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!

20 February 2006

Tempo rubato

I had the pleasure of 'meeting' this past week (via telephone and email), Kevin J Delaney, whose beat for the Wall Street Journal is Google/GOOG. Kevin wanted to get my thoughts for an article to be published this week. The comments that follow represent the highlights (or lowlights ;-) from that conversation; as such, this post serves as the long-promised but never written, Googleplex...

Wall Street has a tendency to view the world through a filter of extremes: the market is either bull or bear, overbought or oversold, overvalued or undervalued, etc. Thus, it perceives Google's seeming fixation on advertising as its single source of revenue to be either focused (the bullish perspective) or one trick pony (the bearish perspective). Sentiment always shifts with the near term sustained direction of the stock price; what happens, however, when one trend dissipates as suddenly as it appeared?

My original template for Google/GOOG was Microsoft/MSFT:
Each company was private for 5-10 years before its IPO
Each company was wildly profitable at the time of its IPO
• Microsoft operates in a tethered environment (desktop applications), whereas Google operates in a decentralized, mobile environment
• Microsoft’s initial success was from MS-DOS, Google’s initial success is from
AdWords (and its variants)
• Twenty years since its IPO, Microsoft spread its tentacles everywhere (publishing - Slate, broadcasting – MSNBC, online networks - MSN, etc), twenty years from now, what will Google be doing that is different than its core product today?

I believe Google does not have a master plan -- other than the willingness to fail at any project the company pursues.
• For all the intellectual firepower of Larry Page & Sergey Brin (and the company's many other employees) the algorithms they create and use are the actualization of James Suroweicki’s THE WISDOM OF CROWDS: “You might be smarter than anybody, but you are not smarter than everybody!”

• Consider the APIs Google makes openly available to all (coders and programmers): the thesis seems to be, “We create, and then 'allow' you to improve, to make better, more fun, more useful, etc”
• Compare and contrast programs such as
Picasa (purchased) to those of its competitors: Picasa is playful, easy to use, and not bloatware. (It also does not require several years to load.)
• Or consider
Google Earth. This excellent Atlantic Monthly article, by James Fallows, limns the wonders of that program as purchased and then updated by Google before Google then made available its API to the world. This action serves to make the program more fun and more useful.

"As best I can figure, I have spent 35,000 to 40,000 hours of my life sitting at a computer. This knowledge does not improve my mood or self-esteem. But it brings into sharp relief the handful of moments at the keyboard I can distinctly remember, each involving a time when I realized that the computer had just done something important and new. In the late 1970s, I marveled at the discovery that I could use my very first computer (a Processor Technology SOL-20) to save something I had drafted, then change it later on without having to retype the whole thing. In the early 1980s, I watched a message I had written go to its destination electronically, through a 300-baud modem I clamped onto a telephone handset. In 1993, I tried a program called Mosaic, one of the very first browsers, and was amazed to see pictures and documents stored on someone else’s computer show up on my own screen. In 1995, I entered a few words into a search box and within seconds got back some more-or-less relevant information, via the early search engine AltaVista. That was it for truly memorable moments, until last year when I first tried Google Earth."
(Read the article soon, as its availability online will be brief.)

I perceive Google/GOOG as a generational, singular opportunity — and have since long prior to its IPO. It manifests as the apotheosis and convergence of many once-divergent political, social, cultural, and financial trends.
• Consider the 90s mantra, “Information wants to be free.” Amend that phrase to, “Information wants to be freely available
• The company could morph into the
Dewey decimal system for the entire world. Too grandiose? Perhaps, but the company could “own” both the analogous digital card catalog AND the digital books, placing non-intrusive AdWords in each. To what size does the revenue stream grow with that possibility? Remember that, in time, everything will be scanned and indexed, including, I suppose, the human body. (Do not scoff: Consider the work Craig Ventner is doing as a Google employee.)

The company is radically different from anything prior:
• Each employee contributes directly in a way wholly different than any other company; employees feel they are more than mere cog in a giant machine.

• Responsibility, accountability, and credit are directly attributable to the galvanic person
• Its (power) hierarchy is comparatively flat.

Thus, my new template for Google/GOOG becomes the 21st Century analogue of the Royal Society:
• Google hires and surrounds itself with the best and the brightest minds (sometimes in wholly unrelated fields of endeavor) —
Vint Cerf, Craig Ventner, etc
• With the company's 70/20/10 credo, anything could result from the
consilience that will occur when and where bright minds congregate and in a fostered community of creativity and shared intuition
• Larry Page & Sergey Brin will never have to worry about money, so they likely view the world as a giant playroom: fun and loaded with toys. Why not have fun?

Google/GOOG -- the company and its employees -- will make mistakes. It also will not monetize every project it does or pursues. The question becomes, however: Is there a limit to what this company can accomplish and achieve? What will it be doing twenty years from now when Page & Brin are only 52?

Our job as investors is not to react as a thermometer to every tidbit of data but as a thermostat; stable. For example, I need know this one item only: that the topology (for Google/GOOG) might be uneven, sometimes rocky, but it will be generally uphill. Granted sufficient time, how high is high? Certainly, I believe, and have stated, that its destiny could be the first $1 trillion market cap company.

In a happy moment of serendipity and synchronicity, the esteemed Jack Cory -- friend, wise investor, smart old coot, and member of this 'community' -- offered his thoughts before knowing I was writing this post. Surprisingly, Jack believes Google/GOOG is a
penny stock! However, read very carefully for what Jack truly says...
The contemplation of … [Google/GOOG] … puts the present price in the penny stock category - from the view of a very few years from now. Remember that both MSFT and CSCO were penny stocks when viewing the IPO price from today's vantage. In fact, that statement was true as recently as 7-8 years ago. I feel confident that will be true of Google/GOOG in the future.
Apotheosis indeed.

-- David M Gordon / The Deipnosophist

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