Should I buy Google at $420?

I’m at the lake this weekend and talking with my 19 year old nephew, Chris, about Google’s current stock price. He’s done some research and thinks at $420 per share, this company may be a buy. “It’s been over $800,” he posits. “It’s a really sound company,” he muses. “I only wish I had gotten in at the bottom – when it was a start-up!” he says with regret. I had to remind him that he may not have been alive at the time – a fact that might not have come up in his research.

This got me thinking. This young guy is starting his investing education – is he getting more than just a set of contextless facts?

A few decades ago we NEVER received any information with out a context. Our preachers preached sermons from a context. Our teachers gave us lectures from a context. Our parents taught and raised us in their context. These things all still happen.

Today, however, there is much more information out there that comes without context.  Just Google GOOGLE and see what you come up with.  Is any of the information really helpful in deciding on the stock?  Don’t get me wrong. I’m not saying that the information we are getting is neutral – far from it!  Everyone giving facts has an angle.  I’m simply saying that for most of the facts we get today, the context is not clear or given along with them.

So, is Google a good buy today?

This SHOULD beg more important questions, like:  What is the best criteria for a good buy in the stock market?  Even better: How should I own stocks?

Without these questions, Google will give you a bunch of “facts” about GOOGLE – none of which will help you form a sound opinion.  These types of questions begin to form a helpful context from which to gather facts.

So Chris, here is what you need to know to make your decision – we’ll start with the truth about investing and then move to the facts:

1. No one can predict the future of Google stock (or any stock).  You will find an opinion to match almost any action you might want to take, but no one can KNOW what will happen. You will find that many will spend a lot of time and money speculating about it, giving you a lot of useless information.

2. The price of Google today is the best representation of the value of Google today. Free Markets have exchanged information about this company – and the market as a whole – more efficiently in these times than in any era before. All of that information is already factored into the price of Google today. ONLY NEW AND UNKNOWABLE INFORMATION WILL CHANGE ITS FUTURE PRICE UP OR DOWN.

3. There are five deadly investor mistakes. The first one is this: TOO MUCH MONEY IN ONE STOCK.

So let’s wrap up this lesson – if your context is entertainment – then the facts you will read about when you google GOOGLE will fuel the fun.  You might even get lucky along with some mutual fund managers and increase the value of your portfolio for a time by owning it.  But be careful, both the praise and the money is addictive. Don’t get trapped by it.

If your context is the more important work of investing, then invest wisely.

Buy GOOGLE, and wisely diversify it along with holdings of over 12000 or more companies in over 40 plus free countries in 10 plus different categories.  In this context, you can look at GOOGLE for what it is:

1.  A large US company that when taken as a class (all large US companies) you will out earn inflation by 6% over any 30+ year period in history. So yes, buy Google (and every other large US company you can find).

2.  As a stock asset class, large US companies are the worst performing class of assets that you can choose from.  So yes, buy GOOGLE, along with every other large US company, but don’t own very much of it.  It’s not all that exciting compared to the other classes you have to choose from.

3.  As an asset class, GOOGLE and other large US companies tend to act very dissimilar from other asset classes, like emerging markets for example whose companies’ share prices are up over 40% this year as opposed to large US companies (including GOOGLE) which are barely positive year to date.

4.  As always, remember that market timing (trying to get into and out of the market quickly to make a profit) is a losing proposition for the investor.  The AVERAGE return for the market timer is just under -1.0%. Yes, negative one percent.

Remember that every week the lottery turns out a winner.  The same will statistically be true of the stock market.  Every decade, someone will become famous by winning that loser’s game by getting a return that exceeds the market return – with the millions playing every day, it is statistically impossible for it not to happen.

However, no one has ever repeated their winning results – ever.

The return the market gives for free always beats the expensive lesson that is learned by those who try to beat it.

Buy GOOGLE – as an investor, as a part of a wise investment strategy – and then hold onto it no matter what they tell you.

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3 Responses to Should I buy Google at $420?

  1. David Witter says:

    Dan-
    Well said and couldn’t agree more! On your next post, I’d love to be reminded what the other four of the five deadly investor mistakes are! Great work and keep it up!

  2. Evan says:

    Thanks for the comment david! Have a great week!

  3. David Witter says:

    Evan, shoot me an email so we can setup a time to talk.
    david@davidwitter.com