Don’t go gaga over Google by Geoff Colvin, Fortune senior editor-at-large:
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we need to remember that the ringing superlatives are based on a stock price that’s nuts. Google is a terrific company that may one day deserve to sit beside GE, Exxon and Microsoft. But not yet.
He is welcome to his opinion. Lets look at some previous opinions, August 2004 Wall Street Week transcript:
KIRKPATRICK: For anything.
COLVIN: For anything. And, you know, we can remember when AltaVista was everybody’s favorite search engine. Google came along, better product, superior, took away the market, but who’s to say the same thing won’t happen to them?
SCHLOSSER: Well, they are creative guys, though. I mean I have a lot of faith that they’ll come up with some new ideas down the road that we’ll be able to watch for years to come.
COLVIN: What do you think, David? Is this valuation justified?
KIRKPATRICK: Well, I would never say that. I think any kind of valuation at this sort of level is very, very hopeful about future opportunity.
It is true Google is priced to perform well today (and if they fail to do so the price will go down). And I don’t think it is as good a buy today as it was at $185 (I foolishly didn’t buy at IPO). I did buy more earlier this year, which I am happy to put away for a decade and see where it is then. It is great if you can buy a good stock cheaply but often you are better paying more for a very well managed company than buying cheap companies (by PE, cash flow or EVA or whatever measure you want to use). When I started the 10 stocks for 10 years portfolio in 2005 I put 12% in Google which has increased 134% (along with 12% in Toyota, which is up 67%, and Dell which is down 15%). Google is actually the 3rd best performer as of today (Amazon, up 136%, moved ahead and PetroChina is up 140%). I don’t think Google investors are betting on impossible growth, but time will tell. And the internet makes it easy to see what people predicted previously so we can all see who was right in 5 or 10 years.
I do think at these prices Google is a riskier investment (with lower likely returns) than is was at lower levels (Amazon too). While this may seem obvious, it really is not as obvious as it may seem. If Google’s prospects had improved more than the price increased then at a higher price I might see it as a safer, or possibly better investment… This is what happened when I first bought Google at maybe $190 – after not buying at the IPO. Basically I do not believe Google’s prospects have not increased as much as the stock price in the last 2 years. Certainly I could understand passing up investing in Google today (if so, I would keep a watch out and consider buying if it falls…) but I am perfectly happy to keep my holdings.
Read this article from Fortune (not by Colvin) in 2004, GOOGLE @ $165 Are these guys for real? some quotes:
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I have mentioned I like the way Amazon, and Jeff Bezos, have been managing in several posts. Recently Amazon has added very strong financial results to that portfolio of things they do well. Amazon earnings announcement:
Operating income increased 149% to $116 million in the second quarter, compared with $47 million in second quarter 2006. Net income increased 257% to $78 million in the second quarter, or $0.19 per diluted share, compared with net income of $22 million, or $0.05 per diluted share in second quarter 2006.
Pretty impressive. It seems Amazon might be able to begin delivering strong current financial performance (they have done so at least twice, and maybe longer depending on how you look at it…) and continue to build and innovate for the future. That is when a company really sets itself apart from the crowd. Previously, from the investing perspective, the argument was largely based on the belief that the steps taken today were building for the future (a fine thing, but risky – without the evidence of success actually making real profit it is often easy to make a good case for why the future will be good). In an investment it is more comforting when current earning provide some evidence the profits predicted in the future have some basis in reality.
Since the beginning of April Amazon’s share price has gone from $40 a share to $70. And based on the after hours trades today it is going to be in the $80s tomorrow (though after hours trades can often be misleading – there is some more confidence based on the large volume of hour trades in Amazon, but still…). I must admit this price does seem like it might be getting a bit ahead of itself but Amazon is making an impressive case for strong future performance.
Related: Amazon Innovation – 10 stocks for 10 years (April 2005) – 12 Stocks for 10 Years Update (June 2007) – Very Good Amazon Earnings – Bezos on Lean Thinking – Is Amazon a Bargain?
Walking to accomplish tasks (getting food, going to work, shopping, going to play basketball) provides a better quality of life than having to drive (getting stuck in traffic jams…) and saves money and protects the environment. Walk Score is a cool web site that lets you calculate a walkability score. I would imagine the better the walkability score the better for the prospects of a real estate investment. You still have to determine if the current price already reflects the long term benefits to quality of life (which are then represented in increased prices) – I think often they will not be providing an investing opportunity. My guess is that real estate would increase above the market if you invested in areas that show walkability score increases during your ownership.
