Thinking About Money

A reader asked me what my thoughts on Google were. Hmmm, that is a good one. I am very very puzzled. So let me explain why I am puzzled.

1. Their stock price is 200+, which means that there will be very few traders with small pockets. I personally like to trade in the area of 1000 shares, and at today’s prices I would need to pony up $383,000 USD . I could deal in smaller blocks, but my broker likes me to deal in multiples of 100 shares (>$38,000). Not having traders like me might seem like a good idea, but it makes the ticker very dependent on fickle and demanding hedge-funds, mutual funds, and fund of funds.
2. I get the feeling Google has a love-hate relationship with the stock market. I know the stock market is the bane of corporations (who see it as full of greedy and selfish investors). However, I would add that if your stock is not liquid then the employee’s options become very uninteresting.
3. Their base products in search and advertising are rock solid. I think search and advertising will be to Google like Windows and Office is to Microsoft. A cash-cow that will add to their bottom line.
4. They are active in trying to do other things. Many are saying that Google has only had hits with search and advertising. I actually think Google is very clever in that it “betas” something, sees the adoption and the problems associated with the adoption. Based on the “beta” results they create a business model with break-even points and success ratios. I can’t confirm that they do this, but it could explain why they keep trying things out semi-officially.
5. Too many brilliant people with big degrees. I am not saying brilliant people are bad, but problems can occur. In the late 90’s there was this fund full of PHD’s and brilliant economists. The brilliant people initially created huge returns based on their “perfect” mathematical model. But then the model went “wrong”, and the fund collapsed taking down 1 trillion dollars of leveraged money and 4.5 billion of actual money in six months. This collapse caused a tidal wave in the stock industry. I am not saying this will happen to Google, but I wonder.
6. I find Google a bit opaque. They keep me on edge and come out with things that can be considered as “thinking-out-of-the-box”. I find this both good and frustrating as it is hard for me to gauge what this company is capable of.

Overall, I like Google, I like their products. Google has good fundamentals, but I personally would not trade them. I find them too expensive, and can’t understand them well enough to figure out where they are headed. I could trade Google based on technical analysis, but I am uncomfortable trading on TA. I am probably wrong, but for my limited portfolio they are too much of a risk and thus I give Google two thumbs down from an investment perspective.