The Deipnosophist

Where the science of investing becomes an art of living

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Location: Summerlin, Nevada, United States

A private investor for 20+ years, I manage private portfolios and write about investing. You can read my market musings on three different sites: 1) The Deipnosophist, dedicated to teaching the market's processes and mechanics; 2) Investment Poetry, a subscription site dedicated to real time investment recommendations; and 3) Seeking Alpha, a combination of the other two sites with a mix of reprints from this site and all-original content. See you here, there, or the other site!

13 February 2006

Questions re Google/GOOG

... and they are strikingly similar. The first reader sends his questions via email...
"I have a question for you in regards to James Stewart's article on Google. He makes a point of GOOG possibly being the "next MSFT or CSCO" as far as stock price appreciation over the next decade or so. You seem to see this potential also. I have seen many articles on the internet in the last few months alluding to the same. My question then, is what was the common consensus on MSFT and CSCO early in their stock life? Were they as much loved as GOOG seems to be now? In other words, it would seem to me that if so many people are banking on GOOG doing so spectacularly, that in itself would tend to limit the potential gains."
Please consider this factoid. Solely because you know or perceive something does not mean that everyone knows the same things or perceives in the same or similar manner as you. For example, you avail yourself of this blog's comments and insights; this places you in a stunning minority of its (this blog's) possible, potential, and as yet unrealized readership.

And the second posts her questions...
"As I bathe in glow of Stewart's endorsement of Google shares, a little devil's advocate threatens to turn on the cold water spout. When Microsoft went public, it was not an eagerly awaited IPO like Google and didn't overnight make everyone millionaires and a billionaire of Bill Gates. To me, it seems MSFT was just another software company who made Microsoft Word for the MacIntosch. I think Google is already much further along in their path than MSFT was 1-1/2 years after its IPO. Stewart mentions to look at the trading patterns but he is ignoring the capitalization and the already buit-in expectations and the fact that the founders are already billionaires. When did Bill Gates become a billionaire? My point is: when the IPO came out should not necessarily say it is analogous to when MSFT's IPO came out. It might be more appropriate to say it was like five years after MSFT's IPO came out. Maybe Google is further along in its trajectory than Stewart implies."
I disagree with you re the market's anticipation and reception of both Microsoft/MSFT twenty years ago and Google/GOOG twenty months ago. (How soon they forget!) There was eager anticipation re Microsoft's IPO, its reception hot and immediately so. There also was eager anticipation for Google's IPO, although Wall St, in a bid to protect its investment banking turf, began a quiet war to belittle everything about the company, publicly, privately, and via the notorious whispers. The shares' reception, as a result of this campaign (in addition to mishaps on the part of company executives), thus, was stone cold; falling immediately, however ephemerally.

Be careful with terminology. When I refer to a company, I spell out its name (e.g., Google); when I refer to a stock, I use its ticker symbol (e.g., GOOG). And when I refer to each, I use both (e.g., Google/GOOG). Alas, I am dizzied by your seeming interchangeable use of the company name when you mean the stock and the stock symbol when you mean the company (e.g., "I think Google is already much further along in their path than MSFT was 1-1/2 years after its IPO"). Nonetheless, you could be correct re Google/GOOG's placement in its life-cycle (trajectory). Only time will tell.

Certainly, the bears begin to shower us with a
fusillade of negative press. This Barrons' essay is its typical reportorial hatchet job professional investors expect from the magazine.,, and trade on (or fade). There is so much anyone, including me, could refute; for example, its conflation of facts with speculation to make the various speculations appear as facts. However, allow me this one fact and one speculation, kept distinct...
Fact: When the news leaked Friday re this article, Google/GOOG shares quickly and immediately slumped ~$10 (to $352) in after hours trading; as I type this note, the shares are down $10 more to ~$342.
Speculation: Today's low trade will be tagged most likely within the the opening 60 minutes of trading, possibly even the first 10-15 minutes. I expect the shares will reverse off that low, spend the day stabilizing, and thus put in the first low (and probably lowest low) of this decline.

This decline, at least so far, has been a typical bull market correction.

• The shares have declined deeply,
• quickly, and
• today's low trade could come near the long ago forecast $330+ critical support (Fibonacci, gap, 200 day sma, etc).

Ergo, upon this "news" -- the crystallization and publication of so many negative comments and insights -- Google/GOOG shares likely will achieve
nadir; their moment of obscene weakness. Pending today's opening and assuming the moment of obscene weakness will occur, then, and for the first time in many months, I likely will purchase more shares in anticipation of the first intermediate term price reversal and stabilization. Y
es, this is a guess, but it is an educated guess, one [that is] based on precedent. I stated ~4 weeks ago that, "If you cannot withstand the heat of the kitchen, get out." It always is easy to buy when the shares are rising in price; your perception is immediately ratified if not vindicated. Not so easy is what true investors are now about to do.

For more perspectives re Google/GOOG, check out Victor Niederhoffer's site, including the essay entitled "Epiphany." Too, is the most recent issue of Time magazine with this germane cover article and feature.

-- David M Gordon / The Deipnosophist

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