Investing in monopolies – with Greg McCall


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Investing in monopolies – with Greg McCall

Sometimes I get distracted when I’m looking for my next investment — the noise drowns out my ability to identify companies best-positioned for long term growth.book by Greg McCall

Today’s guest, Greg McCall uses an investment framework that looks for winners by scoring them according to their monopolistic tendencies (makes sense, right?).

In his book, The Monopoly Method: An Insider’s Guide to Navigating Wall Street and Becoming a Better Investor, Greg describes a scoring mechanism that he’s created after 20 years of experience as a hedge fund investor.

In this episode of Tradestreaming Radio, you’ll learn:

  • the insider’s view of how equity investing works
  • why monopolies make compelling investments long term
  • which industries/companies should outperform
  • about Greg’s investment scorecard he uses to judge stocks

P.S. In the resources section below, download Greg’s Monopoly Method calculator he uses to score companies.

Listen to the FULL program

About Greg McCall

author of the monopoly methodGreg has over 20 years of investment experiences as a hedge fund manager and venture investor.  He’s the author of The Monopoly Method: An Insider’s Guide to Navigating Wall Street and Becoming a Better Investor.

Read the Transcript

transcribed at Speechpad

Announcer: You’re listening to Tradestreaming Radio, with your host, Zack Miller. Expand your mind. Become a better investor with tools, tips, and technology from the smartest investors on the planet.

Zack: Hey, this is Zack Miller, and you’re listening to Tradestreaming Radio, where investors learn directly from experts. Sometimes when I’m on the prowl for the next investment candidate, the next stock to add to the portfolio, I get a little overwhelmed with some of the noise out there, analysts saying, “Buy, sell, lots of data.” I just want find a company, cut through the noise, that’s well positioned for future growth.

Today’s guest on the show, Greg McCall, has written a book called the, “Monopoly Method: An Insider’s Guide to Navigating Wall Street and Becoming a Better Investor.” He provides such a framework. Greg’s looking for companies that exhibit monopolistic tendencies and provides us with the framework to score them and rank them accordingly.

The book reads every bit as much as a business book as it does an investment book, and that’s why I appreciated it. It’s sort of Buffett-esque in that sense. Greg has a lot of experience as a portfolio manager at hedge funds. He runs his own shop right now, called Rock Crest Capital, based in Norwalk, Connecticut. He’s been on the buying side for the past 20 years looking at technology, consumer, and energy companies as a hedge fund manager and venture investor.

There’s a lot of real world experience built into this book. Greg has also been gracious to provide us with a spreadsheet that’s downloadable at my website, Ttradestreaming.com, that helps you very easily implement some of his ideas and score companies according to his methodologies.

Definitely come back to the website, download the spreadsheet, listen to the podcast, read the transcript that should be available in the next couple days. I’m sure you’ll appreciate “The Monopoly Method” as a book and Greg as a teacher.

Speaking of teaching, Tradestreaming will be doing a series of live events going out over the next month or two called, “Tradestreaming Live.” Check those out. That will be an opportunity to learn live from some of these same experts that we’re bubbling up on the show. You’ll be able to ask them questions and participate in the live event. I think that’s great access and should be a great opportunity to learn some of these same concepts that we’re talking about on the podcasts.

Come back to Tradestreaming.com and access our archives. Our archives are also available on iTunes. Check them out over there. Leave us a rating or a ranking. Let other people know that you’re finding value with the program. We appreciate your time. We’re very grateful that you have chosen to listen to Tradestreaming.com. Continue to do so, and we’ll continue to provide you value on an ongoing basis. Thank you very much for your time. This is Zack Miller. This is Tradestreaming Radio, and we’ll check you soon.

Zack: Can you introduce yourself and your background again?

Greg: Sure, absolutely. I’ve been doing this for a long time. In the book “The Outliers” by Malcolm Gladwell, he speaks to people who’ve essentially put in their 10,000 hours. I’ve been doing this for over 20 years as an investment manager. I started in the business right out of college, in 1990, working for a firm called Dietche & Field Advisors. At the time, it was about a $400 million pension fund manager. By the time I left, we were over $5 billion.

