Banana Republic How the Gorilla Game can make a monkey out of you
By David Futrelle

(MONEY Magazine) – Stroll on by any message boards devoted to tech investing and you'll soon find investors arguing about gorillas, tornadoes and kings. No, these people aren't crazy. They're just Gorilla Gamers. Problem is, many of them have no idea what they're talking about.

The Gorilla Game, a guide to picking tech stocks, has been a bestseller since its 1998 debut. Authors Geoffrey Moore, Paul Johnson and Tom Kippola have won over readers with their oddball terminology and deliriously mixed metaphors. Alongside gorillas and their tornadoes, the book is populated with monkeys, chimps, princes and serfs, all living together, not always happily, on something called Main Street. (None of them, thankfully, are moving anyone's cheese.)

But this is one business book where the twee writing is backed up by some important ideas. The book's gorillas represent the defining corporations of the past decade. Because they control key pieces of technology--take Cisco and its routers--gorillas own the sectors in which they compete and can provide tremendous returns to their investors. That is, of course, if investors get in on the stocks while they're still cheap. The book promises to help investors find tomorrow's gorillas by encouraging them to look at the tech world as wary venture capitalists might. The key is to get in early on a number of leading stocks in a high-growth sector and sell the companies that turn out to be chimpy until you own the one true gorilla.

The implicit promise of this system is that it could have put you into a stock like Microsoft way back in the '80s, making you rich enough to build a house in Bill Gates' neighborhood. So it's no wonder that the tome has inspired a cultlike following on the Internet. On message boards at Silicon Investor and the Motley Fool, serious GGers attempt to apply the principles of the book to their own technology investments with a zealous rigor, debating whether or not a company is an alpha-male gorilla or merely a king--a decent company with a lead on the competition.

Unfortunately, plenty of Gorilla Gamers have fallen into what you might call the Peter Lynch trap. Lynch's 1989 bestseller, One Up on Wall Street, was a sophisticated how-to with one very catchy hook: Buy what you know. Some investors I've met, however, seem to have skipped the 250 pages that Lynch devoted to careful stock analysis; what they remember is that he was inspired to invest in Taco Bell after eating a burrito. That gave them an excuse to buy stock in any favorite fast-food chain.

Some Gorilla Gamers are indulging in the same oversimplification, labeling any company with a vaguely appealing idea--or a zooming stock price--the next king of the jungle. In late February, for example, one excitable regular on the Silicon Investor boards started a discussion group devoted to Ventro, which he called a "B2B Gorilla in the Making." This up-and-comer quickly devolved into a came-and-wenter. It peaked soon after the discussion thread began and then lost some 95% of its value in a matter of a few months. Another company I've seen tagged a gorilla is Xcelera. The stock spiked after technology guru George Gilder praised its Internet caching products. It's now down 32% this year.

The irony is that the Gorilla Game methodology is explicitly designed to weed out shaky "concept" stocks like these, as well as pretty much all dotcoms. After all, even Net companies that dominate their sectors, such as Amazon and Yahoo, can't impose steep switching costs. That is, they can't make it expensive for their customers to switch to a competitor in the way that, say, Microsoft can with its ubiquitous Windows. No astute GGer would ever mistake them for gorillas.

Any popular investing strategy is bound to be misapplied by some people, but The Gorilla Game's authors can't be held entirely blameless for the undermining of their own analysis. Their marketing savvy may have gotten the better of their good ideas. The book's cartoonish nomenclature and memorable catch phrases practically beg to be misused. It's a safe bet that many of those who assume expertise in the strategy haven't read more than the book's dust jacket. That's too bad, because anyone who plays a game like this without knowing the rules is sure to get the short end of the banana.

E-mail: david_futrelle@moneymail.com