kobrick Capital was named USA Today’s All-Star Fund of the Year in 1998 and 1999, the only mutual fund ever to win twice.
A frequent guest on financial programs on television, Kobrick currently advises institutions on a pro bono basis and also lectures. He teaches investment management part-time at Boston University, where he has served as a trustee.
This is an author who knows what he’s talking about.
The book opens with the author’s introduction to the four critical factors (BASM) in a business’ success:
Business Model
Assumptions
Strategy
Management
According to the author, in order for investors to properly use BASM, they must follow the Seven Steps:
1. Knowledge – Kobrick believes the more you know the more you make. I don’t know if this is necessarily true, but he does a good job supporting his belief.
2. Patience – This is the key for any successful investment program. Most people fail due to lack of patience.
3. Disciplines – You have to know when to buy and when to sell. This takes discipline.
4. Emotions – Keep those emotions in check!
5. Time Horizon – For what are you investing for? For how long? These questions define your time horizon. In other words, you have no business investing in stocks if you are going to need your money within five years.
6. Market Timing – If you are investing in good, solid companies, you don’t have to worry about market timing.
7. Benchmarks – You need to know how your portfolio is doing compared to similar investments. For instance, you may think you are doing awesome when your portfolio returns 8% per year. However, you may not feel as good when you find out that the S&P 500 returned 12%.
The rest of the book is dedicated to tying everything together.
My favorite chapter in the book was Chapter 7, “Bear Markets, Bubbles, and Market Timing.” This chapter alone is worth the price of the book. I particularly liked his explanation of the difference between bubbles and bear markets:
One of the interesting differences between bubbles and bear markets is that in a bear market, there are plenty of bulls and bears. In a bubble, the few bears are drowned out by the loud and almost universal bullishness. This happened with the Internet, because a mania is normally caused by a belief in something that is supposed to be new and amazing, even though this cannot be proved.
Good stuff!
Overall I thought The Big Money
One a scale of 1 to 10, with 10 being the highest, I would rank this book a 7 or 8.
Here’s what other bloggers have to say about The Big Money
BLOGGERS: If you have reviewed this book, send me an EMAIL with a link to your review and I’ll be happy to include it.
Topics: Books | 4 Comments »
May 12th, 2006 at 9:53 am
[...] JLP from AllFinancialMatters Reviews The Big Money, a book by Fred Kobrick. [...]
May 16th, 2006 at 8:42 pm
Good review.
THe USA TODAY review of May 8 was glowing and points out why the book is different. Here it is:
Money
Finding ‘great stocks’ requires investor to do homework
Updated 5/8/2006 12:24 PM ET
By Kerry Hannon, Special for USA TODAY
We learn from hearing other people’s stories. In The Big Money: Seven Steps to Picking Great Stocks and Finding Financial Security, Frederick Kobrick’s confidence and insight, honed from more than three decades as a leading mutual fund manager and investor, make his stories worth a good listen.
There are countless books on how to pick stocks, but Kobrick does more than tell you how to read an income statement or figure a price-earnings ratio. He tells you how he did it and shows specific companies in which he invested — successes and failures.
His results speak for themselves. During his tenure at Wellington Management, State Street Research & Management and his own Kobrick Capital, his funds consistently made the lists of best-performing funds.
In Big Money, he revisits meetings with top executives and recounts how he evaluated potential at Home Depot, Dell and Cisco, as well as less-known names, such as Molex, a maker of electrical connectors. It’s a voice of experience and patience, not chest thumping.
“There are no cookie-cutter formulas,” he writes.
This is a book for sober investors not looking for a quick hit or a recipe for trading stocks to retire rich. Kobrick emphatically states: “I do feel that most people should have the bulk of their retirement money in mutual funds or with financial advisers or both, so that they are not burdened with managing their retirement account.”
His message is to add to all that by owning or concentrating on a few stocks — or even to try to become rich on just one stock.
Since computers arrived on desktops in the early to mid-1980s, investing has not improved, he contends. “For most people, information overload actually has made it much tougher to pick stocks. People lack focus and the secret of what to look for.”
Kobrick’s system is to focus on a company’s four critical factors: business model, assumptions, strategy and management.
Many investors fail because they simply don’t do their homework. He urges investors to read company reports. “You will find that the better the company, the more specific its goals,” he writes.
“If you want to buy early (and even if you buy in later), look for a clear, easy-to-understand business model in a prospectus or annual report. Look for the management’s objectives and see that they are clearly stated. And, finally, look to see if the company consistently comes back in its releases and tells you how it is doing.”
While each factor is critical, one stands out. “Picking winning management means picking winning stocks,” he writes.
Read everything you can find about a company’s top management, he advises. “I mean not just business writings, but general stuff that can tell you who is a great leader or who could have the characteristics to become a great leader.
“Style, handling past failures and accomplishments, and a way of thinking all contribute to how somebody excels.”
June 3rd, 2006 at 3:23 pm
[...] AllFinancialMatters [...]
July 25th, 2006 at 8:25 pm
I have read Fred Kobrick’s book Big Money very recently. It provides very interesting approach to investing that is offbeat and refreshing. The book could have much greater conceptual clarity and detail, however. It is not organized in a systematic manner. The basic themes are repeated much beyond necessity. I kept looking for detailed characteristics and general understanding of each of the BASM and the Seven Steps mentioned at the outset. But nowhere any of them are explained with clarity and precision of thought. They are always couched in vaguely confident justifications. One thing that would have helped, for example, is to state what would be the approximate annualized return for Kobrick’s strategy. This can help one compare it with the performance of alternative strategies. Instead Kobrick keeps mentioning his stocks multiplying x amount of times over several years. The book stresses cases rather than rules, which is refreshing to an extent. But, the ideas to be useful need to be spelled out in clear details.