Speaking of trouble...
The bloom seems to be coming off the rose. After more than a year the naysayers are finally having their day.
Frankly, I have never had much respect for Google's detractors. Most criticism of Google has been based on ignorance and hysteria. The fact of the matter is, Google makes a kick-ass product, and they have used it to make a pile of money in the free market playing fair and square. I have nothing but the highest regard for them.
Nonetheless, it has always been a bit of a mystery to me why anyone bought Google's stock, let alone paid $470 a share for it not so long ago. Not that I'm complaining, mind you. But I am, and always have been, puzzled by people's willingness to pay these exhorbitant prices for Google. It's not because Google isn't a great company -- it is. But the stock has always seemed to me like a bad deal. Let me explain.
Suppose I wanted to sell you a share of my car. There are many reasons why you might want to buy. For example, I might let you drive it part of the time. Or maybe it's a limousine that I lease out, and I'd give you part of the income. Or maybe it's a collector's item and I'd give you part of the proceeds when I sell it.
But suppose I offered you the following deal: I'll sell you a share of my car, but you don't get to drive it. It generates income, but I won't share it with you, nor give you any say in what I do with the proceeds. I have no intention of ever selling it. I won't listen to anything you have to say about how the car ought to be used, and I won't tell you what I plan to do with it. In fact, buying a share of my car will provide you with no tangible benefits whatsoever. All it will do is give you bragging rights that you own a share of my car.
How many people do you think would accept a deal like that?
Well, if that car is Google, a lot.
Just as there are many reasons one might want to buy a share of a car, there are many reasons one might want to buy a share of a company. The company might pay dividends, or it might offer the potential of paying dividends in the future. If you buy a big enough share you can have a real say in how the company is run. Even if you don't have the wherewithall to buy a big enough share to let you run the company, your small share might be sought out by someone who does have the means to buy a controlling interest. Or being a shareholder might entitle you to certain special privileges. (We own some stock in a winery that gives a 30% discount to its shareholders. We've made back our original investments many times over on wine discounts alone. The stock also pays dividends.)
But with Google, none of those reasons apply. Google has explicitly stated that it will never pay dividends. They have explicitly said that they will offer no guidance to investors. Their stock structure is such that even if you bought every single publicly traded share of Google stock, Larry and Sergey would still control the company because their privately held stock has ten times as many votes as your publicly traded shares. So there is no hope that your shares will ever be of value to someone attempting a hostile takeover of Google. Such a thing is simply not possible, so no one will ever try.
There is really no difference at all between buying a share of Google and buying a share of my hypothetical car, which you never get to drive and over which you have no control and which will never put money in your pocket. The only difference is that the foolishness of the deal is more evident in the case of the car. In the case of a company as big and complicated as Google it is easier to convince yourself that there is some rational reason for the stock to have value. After all, there are a zillion people out there snapping up shares.
That's the same mentality that led people to buy shares of doctorkoop.com.
The big difference, of course, is that Google is making money. Lots of it. Theoretically the shareholders own part of that money. But in reality Larry and Sergey have all the say in how that money is spent, and the shareholders have none, and the company is structured in such a way that that can never change. It's a bizarre kind of ownership, no different at all from "owning" part of a car that you never get to drive and which provides you with no tangible benefit (and no hope of future tangible benefits) except the possibility of selling your share to the next sucker for more than you paid for it.
Why does anyone buy Google? I have no idea. But I'm damn glad that they do.
Frankly, I have never had much respect for Google's detractors. Most criticism of Google has been based on ignorance and hysteria. The fact of the matter is, Google makes a kick-ass product, and they have used it to make a pile of money in the free market playing fair and square. I have nothing but the highest regard for them.
Nonetheless, it has always been a bit of a mystery to me why anyone bought Google's stock, let alone paid $470 a share for it not so long ago. Not that I'm complaining, mind you. But I am, and always have been, puzzled by people's willingness to pay these exhorbitant prices for Google. It's not because Google isn't a great company -- it is. But the stock has always seemed to me like a bad deal. Let me explain.
Suppose I wanted to sell you a share of my car. There are many reasons why you might want to buy. For example, I might let you drive it part of the time. Or maybe it's a limousine that I lease out, and I'd give you part of the income. Or maybe it's a collector's item and I'd give you part of the proceeds when I sell it.
But suppose I offered you the following deal: I'll sell you a share of my car, but you don't get to drive it. It generates income, but I won't share it with you, nor give you any say in what I do with the proceeds. I have no intention of ever selling it. I won't listen to anything you have to say about how the car ought to be used, and I won't tell you what I plan to do with it. In fact, buying a share of my car will provide you with no tangible benefits whatsoever. All it will do is give you bragging rights that you own a share of my car.
How many people do you think would accept a deal like that?
Well, if that car is Google, a lot.
