I respect the management of Google. They are not tied to conventional ways of thinking. When they bought huge amounts of dark fiber (fiber optic cable that had been laid down in the internet bubble period, but was sitting unused). I figured they had made good investments while the cable was very cheap (pennies on the dollar). I watch with interest as they continue to build their own (with partners) fiber network. I am guessing this may be partially because they are smart enough to know the business oligopolies providing internet infrastructure will try to exploit their positions and government cannot be counted out to play their proper regulatory role, which is required in a capitalist system. And partially due to their huge bandwidth needs and projections for future growth.
And since those oligopolies are not very effective companies (that rely largely on paying politicians, in order to undermine the proper role of government in a capitalist system, to gain government granted monopolist profits). That increases the benefit of Google buying into their own distribution network since excess capacity can likely be sold at a large profit: the competing companies are so used to charging monopoly prices leaving lots of room for profit. The second point can be debated but I don’t think if the economy functioned properly, with intelligently regulated natural monopolies providing internet bandwidth, I doubt Google would invest in this, but, of course, I could be wrong.
About the Unity bandwidth consortium
Google stretching underwater comms cable?
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Meanwhile, ITWeb reports that Google is looking to run a third underwater cable to South Africa.
Related: Monopolies and Oligopolies do not a Free Market Make - Challenges in Laying Internet Fiber Under Oceans - Plugging America’s Broadband Gap - Not Understanding Capitalism
Today, the market capitalization of Apple exceeded Google for the first time since Google went public. Both Companies are now valued at $185 billion. In 2007 Google had revenue of $16.6 billion and net profit of $4.2 billion. Apple had revenue of $24 billion and net profit of $3.5 billion. Since Google went public on 27 August 2004 their stock price is up 367% and Apple is up 1064% - both pretty good. I own Google and have it as the largest holding in the 12 stocks for 10 years portfolio.
Related: Buy Google - Stop Picking Stocks - Lazy Portfolio Results - Great Google Earnings
The USA stock market has not been doing so well recently (the S&P 500 index is down over 9% so far this year). And I own S&P 500 indexes in my retirement account (in addition to other index funds). So I am losing money on those investments but I am not worried. It is possible the market will do very poorly over the next few months, year… if the economy struggles (and with the huge credit card like spending Washington much of the last 30 years and huge increases in gas prices that is certainly possible). But I am not worried.
I don’t plan on using that money for decades. Therefore the short term declines really have no impact on my life. Sure if I was able to move all that money into a money market fund for the decline and then move it back into stock funds for the increase that would be wonderful. But I can’t and no-one has proven to be able to time the market effectively over the long term. It is unlikely you or I will be the ones that do it right. I wouldn’t be surprised if the market was lower at the end of the year, but I wouldn’t be surprised if it was higher either.
Dollar cost averaging is the best long term strategy (not trying to time the market). And using that strategy, if you assume stocks reach whatever level they do say 20 years from now, I am actually better off will prices falling now - so I can buy more shares now that will reach that final price. You actually are better off with wild swings in stock prices, when you dollar cost average, than if they just went up .8% every single month (if both ended with stocks at the same price 20 years later). Really the wilder the better (the limit is essentially the limit at which the economy was harmed by the wild swings (people deciding they didn’t want to take risk, make investments…) to the point that the final value 20 years later is deflated.
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I originally setup the 10 stocks for 10 years portfolio in April of 2005.
At this time the stocks in the sleep well portfolio in order of returns:
| Stock | Current Return | % of sleep well portfolio now | % of the portfolio if I were buying today | |
|---|---|---|---|---|
| Google - GOOG | 163% | 17% | 14% | |
| Amazon - AMZN | 124% | 7% | 7% | |
| PetroChina - PTR | 114% | 7% | 7% | |
| Templeton Dragon Fund - TDF | 90% | 10% | 10% | |
| Templeton Emerging Market Fund - EMF | 47% | 4% | 4% | |
| Cisco - CSCO | 42% | 7% | 8% | |
| Toyota - TM | 38% | 10% | 11% | |
| Tesco - TSCDY | 9% | 0% | 10% | |
| Intel - INTC | 3% | 5% | 6% | |
| Danaher - DHR | 1% | 5% | 8% | |
| Pfizer - PFE | -29% | 4% | 6% | |
| Dell | -30% | 7% | 6% |
At this point I am most positive on Google, Toyota, Templeton Dragon Fund and Tesco. I am wary of Dell - they seem to be moving in the wrong direction, but I am willing to give them longer to improve. I am even more wary of Prizer but again willing to stick with them for the long term. I will be looking for a suitable replacement.
In order to track performance I setup a marketocracy portfolio but had to make some minor adjustments. The current marketocracy calculated annualized rate or return (which excludes Tesco) is 9.8% (the S&P 500 annualized return for the period is 7.9%) - marketocracy subtracts the equivalent of 2% of assets annually to simulate management fees - as though the portfolio were a mutual fund - so without that the return is about 10.8%). View the current marketocracy Sleep Well portfolio page.
Related: 12 Stocks for 10 Years Update (Feb 2008) - Retirement Account Allocations for Someone Under 40 - Lazy Portfolio Results
For those that don’t find picking stocks fun it is nice to know that just investing in indexes is likely the best option for almost everyone. I have much of my retirement assets invested in index funds. I still think I can beat the market (though the results of the last few months have not been kind) but the amount I invest in individual stocks is not a huge percentage of my portfolio. I still like Google, for example, and in fact might well be buying more this week (it is down over 10% since I added to my position a couple weeks ago). Can You Beat the Market? It’s a $100 Billion Question
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From 1986 to 2006, according to his calculations, the proportion of the aggregate market cap that is invested in index funds more than doubled, to 17.9 percent. As a result, the negative-sum game played by active investors has grown ever more negative.
The bottom line is this: The best course for the average investor is to buy and hold an index fund for the long term. Even if you think you have compelling reasons to believe a particular trade could beat the market, the odds are still probably against you.
Interesting. I am surprised by the rapid increase in the total expense of trying to beat the market. I guess all those wall street bonuses add up. In my opinion the article does not provide adequate support the claims made, but I think overall the claim are sensible (based on numerous studies of results). The odds of beating the market yourself are very low. And the odds of paying the right people to beat the market for you are likely not worth the cost (in the market today).
Related: Advice from Warren Buffett - Stop Picking Stocks? - 12 Stocks for 10 Years Update - Feb 2008
Great advice from Warren Buffett. He spoke to students at UTexas at Austin business school and one of the students, Dang Le, posted notes of the discussion online. The internet is great.
On diversification:
Great advice. Warren Buffett uses great concentration (little diversification) but you are not Warren Buffett.
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Getting turned down by HBS [Harvard Business School] was one of the best things that could have happened to me, bad luck can turn out to be good.
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We did an informal office survey by looking at the total tax footprint versus the total income. I earned 46 million and paid a tax rate of 17.5%. My rate was the lowest, the average was 33%, and my cleaning lady paid 40%. The system is tilted towards the rich. The Forbes 400 total net worth has gone from 220 billion to 1.54 trillion, an increase of 7-to-1. You see in legislature that there is lobbying carried on by the powerful over issues such as the estate tax and carried interest for private equity investments. We need to flatten income and payroll taxes, and those making under $30,000 shouldn’t be bothered.
It is hard to beat reading Warren Buffet’s ideas on investing and economics.
Related: Buffett on Taxes - The Berkshire Hathaway Meeting 2007 - Buffett’s 2006 Letter to Shareholders - Warren Buffett’s 2004 Annual Report - books on investing