ratiman Posted January 14, 2016 Share Posted January 14, 2016 This is a book from 1998/9 that lays out the Fool strategy for Rule makers (AOL, Amazon, Starbucks, Whole Foods) (companies that disrupt/create new consumer industries), Rule Makers (Coke, Microsoft, Disney) (indispensable consumer products) and Tweeners (Iomega, Yahoo). It's well done. The Gardner brothers are related to the Gardner in the Gardner, Russo, Gardner firm, so they grew up talking stocks. They also know a great deal about branding and marketing, as they turned their little website into a big brand in the 90s and now into a mutual fund company. It's interesting to look back now and see what the Fools got right and wrong. Here is a list of the Rule Makers, the established firms with dominant monopolies: Coke Disney GAP Intel Microsoft Nike Dell The book was written in 1998/1999, so many of these stocks and companies were at a peak. Coke is still below the April 98 high. GAP and Intel and Microsoft haven't returned to former glory. Only Disney and Nike are at new highs. I don't know the lesson to draw from that. The success of ESPN and Pixar and Marvel and Star Wars was not foreordained. The Fools (Gardners) come up with a good rule for a stock that's between a Rule breaker and a Rule maker: if you can imagine life without the product, then it is a Tweener. If there is an acceptable substitute and competitor, then the transition from Rule Breaker to Maker is in doubt. Yahoo is convenient but Google is indispensable. At the time, Dell was considered a Rule Maker, having graduated to a stable, dominant business, but we now know that Dell was not indispensable. Amazon turned out to be indispensable. Is Starbucks indispensable? Are there no acceptable substitutes? The Gardners explain the success of Starbucks in terms of brand, but I'm not sure that's the best explanation. If the Fools have any bias, it's that they overvalue consumer brand. Brand is certainly important in consumer packaged goods. Coke, Cheerios, Gillette, etc. But brand wasn't able to save AOL, Yahoo, or GAP. Steve Case learned all about branding at P&G but ultimately AOL didn't have the magic sauce, Facebook did. Brand alone isn't going to create a dominant monopoly. Cheerios is not the only cereal. If this book were to be written today, it would probably focus on networks and not brands. Facebook, Google, Amazon, eBay, Netflix, Uber, Microsoft, etc can all be thought of as networks/marketplaces that aggregate two sides and take a fee in the middle. It's interesting that the Fools were largely silent about eBay even as that was in many ways the business model of the future. Link to comment Share on other sites More sharing options...
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