At that point, I started as an analyst, mainly following technology companies. Back then, there was no Internet, and there was no e-mail. We only had voicemail, and in fact, there was only one computer in the entire office and that was for the secretary. I really cut my teeth on companies like Cisco when they were just getting started. In fact, one of the tools that this new book talks about, one of the traits is a strong discipline. Even as far back as 20 years ago, we were counting the number of routers that Cisco was shipping as a method of trying to estimate their quarterly sales.

I left there in 1997 to join another hedge fund. Actually it was a hedge fund at the time. First Fund wasn’t a hedge fund. Joined a fellow named John Levinson, who was an institutional investor ranked analyst from Goldman Sachs following technology hardware companies. He and I joined together and we started with about $100 million under management, and we got up to close to about a billion dollars under management.

I left in 2000 to start my own firm called Rock Crest Capital. The idea behind Rock Crest was to, at the time, focus mainly on technology companies, although we expanded over time, but to have a much bigger focus on risk management. Clearly, the volatility in the 1990s, especially toward the end, is in many ways similar to today. Risk management became a much more important part of what I was trying to accomplish.

That fund, Rock Crest Capital, is still alive today. It’s a family office. The fund peaked at about $200 million under management. It’s really there that the strategy behind the Monopoly Method was really born out. The idea of having a strong philosophy, a strong discipline, a strong process, and really a consistent strategy, which in many ways is more important today than ever as investors have to make rational decisions instead of emotional decisions. They need more than ever to focus on managing their wealth as opposed to having professionals manage all of it. At least a portion of their assets it is important to manage . . .

Zack: I mean, the data bears that out too, right? Very few–even extremely wealthy people have concentrated their assets with one manager.

Greg: Right, exactly. Exactly.

Zack: You sort of hit it. I was going to ask you the next question. At what point did the Monopoly Method emerge? It was at Rock Crest it sounds like that you sort of formulated that. Was this an ongoing process that you’ve sort of pieced together throughout your career? Or is this sort of a new approach?

Greg: It’s a strategy that I’ve carried throughout my career. In 2005 and 2006 in particular, our fund at Rock Crest entered into what I would call a challenging period. Our performance in 2005 and 2006 was up low single digits. We had generally been used to compounding at double-digit rates. In fact, throughout my career I’ve averaged 13 or 14 percent returns for my investors and for myself. During that period, I decided to, and along with a few of the other people at the firm, decided to really take a look at what we were doing, what we were good at, and what we weren’t so good at.

In many ways, the strategy and the consistency and the structure that evolved from that time period was really the basis of the Monopoly Method. For example, to be a successful investor, you really need a consistent structure across your investment style. That’s even more important as a firm. As a firm, we had three or four people, and while we all subscribed to a certain method of picking stocks, everybody did things just a little bit different.

So we looked back, and I looked back at what had made me successful. In general, it was the stocks where we had generally an edge in information or an edge in opinion. Those stocks were generally stocks that exhibited monopolistic tendencies. They were stocks that were in areas that were growing in a secular basis. It didn’t necessarily have to be with big companies. Certainly there were big companies. But there are many small companies that really dominate the marketplace and that are in a marketplace that is growing on a secular basis, meaning that it consistently grows over a medium to long-term time frame.

Zack: When you say monopolistic, it doesn’t mean they have to be completely monopolistic, but they have to exhibit some form of monopolistic power, right?

Greg: Absolutely. For example, cable companies or utility is a regulated monopoly. Yet those don’t often make great investments for obvious reason. They’re sometimes great investments depending on the market time period, but they’re not growing. In general, there are a few characteristics that make for a strong monopoly. Somebody generally has very high market share in their chosen market. Companies like Cisco, companies like Apple certainly have high market share in iPods or routers, etc. If you look at a Deere, who’s the largest manufacturer of agricultural equipment in world, they’re not a monopoly, but they have high marks and pricing power. Pricing power gives them higher margins than their competitors. It also gives them the ability to invest when the market is doing a downturn.

