Date registered: Jan 2005
Vehicle: 2006 ML350
Location: Chicago, IL
Mentioned: 0 Post(s)
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Former Google Employee says don't buy Google stock.
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.
2006 ML 350 - Black, Appearance Package, Navigation System, Entertainment Package, Sunroof Package, Heated Seats, IPod Integration