Book Review, The Big Money, By Frederick R. Kobrick

Simon & Schuster, 309 pages, $27.00, ISBN-13:978-0-7432-5870-8.

While most how-to-invest books were written by smart enough authors, Frederick Kobrick's book verifies once again that being smart is not the same as being wise. Of course, he should have the upper hand when it comes to Wall Street wisdom, as he has three decades of real stock-picking experience under his belt. His resume includes some very impressive roles, including as an analyst at Wellington Management Company, and as manager of the State Street's Research Capital Fund and Capital Appreciation Fund. Both funds received high honors from USA Today, based on performance measures. In his book 'The Big Money', he shares his award-winning investing approach in a thorough but concise manner.

His philosophy is actually two sets of very distinct standards, both of which should be applied when making investment decisions. The first set of rules is a short list of minimum standards any company should pass. They're cleanly laid out in the acronym 'BASM'. The second set of rules is a collection of seven psychological steps that any investor will eventually be forced to grapple with. For example, a lack of patience or confusing emotions are two of those seven possible roadblocks.

Where most authors would use the whole book to cumulatively add each new piece of the approach while simultaneously building on each of the prior topics, Kobrick surprises readers with something different. By the fourth page, he has already detailed the four standards any company should meet, as well the seven steps investors should take to avoid beating themselves. Therefore, the majority of the rest of the work is simply a collection of case studies that illustrate different aspects and examples of his two-pronged methodology.

Business Model

The 'B' in the BASM acronym stands for 'Business model'. While it's a term that may have become a little gratuitous in the world of investing literature, Kobrick adequately taps into his own experience to offer some real - and new - insight about what a business model should actually look like. More than once in his career he questioned a company executive, or even a CEO, for a specific business plan that made sense and was also likely achievable. When he got answers he liked and believed, he bought shares in the company. If instead he never got answers, or if he was responded to with a non-answer, then he refused to buy that company's stock. In all cases cited in the book, the 'business model' criteria allowed the author to correctly determine whether or not a company had a legitimate shot at actually being a profitable stock.

That said, Kobrick acknowledges that the average investor can't make a face-to-face visit with a CEO to ask those same tough questions. However, through more than enough examples, he illustrates how any investor can still apply the criteria he did when searching for a sound business model. More than that, the examples he uses are detailed enough to eventually allow the reader to understand his thought process, and perhaps even model it as their own.

Patience

The seven issues Kobrick says all investors must contend with are not going to be surprises to anybody. However, where most investing books might just leave the seven steps as ambiguous ideals, this particular book provides plenty of context about what each of those seven possible pitfalls specifically means to investors. Better yet, it illustrates specific actions or non-actions that are a result of one of those seven challenges.

For instance, 'patience' has historically been a tricky notion with investors. In some cases, patience is required to hold a stock through a rough period in order to get to the big reward later. In other cases, the difference between being patient and being stubborn is misunderstood, which ends up yielding disastrous consequences for an investor who was just being patient - as instructed - with a company that was headed for financial ruin. Kobrick teaches investors how to be patient the right way, and for what reason(s) they should be patient. It's refreshing that he also defines points when an investor should no longer be patient. Of course, his BASM framework largely determines whether or not a stock should continue to be held.

While Frederick R. Kobrick's 'The Big Money' may be a bit overwhelming for a new investor who just wants to get started, it provides a nice methodology for investors who understands the basics, and want to give themselves a chance to consistently beat the market. This book would be particularly beneficial for an investor who is challenged to find and implement a specific stock-picking strategy that actually works.