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.