Related: Urban Planning and Real Estate Investing – Real Estate articles – 30 year fixed Mortgage Rates – Real estate blog posts
Sorry but that is a symptom of massive ignorance. Not knowing an incredible important aspect of your largest financial decision is like not know what days you are suppose to show up for work. There is a minimum amount of knowledge people should have that sign a mortgage. I think at least 34% of mortgage holders need to read this blog. Ok, I probably alienated all of them, so if that is the case then they should read some of the blogs we list in our blogroll.
There is a big problem in that logic – it could maybe make sense if you had good reason to believe rates will be lower in the future than when you took out the loan (but that is a very questionable). I don’t know why someone would think that in the last couple of years – the risks have been much better than rates would go up a few hundred basis points than down that much. Basically I can see someone that is very financially savvy using an adjustable mortgage to qualify and if they know they will move in a fairly short period…
Related: Learning About Mortgages – Mortgage Defaults: Latest Woe for Housing – How Not to Convert Equity – 30 year fixed Mortgage Rates
Some days turn out to be quite unprofitable. One of my larger holdings is Depomed – it was down 58% today (a phase 3 drug trial failed to significantly reduce pain when compared with placebo with Depomed’s formulation, not the kind of news you want for your company). Oh well, you have to take the bad days as an investor (at least I do) if you expect to see the good days (if you invest in individual stocks you have to accept that you will have some bad days). It was the largest holding in my Darvamore marketocracy fund. I imagine the fund, which beat the S&P 500 by 3.5 percentage points annually since it was started, is going to see that result take a huge hit. This day will be noticeable on the chart for a long time.
At least I have the sense to know it was a risky stock – I didn’t have any in my sleepwell fund, for example (the sleepwell fund is beating the S&P 500 by 1.5 percentage points annually since inception – 17.4% to 15.9%, and remember marketocracy reduces returns to account for a 2% annual management fee and trading commissions). Of course that is a bit misleading as most any individual stock can have huge losses on a given day or week. Google is my biggest holding there and while I think a sharp decline is unlikely right now, I would not be amazed to see it drop 30% in some week during the next few years. Given that Google is up 149% even a 50% decline would still make it quite profitable for the the fund. Taken as a whole for a long period of time I think the sleepwell portfolio is pretty solid.
Well, even though I am sure I will have more days like this I hope I can avoid them for awhile and build up some profits first.
Comptroller Says Medicare Program Endangers Financial Stability:
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Asked if he knows any politicians willing to raise taxes or cut back benefits, Walker says, “I don’t know politicians that like to raise taxes. I don’t know politicians that like to cut spending, but I think what we have to recognize is this is not just about numbers. We are mortgaging the future of our children and grandchildren at record rates, and that is not only an issue of fiscal irresponsibility, it’s an issue of immorality.”
Strong words and I agree, as stated in: Washington Paying Out Money it Doesn’t Have and USA Federal Debt Now $516,348 Per Household.
I am not exactly sure why but for some reason people seem very ignorant of the wealth distribution by age. The richest group by far are those over 65. There are several reasons for this including self preservation. Once you stop working you better have a large pool of capital or you will most likely have little income (you could have a great pension and no other savings but…). Another is that the “miracle” of compound interest. Those that actually saved enough for retirement often find their investments out-earning their spending thus wealth increasing yearly. This effect over time results in wealth increasing dramatically. Many of those that failed to save enough will have their savings dissolve very quickly thus leaving the inverse of a bell curve (a high number of wealthy and of poor and a lessor number in the middle). Social Security helps those that failed to save enough for retirement to slow the decline (and those that saved enough to become even wealthier even faster). The presence of large numbers of poor elderly I think is one reason so many are surprised that they are the richest age group.
I used to be surprised how few people know this – now I know, for those I talk to anyway, they are always surprised. This has several public policy impacts such as why do we have a huge “social security transfer system” (social security including medicare) to move money from the young to the old when the old are wealthier than the young? People see the 7.65% deducted from their check but the employer has to pay an equal amount to this transfer of wealth between the generations bringing the total to 15.3%.
It doesn’t make much sense to me to have those working at Wal-mart and McDonalds transfer 15.3% of the income from their labor to much wealthier people. Yes, paying something in I think is fair. But the system should be adjusted. One method I would use is to reduce (or eliminate) payments to the wealthy elderly (continuing the existing payments to the poor elderly is affordable so I see continuing those payments as good public policy) and reduce taxes on the working poor. Obviously others disagree so we transfer a large amount of money from those working at Wal-mart to those with hundreds of thousands in investments. I think this is wrong. I wish at least the facts would be known so that the decision is made with awareness of the facts.