For example, Cisco, while it’s not particularly strong today, over the past 20 years it’s shown a fantastic ability to invest strongly during downturns, which allowed it grow faster during the upturns. It was during that time period of 2005 and 2006 that we looked at what were the core traits of successful investors. It was three traits. It was philosophy, discipline, and process. Every investor who’s ever been successful shares three core traits in common. No matter if they’re value investors, real estate investors, or stock investors, it’s important to have a consistent structure. It helps you to take emotion out of the game, but it also helps you successfully measure and learn from your mistakes, which is something I think you pointed to in your book where investors get over-confident. They’re not learning from their mistakes. They don’t have a consistent process in place and philosophy and discipline. So that’s really where it started.

Zack: A lot times and something I mention in my book certain investment philosophies go in and out of style. I don’t mean in and out of style like value investing is always in style. But meaning value stocks will be rewarded during a specific period of time, where in other periods of growth stocks may be rewarded. It’s hard to measure your success especially during those years when things are going against you. How do you look at saying keep your head down and stick with the philosophy, even in the short term, all you can see around you is that the philosophy is not necessarily working today?

Greg: That’s a great question. I think many investors look to investing are told by either professionals or people they are in touch with that you buy and hold or stick to Apple for the long term. While I subscribe to long-term investing, I think the last few years particularly have shown that we’re in a different world today. Large unrecoverable losses can happen very fast. Yes, you need to focus on the long term, but you also need to focus on the short term as well.

That’s why in chapters eight and nine in the book we focus on both market strategy and market risk. There’s actually never been a better time to manage risk for the individual investor, and even the professional investor because of the abundance of tools out there, and these tools are very low cost. Be it the ETFs in a particular sector and options are more available than ever. The investor has an enormous amount of choice during periods when volatility of the market drives stock prices.

So for example – and this is a real prime example – in August, approximately 70 percent of the movement in stock prices was correlated with the movement in the markets. Now this is versus about 40 percent in July. During a month like August, no matter what your philosophy is, what your discipline is, or what your process is, your stock prices aren’t going to move according to how you thought they were. So it’s important during those periods of time that you recognize what’s going on and you make adjustments.

Whether those adjustments are bring down your gross exposure, meaning if you have a dollar to invest and right now you’re investing a dollar, maybe you invest $0.50. Maybe it’s adding some ETFs or indices shorts, like the S&P 500 has an ETF called the Spy, against your portfolio. There are numerous tools out there to help investors today manage risk in a very easy, very powerful, but very easy and understandable format.

With books like “Tradestreaming,” with sites like “Seeking Alpha,” with sites like Briefing.com, people are able to have a better understanding of the data points that are driving the markets. I think most of use know that there are big economic issues in Europe that are driving the U.S. markets. We all were inundated with talks about the debt ceiling in July and what might happen if we can’t fund our debt and are we going to go into default. There are clear, obvious signs of volatility in the marketplace much more so today than there ever has been.

Investors do need to invest long term. They do need to pick the right companies. Companies like in my portfolio today, companies like Apple, companies like Deere where you see long-term prospects for growth, but you also have to understand that there is market risk. The market will drive your returns over some period of time, and you have to adjust for that.

Zack: I think it’s a great framework this three-prong thing – philosophy, discipline, and process. Let’s finish philosophy. Talk to us more about some of the tools you use to identify monopolies.

Greg: Everything around the Monopoly Method, everything revolves around discipline. Discipline is really the glue that holds it together. It’s how you do your research. It’s the tools that you use. It’s the importance, how to identify which tools to use for which particular stocks. It’s how to identify investment signals versus investment noise. All of the research around the Monopoly Method is based on the discipline.

There are five levels of discipline that are described in the book, and this is from least important to most important. Level one is analyst, Wall Street analyst work. That is something that is probably isn’t as available to individual investors as it is to professional investors like myself. However, with services like Briefing.com, with services like Seeking Alpha, services like Tradestreaming, they post upgrades and downgrades and reasons that people talk about them. In the past, that wasn’t as available to people. It’s much more so than it is today. In addition, analysts don’t have as big an impact today as they used to.