Just as there are many reasons one might want to buy a share of a car, there are many reasons one might want to buy a share of a company. The company might pay dividends, or it might offer the potential of paying dividends in the future. If you buy a big enough share you can have a real say in how the company is run. Even if you don't have the wherewithall to buy a big enough share to let you run the company, your small share might be sought out by someone who does have the means to buy a controlling interest. Or being a shareholder might entitle you to certain special privileges. (We own some stock in a winery that gives a 30% discount to its shareholders. We've made back our original investments many times over on wine discounts alone. The stock also pays dividends.)
But with Google, none of those reasons apply. Google has explicitly stated that it will never pay dividends. They have explicitly said that they will offer no guidance to investors. Their stock structure is such that even if you bought every single publicly traded share of Google stock, Larry and Sergey would still control the company because their privately held stock has ten times as many votes as your publicly traded shares. So there is no hope that your shares will ever be of value to someone attempting a hostile takeover of Google. Such a thing is simply not possible, so no one will ever try.
There is really no difference at all between buying a share of Google and buying a share of my hypothetical car, which you never get to drive and over which you have no control and which will never put money in your pocket. The only difference is that the foolishness of the deal is more evident in the case of the car. In the case of a company as big and complicated as Google it is easier to convince yourself that there is some rational reason for the stock to have value. After all, there are a zillion people out there snapping up shares.
That's the same mentality that led people to buy shares of doctorkoop.com.
The big difference, of course, is that Google is making money. Lots of it. Theoretically the shareholders own part of that money. But in reality Larry and Sergey have all the say in how that money is spent, and the shareholders have none, and the company is structured in such a way that that can never change. It's a bizarre kind of ownership, no different at all from "owning" part of a car that you never get to drive and which provides you with no tangible benefit (and no hope of future tangible benefits) except the possibility of selling your share to the next sucker for more than you paid for it.
Why does anyone buy Google? I have no idea. But I'm damn glad that they do.
78 Comments:
I'm the owner of fuckedgoogle.com, which you mentioned in your first sentence.
Couldn't agree with you more.
Honestly, how many people buy any stocks - Google or otherwise - with the intention of being able to change the direction of the company?
No small investor is ever going to have much ability to change the direction of a big company. I can't do a hostile takeover of General Electric, whether the company CEO has 51% of the stock or not.
I can't do a hostile takeover of General Electric, whether the company CEO has 51% of the stock or not.
No, but some day someone else might. Just the possibility that someone might want to acquire a controlling interest in GE some day -- and that if they wanted to they could -- gives your stock value.
And while you wait for that happy day, your GE stock pays dividends.
ceejayoz: think of a small investor as a voter in a political election. They can't take over the government with one vote, but they can use that one vote to support the "takeover bid" of the political party or candidate of their choice. A single vote is not a lot, but everything happens by the accumulation of single votes.
The small investor buys stocks as an investment, but the only value in Google common stock is that people still want to own it. Everything in a market derives it's value from the fact that people want to own it or control it in some way, but in general there is always something useful they can do with it once they've got it, *other* than selling it to the next sucker--some non-market value. If there isn't, the system is sustained purely by tacit agreement, which always collapses when someone realizes that the first person to get out wins, and everybody follows in a giant stampede. This is not a problem with normal stocks because even if everyone panics, you still own value even if the stock price goes to $0. If there is no other value.... Anyone who owns Google stock runs the risk of losing their investment if the demand collapses.
Things like this just go to show that "the greater fool" is a huge part of the way the stock market works. Not only are fundamentals optional, but value itself is optional. Value can apparently be created out of nothing (but hype) and sustained for indefinite periods of time.
I see potential for new business models in the area of finding the most efficient way to make the public believe that you can print money.... What does a certificate have to be backed by in order for fraud prosecutors to leave you alone? Hmm.... (Note: I'm not saying that Google has defrauded people, intends to defraud people, or ever intended to defraud people. In any case, I think suckers, erm, people who buy stocks, are responsible for their own decisions.)
> In any case, I think suckers, erm, people who buy stocks, are responsible for their own decisions.)
Your 401K plan (it’s invested in stock market funds) is full of Google stocks. Why ? Becouse they are part of NASDAQ.
Stocks exchange was happy to sell thouse to you - becouse they earn commision on every transfer.
You're not trying to be serious here, right?
Your useing blogger.com OWNED by google so I guess you dont hate them that much since your useing blogger.com.
Lots of people buy stock if they think it has a chance of going higher, even just a percent or two so they can makes some fast cash and get out. Its just gambling.
Are you feeling a little embittered?
I don't think anyone is embittered. It was mentioned a couple of times that Google is a great company. In the eyes of the author the stock just doesn't mean anything. It's like monopoly money.