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The growing divide between the rich and poor in America is more generation gap than class conflict, according to a USA TODAY analysis of federal government data. The rich are getting richer, but what’s received little attention is who these rich people are. Overwhelmingly, they’re older folks. Nearly all additional wealth created in the USA since 1989 has gone to people 55 and older, according to Federal Reserve data. Wealth has doubled since 1989 in households headed by older Americans.
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The implications are far-reaching and can turn conventional wisdom on its head. Social Security and Medicare increasingly are functioning as a transfer of money from less affluent young people to much wealthier older people.
Wow, I don’t recall seeing publications actually point out this fact very often. Good for the USA Today.
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I am not even expecting good customer service but how about just the absence of customer hostility. The latest from Discover Card. I still have not received the money they said they would send (waiting more than a month now) – this is the amount they overcharged my bank (after they had already been told the charges were invalid. I guess it is acceptable to charge me for charges they knew were invalid?). But heck even accepting that, how about paying that money back as they said they would.
Amazingly they did send me a “bill” [with a balance they owe me instead of me owing them so it is not really a bill in the sense of money I owe them] for the account they said didn’t exist which was the reason they claimed that they could not pay the cash back bonus they promised. If people didn’t expect credit card companies to provide outrageously bad customer service wouldn’t this be seen as shockingly bad – so much so that certainly no company would tolerate it if it was brought to their attention. Well, we have evidence that such a thought is not true when dealing with Discover Card.
So according to Discover they don’t owe the money on the cash back bonus they promised because the account is closed. Yet they send me a bill (with a balance owed to me but it is exactly like the bill I would get from them each month including the cashback bonus section where instead of listing the amount they promised to pay me they list $0) that has an new account number on it. Paying what they promised in cash back bonus doesn’t seem like it would be hard (and frankly I can’t imagine not paying it in this circumstance can be acceptable according to the rules but who has the time to try and fight with them). And they don’t send the money that even they agree they owe, but instead just send a bill? What are they thinking?
As I said in a previous post if Discover Card pays the money they owe I will add an equal amount of my own money and lend that amount through Kiva (a charity that arranges loans from individuals to those in need worldwide on the micro-lending model). And I will either continue to roll those loans over for at least 10 years or I will donate the entire amount to a micro-lending charity (if for example Kiva shuts down or I decide that they are not doing a good job or whatever).
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We’ve come to pay good money–two or three or four times the cost of gasoline–for a product we have always gotten, and can still get, for free, from taps in our homes.
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In San Francisco, the municipal water comes from inside Yosemite National Park. It’s so good the EPA doesn’t require San Francisco to filter it. If you bought and drank a bottle of Evian, you could refill that bottle once a day for 10 years, 5 months, and 21 days with San Francisco tap water before that water would cost $1.35. Put another way, if the water we use at home cost what even cheap bottled water costs, our monthly water bills would run $9,000.
Taste, of course, is highly personal. New Yorkers excepted, Americans love to belittle the quality of their tap water. But in blind taste tests, with waters at equal temperatures, presented in identical glasses, ordinary people can rarely distinguish between tap water, springwater, and luxury waters.
In addition to throwing your money away the damage done to the environment to package and transport water all over the globe instead of just using your tap to get local water is immense. Stop be so naive and buying products like Evian (not what that is spelled backwards?).
Buffett blasts system that lets him pay less tax than secretary:
Mr Buffett said that he was taxed at 17.7 per cent on the $46 million he made last year, without trying to avoid paying higher taxes, while his secretary, who earned $60,000, was taxed at 30 per cent. Mr Buffett told his audience, which included John Mack, the chairman of Morgan Stanley, and Alan Patricof, the founder of the US branch of Apax Partners, that US government policy had accentuated a disparity of wealth that hurt the economy by stifling opportunity and motivation.
The comments are among the most [significant] yet in a debate raging on both sides of the Atlantic about growing income inequality and how the super-wealthy are taxed. They echo those made this month by Nicholas Ferguson, one of the leading figures in Britain’s private equity industry, when he criticised tax rates that left its multimillionaire venture capitalists “paying less tax than a cleaning lady”.
Last week senior members of the US Senate proposed to increase the rate of tax that private equity and hedge fund staff pay on their share of the profits, known as carried interest, from the 15 per cent capital gains rate to about 35 per cent.
Related: Estate Tax Repeal – USA Federal Debt Now $516,348 Per Household – Income Inequality in the USA – General Air Travel Taxes Subsidizing Private Plane Airports – Warren Buffett bio