Google Ga-Ga

Quote of the day:
“Virtue consisted in winning: it consisted in being bigger, stronger, handsomer, richer, more popular, more elegant, more unscrupulous than other people--in dominating them, bullying them, making them suffer pain, making them look foolish, getting the better of them in every way. Life was hierarchical and whatever happened was right. There were the strong, who deserved to win and always did win, and there were the weak, who deserved to lose and always did lose, everlastingly.”
--George Orwell

People are ga-ga over Google.

It is with breathless amazement that they utter “it’s $700 a share!” as if the 700 dollar share price was either unbelievable or sacred.

While the stock has performed exceptionally well since opening at $85 in August 2004, let’s not get too excited over $700. The reason the share price is that big is that the company has never split its stock.

If you want to get excited over a stock price, try Berkshire Hathaway. It’s trading at $134,875 a share. Warren Buffet takes pride in never having split the stock.

The reason for Google’s 8-fold increase in three years is that the company continues to make more money faster than most analysts expect. Simple, huh? Well, all kinds of people in the investment industry make huge salaries being wrong about Google.

Many big investors of all stripes--pension funds, institutions, ultra-wealthy Saudis and such--now consider Google a core growth holding and are thus accumulating the stock in significant amounts, especially when it shows weakness.

Some people are skittish about the value of the stock, remembering the dot-com bust seven years ago. While many public companies went out of business before earning a dime, the difference here is that Google is a real company with real earnings--really big earnings.

The journey from $85 to $700 was choppy, with long periods of stagnation and downward drifting. The only certainty is that, over the next several years, the price will go up and it will go down. I have no idea when it will do either.

I do strongly suspect the stock is heading higher over the next ten to twenty years.

How’s that for a bold and brave prediction?