You're ignorning the simplist and most obvious reason people buy Google and most other stocks, which in the hope that the value of the stock will appreciate, the price will go up, and they will sell at a profit. While this can be "gambling" it isn't necessarily -- it depends on the psychology and strategy of the trader or investor. If I believe that Google will continue to grow and increase revenues over the coming years, it is entirely rational, and not at all "gambling" for me to invest in the stock in anticipation that the value of the stock will appreciate and the price will reflect this.
Also, I think probably the most common and unfortunate misunderstanding of the capital markets by the general public is the idea the price of a share of stock in any way reflects on whether that stock is "expensive". Whether or not a stock is expensive can only be determined by the relationship of price to earnings, not by stock price alone, and this is reflected in the P/E ratio. Also, it is crticially important to grasp the P/E is based not on price alone, but on EPS, which relates price to the number of shares outstanding (the float).
Another sense in which this can be understood is with stock splits. Google has essentially said they will not split the stock. What if they did split the stock? In your view, would the stock suddenly be 50% less expesnive? Well, of course not, because when the stock splits everyone gets 2 shares for each 1 they hold, and so the float is doubled. EPS and P/E stay exactly the same in a split, because the underlying value is unchanged. Now, it should be noted that usually when a stock splits, the price jumps on the news -- there are a variety of reasons for this, I won't get into.
You may still say Google is expensive, based on it's P/E of 67, but that's another matter!
Google stock has the right amount of hype and speculation that makes it a good commodity to buy and sell.
*ironic*People are foolish enough to think that if the original people made so much money by selling their stock, they can also, just buy it a 400$ a piece and sell it at 800$ piece.*ironic*
It will certainly stabilize at some point and, while it won't be a crash per se, it will crash the finances of some foolish people in the public.
I think all this extreme hype might bite Google in the ass one day.
This has to be one of the dumbest things I've ever read, unless it's a joke and then it's just unfunny.
Do you have any understanding of what a stock is, what investment is, and what speculation is?
If your car had the chance to magically appreciate in value, and I could sell my share in it for more then I paid, then yes it would be the same thing.
As it stands, you're just a retard.
That's the entire problem with the stock market and the world economy at large.
If a company sold a million shares at 100 dollars each they raise 100 million dollars.
Now that 100 dollar share is suddenly worth 400 million dollars. The comany technically only has the 100 million hard cash it raised. The rest of that is some version of exotic matter called BS.
Some investors cash out at 400 dollars a share and they walk off with 100 dollars of the real money and 300 dollars of the BS.
Parent company goes bankrupt.. all shares are evaporated and any hard assets are sold for maybe 10% of the company if you're lucky. Debtors get the remaining money first.
Considering that most of the BS evaporated with the company there's the BS that left with investors that got out at the right time.
It would seem that this happens all the time and there must be a lot of BS in the stock markets.
Luckily all that BS exists as numbers in computers all over the world because if you tried to cash out every dollar there was there's not enough printed money to cover it. I doubt there's enough gold to cover it.
Comparing Google to a car is just a really bad comparison. Also, almost ALL stocks are overpriced really. I mean, no one know what the future performance of a company is going to be. Hell, Google might just turn out to be the greatest company ever, we just don't know, so whos to say that $400 is too much for a piece of the company. My opinion, yeah it's too expensive, but my friend, it sounds like you have a bone to pick.
"There is really no difference at all between buying a share of Google and buying a share of my hypothetical car"
Expect that cars depreciate in value over time and earn no income, while google's revenues and profits have been growing consistently.
I'd delete this post, if possible, and try a new analogy.
The US dollar is backed by nothing more tangible than faith in the US government.
It can no longer be directly exchanged with the government for something of value like gold.
Despite this the dollar does have value, and seems to share these qualities with google stock.
How much for a share of your car then?
I think you have to compare to BRK.A and Buffet whom the Google founders mentioned in their public offering. He offers no guidance or dividends, but people still buy that stock and have been rewarded amply for the past forty years. This is also why I think they will never split the stock.
Your car analogy is valid but you seem to be confusing stock shares with timeshares. If an investor wants a controlling interest in the company, then they become a venture capitalist. Small investors don't buy dozens of shares with the idea of having a controlling interest in the company. They buy them with the prospect that given an acceptable risk, they will claim a return on their investment either in dividents or share value. Google isn't the first or the last company to state they will not pay dividends but rather reinvest the capital into the company. If the stock split so share prices fell would this make you feel better? $1000 for 2 shares is the same as $1000 for 1000 shares. A 5% increase in share value for both would still yield the same return.
Hmmm all anonymous folks here,
Chicken? (Ok just kiddin)
97% of the money that we're talking about you is (as a study says) all gas and just 3% of it is money. So if everyone's gasballing why bash Google. Eventually when the dust and prices will settle down, then maybe people will get more realistic and value it's products.
