Google No Longer Taking over the World
Thursday, March 2nd, 2006
By Michael Lombardi, MBA for Profit Confidential
Every once and a while a company comes along that investors become totally enamored with. These companies, often referred to in investment circles as “a broker’s easiest money sell,” reach euphoria price levels as retail investors buy in.
You may remember names like Nortel Networks and JDS Uniphase from the tech boom. Or maybe Krispy Kreme Donuts from more recent times.
The biggest “need to own” stock of the past 12 months has undoubtedly been Google Inc. In January of this year, Google stock hit $475.11 a share–or closes to 100 times last year’s earnings. But, the high earnings multiple didn’t matter much to investors because they weren’t buying earnings with Google stock, they were buying the chance for growth.
That chance for growth (via Google taking over the world, or at least the Internet) came to a screeching halt this week as the company’s CFO told investors that the fast growth Google had experienced was waning down… that for the company to continue growing rapidly it would have to find new ways to boost revenues.
Investors didn’t like that news and pounded Google stock on Tuesday by 7%. Later Tuesday evening, Google issued a press release basically saying “what’s the big deal?” In specific Google said “as we stated in our SEC filings, our revenue growth has generally declined over time and we expect it will continue to do so…” What Google was really saying was investors shouldn’t be surprised about what their CFO said because Google had already been warning about slower growth in their filings.
The truth is that Google stock had already been falling since peaking in January. The shares of Google are down 24% since January. (Imaging the poor investors who bought Google stock at a price high of $475.11.)
My message today, dear reader, is that when “everyone and his mother” is buying a stock, that’s often the time you should be selling, not buying. The idea should always be to buy a stock when few are buying it or even know about it.
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Tags: investing in stocks, investment opportunity, investment strategy, investor sentiment
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Michael bought his first stock when he was 17 years old. He quickly saw $2,000 of savings from summer jobs turn into $1,000. Determined not to lose money again on a stock, Michael started researching the market intensely, reading every book he could find on the topic and taking every course he could afford. It didn’t take long for Michael to start making money with stocks, and that led Michael to launch a newsletter on the stock market. Today, Michael only employs the top market analysts and editors. Some of our recommendations have posted gains in excess of 500%! Michael has authored and published over one thousand articles on investment and money management. Along the way to building Lombardi Publishing Corporation, now with over one million customers in 141 countries, Michael became an active investor in real estate, art, precious metals and various businesses. Readers of the daily Profit Confidential e-letter are offered the benefit of the expertise Michael has gained in these sectors. Michael believes in successful stock picking as an important wealth accumulation tool. Married with two children, Michael received his Chartered Financial Planner designation from the Financial Planners Standards Council of Canada and his MBA from the Graduate Business School, Heriot-Watt University, Edinburgh, Scotland.Follow Michael and the latest from Profit Confidential on Twitter