The second level is company. Companies stream webcasts every quarter. They have a conference call during conferences on Wall Street. These are generally webcasts. I always recommend and I do for myself, before I buy a stock or look at a stock, I listen to the last two webcasts. That helps you ask the right questions. On those webcasts, there are going to be questions from analysts about certain things. Whether it’s tax rates, or income statements, or revenues, or customers, they’re going to help you. In essence, the book really answers the question: “What is the question?” That’s what I have been trained to do for 20 years is to be able to ask the right question, to ask it efficiently, get to the reasons why you want to own or short the stock.

Number two is company. Number three is consult expert networks. Generally, that’s more available to us than to individuals. However, again with the Web, with social networking, with new services like Vintro, that ability to get industry insight into companies and their products and their management teams, is available at an extraordinarily reasonable price.

Number four is channel checks. One of the best methods that we use is, if we are looking at Cisco, which is a telecom equipment supplier, we know there are lots of companies that supply to Cisco and many of them report their numbers or have comments before Cisco will report. It’s always important to keep an eye on the channel.

The last and the most important is the customers or the competitors. Many times you will have a competitor report their numbers or make comments or present at a conference where the webcast is available and you’re able to get insight into these companies.

All of those methods, all of that discipline goes into how we pick monopolies. Picking monopolies is something you and I can both do, but you and I may not come to the exact same conclusion. That’s another important benefit of the book is that it’s dynamic. This even gets to the process. The process takes 11 different variables, and it scores them in a certain way to help you basically figure out when to initiate a position, when to sell a position, how big to make that position. That’s quantitative, numerical based input, but it’s a qualitative decision that you make through your own research.

Back to how do you find monopolies? Monopolies are all around you. Many times it’s a function of who you know, what type of business you’re in. If you’re in the energy business, you may know that more drilling is happening deep offshore. Who are the companies that are going benefit from drilling deep offshore? Are they any that have higher amount of market share than others? There are companies like FMC and Cameron that are very dominant in those marketplaces. We all know Apple is dominant in the technology marketplace, but there are also small companies. I’m sure you have taken your kids to an IMAX theater. If I go to an IMAX theater and I have an enjoyable experience and I’m an avid investor, maybe that’s going to cause me to take a look at IMAX.

Zack: It’s interesting you mention those two examples by the way, Greg, because . I look at those as like they created their own industries. Apple sort of was confounding initially because it really wasn’t a computer manufacturer. It wasn’t a software company. It created consumer devices, and IMAX as well, it’s a new type of movie experience. They not only defined it, but they owned those niches, but they’re not necessarily competing against the traditional people in those industries.

Where do you draw the line between being a monopoly in an existing market or a company that’s coming along and defining its own market?

Greg: That’s a great question. I think the answer is there are a couple of important facts with any company when you think about whether or not they have any monopolistic tendencies. Again, it kind of gets back to market share. It gets back to pricing power. Generally, it will get back to them having a better financial model than their peers. Many times it will involve a sustainable competitive edge that they have. That edge in and of itself can be creative. It can be market power. It can be their ability to acquire companies.

What other kind of existing market that somebody is coming into. For example, there was a recent IPO company called Fusion IO. They make a NAND based or solid-state based hard drive. Generally, the hard drive in your computer has a disk in it and it spins around. In our iPad, there’s nothing that spins or moves. A solid-state memory is what’s called. Of course, it’s faster and it allows you to have a longer lasting device.

Fusion IO came public and they do that for the enterprise as opposed to the consumer. Now that’s an existing market. It’s a hard drive market, but they’re coming in with a unique solution that’s higher performance. It ends up having a lower cost, and they’re new to the market. There are people coming, but they have a leg up. Listening to their conference call, reading about this company in the press, looking around you and seeing what devices that they’re using. What are you friends talking about.