These guys are busy doing good things on the web, (whore) fighting is just he part you have to get used to.
are you stupid? no one is forcing anyone to buy their stock. either you buy it on their terms, or you don't. why should they relinquish any level of control? they don't have to - their stock sells itself, plain and simple. why complicate things? also, go take a basic high school level economics class
It seems to me that a number of you have missed the point. The analogy between a google and some hypothetical car might not be as far off as you think.
Heck, if you've been following any sort of news, Google isn't growing at the same astounding rate it started with. It's slowing down.
When it boils down, google has about.. ohh.. I don't know. One salable product. Sure, they have search, search, blogging, mail, search, and more search, but the only thing that makes them any money is advertising (when did you last pay to send a message with gmail?). If you honestly believe that there is no saturation point for this kind of business model, I have a couple of investments you might be interested in...
lol, so true. The stock market has become nothing but a made up reality for people to make money for nothing (or steal from workers) and it is a bad idea all the way around.
Someone said cars depreciate, but that depends on the car. Collectibles go up in value.
The only reason anyone is buying Google stock is they hope it will appreciate in value and then they will sell for a profit.
Stocks aren't really priced based on PE ratio, EPS or any other nonsense. It's all psychology - what people think it's worth.
If everyone believes it is valuable, then it is valuable as people start buying and driving up the price.
Now the opposite is starting to happen. Google is seen as deviating from their core business and searching for new revenue streams. People are questioning whether they can continually increase revenues, believe that they cannot, so are dumping the stock and forcing prices down.
It's all about investor confidence and that is falling a bit for Google at the moment.
"If your car had the chance to magically appreciate in value, and I could sell my share in it for more then I paid, then yes it would be the same thing."
Until people realized that there is no reason to own stock in your car, then your stock will be worth nothing. I think that's the author's point. The value of your car is irrelevant, it has no impact on the value of the stock. The value of the stock is purely driven by hype, and once people recognize that the stock will become worthless.
It's interesting to see people defending useless stock using terms like "magically appreciate".
Some stock has value outside of magic appreciation. Dividends, buybacks, buyouts... all of these transfer the actual value of the company to the stockholders who own that company. People are panicking over google's revenues without realizing that they have no stake in that revenue.
What is the connection between the stock price and the revenue then? Let me ask this, if 2006 was an amazing year for google, let's say they made a trillion dollars, what do you think would happen to the stock? I'm sure everyone will claim it will go up, but ask yourselves "why"? Since the stock has nothing at all to do with the revenue, claiming that the amazing windfall had anything to do with the increase of stock price is like claiming that the sun rises because I shave every morning.
In the end, these valueless stocks are nothing more than a popularity contest.
I wish I could work at Google so I can get all that free crap in the google food store. xD
Before I even read your story I'm going to tell you that I might not make it through, or click on any of the links. Seriously, attaching links to random words in a story, giving them no specific context... is just idiotic.
Google's stock price is predicated on the bigger idiot theory. People buy the stock, demand outstrips supply, the stock price increases, stockholders sell their stock for a profit to others who hope to enjoy the same benefits of irrational demand.
There is absolutely no other reason to buy Google's stock.
the worst thing that could have been done is this entry being digg'd a lot of stupid anonymous diggers posting comments. Go back to Digg. Thanks.
Google stock still has value even if it never pays dividends and does not give you any control in the way a company is run.
The stock has value because if another company buys Google you would get a percentage of the sale price based on the percentage of the company you owned.
You don't have to wait for that to happen to make money though, because you can sell your ownership to someone else who is willing to wait, and on and on. As the company grows, it can be potentially sold for more money. That, in turn, makes your stock worth more money.
Going back to your car analogy, I would buy stock in your car if I believed your cars value would increase. If your car is worth $1,000 today, and I can buy 10% for $100. If 5 years from now you sell your car for $2000 I get 10% of that, or $200. Whether or not I got to drive the car is irrelevant. I also believe that you are smart and will take car of the car so not having any control over it doesn't matter to me.
The fact is, that our entire economy is based on the "bigger idiot theory".
Nothing is more based on that theory than the US dollar. The vallue of the dollar is backed by the fact that the USA promises that it will continue to be worth something. When we were on the gold standard, there was gold put away equal to the value of all the money in circulation. (Now there is just a powerful idea backing it. Truly, that is nothing to sneeze at.) But you could never go to Fort Knox and ask them for $27.53 worth of gold.
Google stock has value because it represents owning a piece of a company. The fact that it doesn't give anyone a say in the direction of the company, may actually be a comfort to some. (I certainly don't know how to run a major company.) It also means that each person who buys Google is putting trust in the current managers. Why is that so much more foolish than putting trust in a vast number of shareholders?
Special voting stock for a company
whose mission has community
responsibility is necessary -- look
at Knight-Ridder for an example
of the havoc that ensures when a
newspaper company doesn't have
that protection, and look at the
New York Times for an example of
the stability that comes from having
that protection. Without it, we'd have
a race to the bottom, every newspaper
would be USA Today, and every search
engine would be like the old Overture
pay-for-play search engine.
