Jul

23

Google, from Steve Leslie

July 23, 2007 |

 Early last spring, Vic and Laurel mentioned they were doing something they had not done before and were making a personal investment in Google stock. I recall this because it reminded me of when Jim Fassel, then head coach of the New York Giants, made a bold statement that the team was on their way to and through the playoffs and on to the Super Bowl. Everyone who wanted to be a part of it had better get on board. Those who were not willing to make that commitment could just get off.

At the time the stock was approximately $350. Around the same time, Jim Cramer devoted a show to Google and said the stock would climb above $500, noting fundamental reasons such as its per-share earnings and its ability to hold a 50 P/E.

Naturally there was the usual back and forth discussion. Google commentary was ubiquitous and bull and bear camps were established to debate the merits of the stock.

Today, Google is $514 per share. One year ago, Apple was $50. Today it is $144. Garmin was around $50, and now it is $80.

The lesson to learn from this: Great stocks are to be owned. Companies who dominate their space are to be kept and allowed to grow. Those who have built fantastic franchise names should be accumulated. Buy Google over Yahoo. Apple over Dell. And most importantly, the speculator should be willing to hold on, eschewing the quick buck in search of the really big gains that can be achieved through diligence and patience.

Easan Katir remarks:

"Pride cometh before.." notwithstanding, I feel compelled to relate that Thursday afternoon after hours I shorted GOOG at 547. Instant gratification feels good! Most trades have elements of shoulda woulda coulda been bigger, better, higher, lower, earlier, later, faster, slower. But not this one. This time I earned my keep! Please forgive this anecdotal, non-counting, horn toot.

Steve Bal writes:

The market favorite GOOG last week became the poster child for a market sell off. Was this the result of great earnings? If I hold average securities whose earnings are average then what chance do my stocks have of rising when GOOG, with great earnings, is selling off?

This impact is significant in the short term as stocks that have earnings releases early this week may come under selling pressure. However, by Wednesday we come up against the firm that has been setting higher records than GOOG, has rallied more than 60% this year, and has more earnings than GOOG. That stock is the new poster child for a great stock, AAPL. 


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3 Comments so far

  1. eli on June 28, 2007 3:35 pm

    I’m sure the chair would advise against this sort of activity. The gods have their ways of keeping one humble.

  2. Vitaliy Katsenelson on July 3, 2007 12:37 pm

    Dear Steve:

    I could not disagree more with your conclusion. Performance of a stock, in isolation (ignoring the external environment i.e. interest rates, risk, inflation etc…), is the product of fundamentals (i.e. earnings and cash flow growth) and valuation (i.e. P/E, P/CF).

    Google and Apple may have great fundamentals; their innovation has and may lead to high earnings and cash flow growth. But are they good stocks? - may or may not be. But, more importantly will they be good stocks at any price? No! If I were to follow your conclusion, since they are great companies they are great stocks at any price, at any valuation – at 50, 500, 5000, … times earnings.

    Take a look at eBay in the late 90s, it was a great company (it still is), but it was grossly overvalued. So if you bought it in the late 90s and held it to today, despite its earnings going up 100 fold, the stock is roughly at the same level as it was then. Actually, few would have the patience and conviction to hold it through the down turn the stock took in the early 2000s.

    One of the biggest mistakes investors make in investing is failing to separate a good company and a good stock. In your conclusion you did just that.

    This myopia to differentiate between good companies and good stocks is not just limited to wonderful, exciting, larger than life (Google comes to mind here), fast growing internet companies. The bluest of the blue chip stocks like GE, Coca Cola, Home Depot, Amgen, Johnson and Johnson (and the list goes on) were all great companies that one “had to own” but were terrible (overvalued) stocks in late 90s. Their earnings have double or tripled since but the stocks have not gone anywhere since.

    I think Benjamin Graham said “price is what you pay, value is what you get”.

  3. Nick Medexpert on August 12, 2008 4:53 am

    What is really going on in South Ossetia: http://ossetians.com/eng/news.php?newsid=459&f=36

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