In the book, we talk about 30 different themes and different stocks. The book gives you a great head start on a lot of the different things that are happening out there. Whether it’s an existing market or a new market, as long as they exhibit these types of tendencies, and as long as you personally feel or you’ve read or have third-party knowledge that this is in fact a growing marketplace – tablets, or IMAX movie theaters, 3-D experiences, oil drilling, the list goes on and on.

Look at the new airplanes that are being built. Today the Boeing 787 is being built not by aluminum, but by composite material, carbon fiber. All around us we see examples of new industries that are popping up. Clean technology is an industry, renewable energy. Of course, that’s a little bit more . . . today it benefits more from government funding and of course the governments are under pressure. Again, those are areas that as an investor, and what I try to help people. . .

In the end, with the book, I hope people look at the strategy and philosophy, discipline, and process that I put forth. The most important thing that I hope people take away is that throughout their investment style, they need to have a consistent philosophy. If you don’t, you’re scatter shot. You’re going to have different stocks and different reasons. Your performance will be very, very uneven. You need to have a strong discipline and you need to have a strong process. Importantly, that process you need to be able to identify your mistakes and make changes.

Zack: We spoke about philosophy and discipline. Now let’s move into process. You use a scoring system I guess, which makes things very quantitative and say, I guess, even to look back and say, “Here’s where I succeeded and here’s where my mistakes were. It’s clear in the numbers that something went wrong.” Can we talk a little bit about the scoring system?

Greg: Absolutely, absolutely. During that time period, in 2005 and 2006, one of the challenges we had, particularly the team, to provide a consistent process was to identify what do we think makes stocks move. In multiple meetings, we settled on 11 different variables that we thought were important for stock to move either up or down. Those 11 variables are talked about in the book. Those are: monopoly, monopoly factor, revenue, margin growth, visibility, meaning how visible is the next quarter’s or next few quarters’ earnings stream. For example, a cable company has very high visibility. They have subscribers. A software company may not have as high visibility. So those are different things. Historical track records, it’s important that a company that you are going to buy has a historical track record. Is it good? Do they usually meet their numbers? Do they usually beat their numbers, etc.? Your balance sheet, is it a strong balance sheet or is a weak balance sheet? What about the management? Is the management high quality management or low quality management?

One of the advantages of the Internet and sites such as yours and others is we are able to look backwards. We are able to listen to conference calls. The amount of due diligence that we are able to do for little to no cost is just amazing.

Catalysts, many times we look to specific events to drive our stock techniques. For example, you might be buying Apple today, awaiting the iPhone 5 launch that’s going to happen in September or October.

Price targets, we all generally have price targets, but in the scoring methodology we introduce both an upside price target and a downside price target. We do that so you are able to measure what you’re upside opportunity is, but what your downside opportunity is as well. For example, if you have a $20 stock and you think, “Boy, I think it can get to $30.” That’s a $10 upside. “But I also think it could go down to $15.” Well, that’s $5 of downside. In the equation, that would be scored a two. So you have $10 of upside divided by $5 of downside. 10 divided by 5 equals 2.

Then there are a couple more variables. One being technical strength, meaning charting. I go through the book just to help investors understand some of the basic charting techniques. Moving averages . . .

Greg: To take a look at relative strength, right?

Zack: Relative strength, moving average, convergence, divergence. All of these are very accessible and very understandable and laid out in a very powerful yet simple way in the book. In fact, in the back of the book, in the advance knowledge section, which makes this book also a good place for professionals, are some other technical techniques, whether they be DeMark indicators, or Elliott Wave, or Point and Figure. So we discuss some of that.

Then the last variable is what I call the expectations or sentiment variable. It’s actually a contra signal, meaning that if you’re going into a quarter and let’s say you’re looking at buying Apple, and going into the quarter because you think they are going to have a good quarter or perhaps you own Apple, and you’re trying to figure out whether or not you should sell some. If you look at the stock price and it’s up a whole bunch over the past few months, chances are that people are already expecting them to have a very strong quarter. So that would actually be a negative score for expectations. Conversely, many stocks blow up, and then the next quarter they’re very cheap, and so the stock hasn’t moved. So that would be a positive. Nobody’s really expecting much, so that’s going to help your investment case.