I had always assumed that google entered the stock market (which I admit to knowing very little about), as a kind of parody. Sure, there will be money to be made, but I also have the feeling that the techies are trying to get another kind of payback against those driven by making money.
Pfff, afraid of seing people like you so misunderstanding stock options, and saying google is bad only because they don't give dividende ...
Someone has previously said 'Do you have any understanding of what a stock is, what investment is, and what speculation is?'
I think you should have a look on this before thinking everyone is stupid to buy stock. And why having involving google, it is the same thing with many other companies ...
To conclude, really a ridiculous article, do not waste time to read it :(
look at the New York Times
NYT pays a dividend. (In fact, NYT has been paying dividends for the last hundred and five years.)
Believe the Lie
Expect that cars depreciate in value over time and earn no income
Not so. Cars can produce income (e.g. rental cars, taxis, delivery trucks). Cars can appreciate in value. Companies can depreciate. There really is no substantive difference.
Cars tend to depreciate more than companies not because there is any inherent difference between a car and a company but simply because cars are mass-produced on a larger scale. But companies can be mass-produced too (they are called "franchises") and unless their production is carefully controlled to balance supply and demand, they will depreciate just like cars. Amway and Thomas Kinkade galleries are two good examples.
You buy stock with the assumption that it will go up significantly. Its a risk/benefit analysis, you buy the stock at $470 and bet that it'll go up to $600. If your bet is right then you've made a good chunk of money. Dividends and discounts are not the only benefits of a stock, and often times are the least important. Are you sure you know how the stock market works? Some individual investors have seen returns of over 400% in their investment, that is why people are investing in it.
Larry and Sergey are very smart people as we know and since the beginning (after they got the $100,000 to get started) they have refused to give up control of their company--risking $25 million just to have their say. With that said, their stock still boomed even though the public knew about the inability to control the company. Investing is about taking risk.."mylicon" replied well to this..so if I could make a 500% profit in four years by doing absolutely nothing, I would love to do so.
In summary, Google had a good idea and useful product. For the same reason that the private donor gave Larry and Sergey $100,000 investors are buying stocks--they see potential and are willing to take a risk in hopes of making money.
I wrote an article on Google's success in my blog if you're interested, check it out:here
Sorry to say it, but your car analogy is quite a weak one and you clearly do not understand the fundamental concepts of corporate finance. I will absolutley shed some light on it, if you like.
Nonetheless, keep in mind that it is the responsibility of company leadership to do what is the most beneficial for stockholders (dividend or no dividend) within the constructs set forth within the corporate charter, at the very least.
Furthermore, as a minority common stock holder (which I am assuming you are), you have no rights to directly affect the direction, intentions, or dealings of the company in which you have equity.
you buy the stock at $470 and bet that it'll go up to $600
"Bet" being the operative word here in your theory of how the stock market works.
Some individual investors have seen returns of over 400%
Investors? You mean "gamblers" don't you?
I actually read the prospectus, and page 106 is interesting. Over time, the class B common stock will convert to class A common stock. So while the class A holders don't have much say now, they will in the future.
Interestingly, two of the major events for this conversion will be the deaths of Larry and Sergey. Upon their deaths other stock holders will be able to install their own board. Effectively, they've put prices on their own heads. I try to avoid any arrangement where someone else benefits from my death.
The stock market may be ridiculous, but this has nothing to do with google specificallly. Your car analogy is god awful. I wish I could be more constructive, but you arise contempt in me.
Ron notes:
"The NY Times pays a dividend"
Companies in growth businesses
generally don't pay dividends,
because they need every dollar
they can get for investing back
into the business. To pay a
dividend is to say your company
is boxed into an area with growth
opportunities that are limited as
compared to the amount of cash
the business throws off.
Or else,
you're trying to get institutions
whose charter require dividend
paying stocks to buy your stock.
Or else, as in the NY Times and Dow Jones
cases, big stockholders are heirs to the
founders, and need cash as
income, but want to hold on to
stock to maintain control of the
family business.
If Google paid a dividend, Wall
Street would be calling for Eric's
resignation, and with good reason,
because the factors above are all
not true. He'd be forced to underinvest
in the business, or to borrow money
to replace the dividend payout for
investment, or do additional secondary
offerings, all of which are bad ideas
for Google in 2006.
If I am to understand what big 'G' has pulled off here, it is probably unprecedented in the history of the markets. I think everybody here has forgotten the basic concept of the capital markets- When you purchase stock in a company, be it 1 or 2000 shares you literally own a portion of the company. That means you have a vote on the leadership and direction of the company and most importantly: ACCOUNTABILITY OF THE BOARD AND LEADERSHIP to YOU as a stock holder. That is really what you are buying with a share, despite all the psychology of the marketplace.