Within the scoring algorithm, if you will, and it’s a very simple algorithm . . .

Zack: You have a calculator on your site that helps people do this?

Greg: Yes. We have a calculator on our site, and we have link to it on our Facebook page as well, www.monopolymethod.com, and then we have a Facebook fan page. It’s Facebook.com/monopolymethod. There’s lots of information on both to help you learn to score. Then, once a week or once every few weeks, I am also putting up my own scores as well to help people understand.

Zack: That’s great.

Greg: And asking for questions.

Zack: You mentioned in the book that’s its relatively easy to put together a spreadsheet. Do you have something branded that you could maybe distribute to our audience?

Greg: Absolutely, absolutely. A spreadsheet for the actual variables itself or for something else?

Zack: I guess for calculating the whole methodology.

Greg: Well, that’s available on the website. Happy to make it available to your audience as well as a separate downloadable file.

Zack: Oh, that’s cool. Great.

Greg: Now, for the other thing I didn’t mention with the process and with what I call the Monopoly Method Calculator is that we weight different variables more than others. So for example, revenue and margin are double weighted. The reason they’re double weighted is because they are much more important in the calculator. Revenue growth and margin growth are the two most important drivers for stock prices over the short, medium, and long term. Whether it’s a value stock or a growth stock, those two are going to be big contributors to your performance.

I’m sorry to keep going with the calculator, but a very important part of having a consistent philosophy, discipline, and process is it the ability to understand why you’re investing in a particular company. There’s no more important time than quarterly earnings because that’s really when you get a check-up on how you’re doing and how your thoughts and your ideas and your thesis are performing. One of the advantages to the calculator is that you see every score that you put up there. Scores above 10 are generally buys, between 8 and 10 are generally holds, and below 8 are generally avoids or sell short.

If you have a score that’s over 10, yet you’ve put a score of 2 for your catalyst, or a score of 1 for your revenue growth, well then you know, personally, that that particular characteristic, that particular variable is very important to your investment selection. So that if you don’t get that catalyst in that quarter, you may need to reevaluate your score. You may need to reevaluate whether or not you want to own it, whether you want to sell it, how big it should be in your portfolio. Since the calculator is dynamic, meaning it changes with price, if a price has moved up into the quarter, you may have started with a score above 10, which is a buy, but by the time you get to the quarter, you see it’s now an 8 or a 9.

Unless you’re expecting an earnings beat, which will raise the earnings and raise your price target, because it’s dynamic, it changes with new information, then perhaps you should take some profits. I actually go through an example with Deere on the Facebook page where that exact thing happened, where we had a high score. They reported earnings. We had to lower some of the variables, change some of the variables, and it changed the score. The stock was still lower price, but it also had a lower score.

Zack: So interesting. We just have a few more minutes. I have two questions. People should definitely go out and buy the book. One of the questions I typically end with is resources that you use in your own research. The book is just riddled with them, so people should definitely check that out.

One question. What prompted you to write the book? It’s curious because you’re an asset manager, you have this philosophy. Is it just to help share as a process? I do believe the investing process has become less independent. It’s definitely become more social in that aspect, but you’re giving a lot of information away. Why do that?

Greg: Well, it’s a good question. It’s a question I get often.

Zack: I’m sure you’re wife asked you, Ed, while you were writing it, right?

Greg: Many, many late nights. Certainly for sure, many late nights and weekends. The idea really started in 2008 for me. During the volatility of 2008, my parents are active investors, and my friends are active investors, and I was constantly asked about the market, about stocks . . .

Zack: Stop asking me already.

Greg: Exactly, and I started writing. I started writing a little bit of work mainly for my friends and family to look at as to how I view the world, and how I have changed or adapted my philosophy towards companies that have proven to be successful for the long term. It was a short, few page paper originally, which is about all that most people can handle, certainly your parents and your friends. From that, I just kept writing. As these things happen, you keep writing, and all of a sudden you have 100 pages written down, and it started to be a book.

Zack: It’s great. It’s clear that there’s a lifetime of experience embedded in the book. That’s really where I’m coming from.