Big 'G' has figured out how to effectively erase the accountability, and therefore erase the entire value of the stock! In fact, the stock is pure B.S. regardless of the shape of the company. The company in fact is irrelevent, there is a complete disconnect between the stock and the company and that is EXACTLY why we have sarbane-oxley- because this is NOT a good thing.
What a scam! I'm in the wrong biz. I should be President.
Companies in growth businesses generally don't pay dividends
That's right, but they also generally don't have two-class stock either, and they generally provide investors with some guidance to help them decide how to value the stock.
The stock has value because if another company buys Google you would get a percentage of the sale price based on the percentage of the company you owned.
Yes, this is the merger/hostile-takeover scenario that I mentioned. However, this scenario is not possible in Google's case because it is not possible to buy control of the company by acquiring its class A stock. Control of Google can only be had by acquiring its class B stock, which is not publicly traded.
Which winery are you referring to? I want to own it....
There has never been a stock that somebody thinks is to expensive and someone else thinks is too cheap. That is what makes the market!
If you think Google is overpriced... short it. I'm guessing the people that shorted at $200 are still licking their wounds.
It may be overpriced... or it may be cheap. Nobody really knows, and the only opinions that matter are those that are willing to put there money on the line by buying or selling.
p.s. I spent 10 years making my living as a trader.
Who is this idiot? A small minority of stocks offer dividends or special deals on wine. People buy those. This is the stupidest thing I've ever read on the internet. Seriously, this beats all the crap I've ever ready before. You're right, but not about GOOG, about nearly every stock. Why would you pick on one company like this.
people buy stocks to sell them at a later date, when they raise in price. a 9 year old could have told you that.
Who would want to buy google stock?
I did!
I bought 100 shares at $105 and sold them all at $400
Yahoo, Microsoft, and a bunch of other companies bought hundreds of thousands of shares. Look, a lot of people don't buy stock "because they have interest in the company" they buy it because they have interest in $ and buying stock in a particular company could possibly bring them more of it - but also possibly not. Tell you the truth, I would rather go to Atlantic City and put my $ on black than buy/sell stocks, its more fun. But when a company like google is going public, the hype alone is going to bring stock holders $.
Most of a small, but signifcant, shareholders power lies not from the ability to sell to large investors - who may eventually accrue a controlling interest, but from their ability to rapidly dump stock and put a severe dent in the stock price.
For example if I owned 5% of Google, and decided one day that Larry and Sergey had lost the plot and to dump it all, I could easily cut in half - or more - the stock price. That's why even small investors have to be kept happy and how they wield some power.
Besides dividend, another source of future potential revenue for a shareholder is the theoritical prospect of the company owners wishing to re-privatise. So, if the owners wanted complete sole control again, and wanted to avoid the hassle of public filings, they would issue a buyback and the price can be said to be hthe market's guess at how much they'd be willing to pay to own the company outright again.
Of course Google is so large that they are obliged to do nearly all of the public filings anyway, and when the owners have a 10-to-1 control ratio, there really is no incentive for them to ever buyback. GOOG remains a terrible deal.
While the OA raises interesting points, it is a bit simplistic.
Larry and Sergey have a very strong incentive to keep GOOG as high as possible. They still have a lot of shares, so their personal wealth is directly related to the share price. A high stock price will also enable them acquire other companies “on the cheap”. So if any of the OA arguments worried investors sufficiently to make Google’s share price wobble, you can bet L&S will take corrective action.
Concerning takeovers & class A/B stock. While the current structure forbids a hostile takeover, nothing can exclude a non-hostile take over. Of course, this seems extremely seems unlikely now. For an other take on the subject, see also mylicon's answer.
Concerning dividends. Google's non-dividend statement has to be taken with a grain of salt. Once Google becomes a mature company, and will not have any good opportunities to invest its profit (if it has some at that time) and it will redistribute them as dividends (or buy back its stock). Of course, it will take a long time for Google to become a mature company, but it *will* happen -- if Google does not go bankrupt before. This is analogous to Microsoft which paid its first dividend in *2003*.
P.S. If you read all posts to here, you are wasting your time. The only answers worth reading are from mylicon, Anonymous at 1:37 PM and RevMike.
Ron, all the things you said about Google Share, apply equally to bills (bank notes). Except of course, that money is usually still owned by the government, so you can't even do with it what you want. You're only allowed to use it. Yet most humans spent their most valuable resource for those bills, their most valuable resource being, of course, their time which they spend at work to get more and more banknotes, in the hopes of trading it against something they think is more valuable to them (and do so hopefully, before inflation shrinks its' value).
The notable difference being, that the value of stock over the last few decades has one up, while a healthy dose of inflation is expected for moeny, and indeed every money used on this plent has seen more devaluation/inflation than stock.