Greg: I really, truly believe that as an investor, as a professional, we need to take some of the experiences that we have and bring those and give those and help others. This is my small part of helping people make better decisions, help them make higher profits, and help them do this with less risk. In the end, as a professional, I have all day to look at companies. There’s an enormous base of active individuals. If you look at E*TRADE, I think they have close to three million accounts and a couple hundred billion dollars under management. That’s just E*TRADE. That doesn’t include Fidelity, Scottrade, and TD Trade. There’s an enormous amount of people out there that are doing this part- time, and they are not doing it efficiently and they’re having mixed results. They’re in a market that is very, very unforgiving.

Zack: That’s actually a great segue into my second question Greg. Your book is really a primer. It tracks everything from philosophy behind investing to actual process. It’s pretty a daunting experience for a lot of people. You’re talking about picking individual stocks. Is it really the type of thing that our parents can do? Do you they have the time and energy?

There’s certainly the materials and the resources out there to be able to access to learn. Are people doing that and should they really even be doing that? That’s a philosophical question.

Greg: I think it’s a great question. We’ve been trained to save and invest as a society. We work professionally in whatever career we’ve chosen. Many people create vast amounts of wealth in their regular job, and many people scrimp and save along the way, and they save towards retirement. In the past, you were able to generate five and ten percent type returns on your investments on a pretty consistent basis. That availability is not there anymore. I would 100 percent agree that it’s tough. It’s not easy. But I also believe that you have no choice. You’re other choice is to sit in cash.

Zack: Sit in cash.

Greg: If you’re going to be an active investor, and by the way there are millions and millions of people who are already active investors. This isn’t a book trying to get somebody to take their money from their mutual funds and invest it. This book helps existing people, the existing millions of people that are already pointing and clicking their way to investments every day. It is a somewhat daunting task, but I think I have made it as simple as possible.

I think we would all agree that understanding the benefits of companies that exhibit monopolistic tendencies is something everybody can understand. Everybody can understand tablets and iPods, and people can understand that food is growing more scarce. People can understand that we need more oil and more energy in our world. It’s from that top level that the tools in this book . . . and you’ll notice it’s a very short book.

Zack: How many pages?

Greg: It’s short, 146 pages.

Zack: It’s 132 it looks like without the appendices.

Greg: Exactly. The book is chock full of really helpful insights for people whether that is how to structure your day. How to talk to management teams. What websites can you use to help your process speed along and make you more efficient.

Zack: Any books that you’d recommend that you found instrumental in your own sort of learning process? Investment books?

Greg: Probably the most important book that I’ve ever read, it’s actually a quite old book. It’s by a Harvard professor called Michael Porter. You probably took his class. I’m not sure if he was . . .

Zack: No, I was undergrad there.

Greg: That’s called “Competitive Strategy.” It’s based on what’s called Porter’s Five Forces. That is a book that is very dense, but again it’s quite readable. It helps investors understand what makes one company a better company than another company. That’s probably the book that’s had the lasting impression on me over the years. There are many business books out there from “The Random Walk Down Wall Street.” Many traders books that are out there.

Zack: Ben Graham’s book.

Greg: [inaudible 42:19] is probably the most similar to this book in terms of the tool set that I’m hoping and trying to get investors to utilize.

Zack: I think you do a good job of that. What I appreciated from the book was also your approach. It’s almost a Buffett-esque approach, where I asked you which book you liked and you mentioned a business book, not necessarily an investment book. You’re approaching it as a business person. Which businesses are sustainable and have a competitive advantage over the long term? Then you have to quantify using investment metrics. I like that approach. You found a way to tie everything together, including technical analysis. It really is a primer on the entire investment process. It was a good read for me.

I appreciate your time on the show. Thanks for sharing everything with us.

Greg: You’re very welcome Zack, and I appreciate it. Please let me know where to send the spreadsheet for your audience. I look forward to working with you in the future. If there are any other questions you have or your readers are interested in, I’m available anytime.

Zack: That’s great. I appreciate it.

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