Therefore many people prefer to trade their money for stocks, for the mere the "possibility of selling [the] share to the next sucker for more than [they] paid for it".
Ron, all the things you said about Google Share, apply equally to bills (bank notes).
No, that turns out not to be true. Take look at:
http://wfhummel.cnchost.com/
and in particular:
http://wfhummel.cnchost.com/moneytaxesdebt.html
Dollars have value because they are what U.S. residents need to pay their taxes. This insures an ongoing demand for dollars, and hence their continued value. (So in essence, the value of the dollar is ultimately maintained by the force of the power of the U.S. government to put you in prison.)
Uh, are you kidding me? Many people buy GOOG because they speculate the price will go up.
Buy at $400
Price goes up to $470, sell
Make $70 profit
Take your $70 to the bank, don't give a damn about dividends or control of the company.
Yeah, and there are these stupid things called "mutual funds," which not only don't pay dividends or offer any promise of benefitting from takeovers, but charge *fees* of their investors!
What kind of sap would ever want to buy into an arrangement like that one? Jeez....
Most people here seem to be spending so much time slamming this post that they fail to see the validity of the question. Perhaps it should be rephrased:
Why do so many people feel Google's stock price will rise?
One of the closest comparisons I can come up with is Apple. Both companies have seen their stock price go up at least five-fold in 24 months. At least. Both stocks have large amounts of shares available, are high-profile, and are (somewhat) in the same market.
Now let's compare their bottom lines, products, and revenue sources.
Or, uh, let's not.
Google doesn't really have any except advertising. And it's finally becoming known just how overstated that revenue source is compared to its effectiveness.
A much, much better stock buy is Yahoo.
Definition of a bubble: an investor belief that defies reality to a point of moving stock prices up way more than reality supports.
NASDAQ closed Friday (3/10/2006) at 2262.04, almost 230 points higher than the close two years ealirer of 1964.15. That's a 15.27% gain. Problem is, it also is the anniversary of the best close ever (3/10/2000) of 5048.62.
This means it STILL is 55.19% lower than 6 years ago. Bubbles....
Until Google get some new revenue lines, they probably won't see their historic highs either.
Apple is a much better "bet" since they are ahead of their Intel switch promises, with an iBook being announced shortly in time for back-to-school purchaes... and a new video iPod eventually... since they are now into the video download business more than ever... oh, and there's that 30th anniversary comoing up in a couple of weeks.
your car analogy is, let's just say, ridiculous: If I could sell your car share I just bought to John for a profit, that's good enough for me...and most investors.
No one is looking to "own" or rule Google forever; they're simply hoping to buy low and sell high.
I think the point of your original post goes to "intrinsic value". It seems that Google has little intrinsic value for investors. The value of GOOG to investors is virtually entirely based on expectations. They expect the stock to go up, which obviously could happen, but begs the question "why?" P/E ratios have been a traditional metric for stocks, and create the expectation of rising stock price based on increased earnings. It's difficult to see how such metrics should apply to GOOG since the structure of company ownership clouds the concepts of enterprise and book value. Don't shareholders eventually have to ask what real benefit they derive from ownership? If they themselves don't ask, won't the pool of potential subsequent owners? Ponzi schemes offer an interesting comparison where "value" is derived totally from the expectation of a high return on investment without underlying financial ownership benefits. Eventually the music stops and everyone tries to sit down.
Your original post was both timely and insightful.
Not that it matters with such a long discussion, but if you would care for a different point of view on this post please see http://zuberon.com/archives/21.
Good points except for one thing. Google does not make 'kick ass products'. Perhaps they did about 5 years ago but that was then, this is now.
Many companies have no inherent value, outside of irrational value or worth. Google has some minimal inherent value (as does Yahoo), but it's nowhere near $300/share. It's a freakin' search engine company, and it only does that about half as well as a few years ago. 10 years from now, nobody will know who Google is in online search. I don't know who will take them over, but I do know it's inevitable that someone does (because history is a great teacher).
Your logic is completely flawed. You act as if people buy a stock only for dividends. They buy it because they expect they value to rise. Cars depreciate with time: poor analogy too.
It seems that 98% of the readers of this post have missed the point.
I propose that you demonstrate this point by selling Monopoly $100 bills, autographed by you. Sell them for $20 each on your web site.
Once a few people have bought them, you can convince more people to buy them by demonstrating that they could probably sell the bills at $30 each to investors would could sell the bills at $40 each. It's a giant pyramid scheme, must like some stocks.
Even the Don agrees. Join the crusade, spread the word. Dont use google.com on 06/06/06.
dongoog.com
It is true most the people that have responeded to this Blog don't have a clue as to what the author is getting at. As for why people buy stocks, the true investor is purchasing an asset. Something of value, but not only does it have value it also has the potential to generate income(dividends) annualy. Most people without enough money to really take ownership of ture assests have the small minded "gambling approach" short term investors looking to make a quick buck. Traders love you guys 'cause your in and out constantly. If you were to survey 100 of the richest people around they wouldn't buy into google at this point. And that has nothing to do with the quality of the company, it has to do with their value of the stock. What am I purchasing... "A hypothetical CAR" GET IT. it's not real.... it's value is perceeved and derived strictley from demand .
Your thinking about dividends isn't quite right. Some companies, such as Berkshire Hathaway, choose not to issue dividends because they feel they can increase the value of the stock by reinvesting profits in their business.
The owners of Berkshire Hathaway shares benefit from this, because in the long run, it is Berkshire's ability to generate increasing revenue that causes the price of its stock to rise.
There's one other reason not to offer dividends - taxes. Dividends are taxed twice by the government, once as the company's profit, and once as revenue to the shareholder. When a company reinvests profits, it can potentially realize a greater benefit to stockholders by avoiding some of the tax penalty.
--Pat
You stole your post from my post on CraigsList except I used my house as an analogy.
Thanks for giving me credit, dick.
Thanks for giving me credit, dick.
A bit tricky for me to give you credit if I don't know who you are, don't you think?
(For the record, I have no idea what this anonymous poster is talking about. The only thing I've ever read on CraigsList is an ad.)
I have a $ stake in google so my judgement could be clouded on the subject. Then again, maybe I did more research on this then some previous commentators.
Now check this...
Comments from the latest Analyst day steer to 100% in revenues growth year to year starting 2006
This makes 2.24 billion in revenues from 1.12 B a year earlier. Analyst exspectations are short of 2 B. that's ...ehrm... 10%, over 200 million dollars extra, in this quarter alone.
Google's stock moves since 1,5 years ago (has it just been that long?) were eventually based on the earnings that came , and are coming (?), through. (Check back in April)
IMPORTANT:Only in the short run is google's stock movement a popularity contest; missing/beating exspectations from banks are the MAIN movers of the market, as well as upgrades or downgrades from the same numbercrunchers , wich in this case, LUCKILY, don't get guidance) Why, you ask?
This means that the quarterly outlook from the world's best stock model/analyst, isn't better then anyone elses that believes in Google's business model.
Google's stock price indeed has gone up fourfold over 2 years. This just means "the most visited website/15th largest supercomputer" 100 billion to borrow against/make deals. Wich it needed,being of course a Nasdaq growth company. Not just that. It needed it because it's the only worlwide name in internet. end of sentence.
Google is a media company. it delivers interactive content while showing advertising. Over 123 pageviews a month, for at least 69 million unique viewers each. Preselected for gender,income, and, most importantly affects, instantaneously when anyone enters an 'Adword' into the searchbox...
you can read the rest at my daddytruth.blogspot.com
"Until people realized that there is no reason to own stock in your car, then your stock will be worth nothing. I think that's the author's point. The value of your car is irrelevant, it has no impact on the value of the stock. The value of the stock is purely driven by hype, and once people recognize that the stock will become worthless."
Three observations:
1.) Google, the company itself, is decently healthy. That is not the problem.
2.) Google, the company's stock, has been changing hands for a long time and is itself horribly overvalued. The problem is not that GOOG can't open a can; it's that GOOG is horribly overvalued and should be at least a fifth of what it is. If you buy Google stock right now, you are ignorant, insane, or foolish.
3.) Statements like yours and the author's basically tell me that you have no idea how stocks or our market works. In other words, please, please, please buy more stock! Someone like me will thank some lemming like you when they drill someone like you up the wrong end!
I'm with you on that score.
The whole stocks and shares thing is wierd, but then so a monetary system where the bank notes have no intrinsic value and the amout issued is in excess of the assets supporting them.
Google may have good computers.And people who know how to gain information for people to search.
But information changes or is not avaluble to Google.
For instanse in medicine.If someone has a medical problem don't assume that medicine has not advanced in that area.
Medicine is always advancing.You cannot go by old ways of medicine.
It's just like technology it keeps getting better and changing.
I'm the owner of Flogz.com (http://www.flogz.com). We've been noticing a hige increase in Google-related content on our site - as more and more sordid details come out day by day.
It's not just Google's silence and unwillingness to provide any transperency that makes it a horrible investment, but that many analysts are leading investors down the "primrose path" in terms of price targets - no matter how many lawsuits, or how much share dilution, or how ridiculously high the earnings targets are - for a long time they've been pumping this stock up like it's the "next Berkshire Hathaway" (which I've actually heard said, but can't quote the source).
Add to that the HUGE amount of shares that the google staff are dumping:
http://www.flogz.com/story/787/
and this could be the largest case of investment fraud the world has ever seen.
lol, I made over $50,000 in a month buying there stocks
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