Wall Street Journal Cover Story: One Year Later

Many of you may recall that I was featured on the front page of the Wall Street Journal last year for a story discussing the investment merits of Internet search giant Google (GOOG). In fact, some of you may have even discovered this blog directly as a result of that article. At the time I was writing a lot about the company and fortunately some Wall Street reporters took notice.

Whenever the article gets brought up to me, the most common question I get, perhaps quite predictably, is “Well, who was right?” Here we are one year since that article ran, so let’s reflect on how things have taken shape for the stock since then and see exactly who was right.

To summarize, the article was called “As Google Matures, Investors Take Closer Look at Its Risks.” In addition to myself, the other investor interviewed for the story was David Gordon, who also happens to be an avid stock market blogger (The Deipnosophist). Both of us were early investors in Google, but I decided to take my profits and move on to other stocks, whereas David was buying on dips and holding for the long term.

I had sold one chunk of Google at $467 in January of 2006, and followed that up by selling the rest of it in February around $400 per share. My logic was that I had a huge gain (after paying around $180 originally) and felt that many of the positive surprises surrounding Google’s search business had already been reflected in the stock. To diversify, the company began spending lots of money hiring people, investing in new services, as well as overseas expansion. To me, the easy money had been made and there was less certainty that the company’s other ventures would be as successful.

On the other hand, Mr. Gordon was confident that Google would be successful growing their model across other segments of the market. Despite the short term fluctuations in the stock, he did not sell any of his shares. Instead, he was quoted as saying “months from now, it will be at $600 to $800 a share and people will say, ‘My God, why didn’t I buy it back then?’ ”

As you can see from the chart below, Google has been very volatile over the last year. The shares dropped from $376 to $330, hit $450, dropped to $350, soared to more than $500, and now trade at $448 each.

So, who was right about Google? It really depends on how you define “right.” If you just look at the stock price since the article came out, Google is up 19% since then, giving David the nod. However, if you look at his prediction of $600 to $800 per share in a matter of months, though, he wasn’t. It’s been a year and the stock traded over $500 but only for a brief time.

From my perspective, I sold some stock at $467 and some at $400, for an average sale price of $417 per share. More than a year later the stock still only trades at $448 per share. It has only risen about 7 percent from my average sale price, during a time when the S&P 500 has risen by about 10 percent. For me, selling Google when I did paid off, as the stock has underperformed the market since then.

From David’s prospective, Google might not have hit $600 or $800 like he had hoped for, but he did not sell it, and the stock has risen nearly 20% in a year. In hindsight, it is true that his optimism was excessive, but the stock has gone up. We can hardly call that being wrong.

So, as much as some might want to crown a winner in what the Wall Street Journal called “A Tale of Two Shareholders,” we might just have to conclude that given our personal objectives, we were both right. To support that claim, I’d be willing to bet that having it to do all over again, we both would have done the exact same thing.

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2 Thoughts on “Wall Street Journal Cover Story: One Year Later

  1. David M Gordon / The Deipnosophist on March 2, 2007 at 7:44 AM said:

    Nice essay, Chad. (Nice website as well!)

    I agree with everything you say, although this tenet stands out:

    “My logic was … that many of the positive surprises surrounding Google’s search business had already been reflected in the stock. To diversify, the company began spending lots of money hiring people, investing in new services, as well as overseas expansion. To me, the easy money had been made and there was less certainty that the company’s other ventures would be as successful.”

    I agree with you, as we each (and probably all investors) acknowledge Google‘s explosively increasing SGA expenses. Ultimately, these increases will effect margins and finally the more obvious bottom line. Of course, when one considers what they do with the money… well, the firm might no longer be characterized as “search giant”!

    Thank you for the link to your site; I aim to study diligently your musings.

    Best wishes,
    David

  2. Chad Brand on March 2, 2007 at 7:53 AM said:

    Thanks for commenting, David.

    Best of luck in 2007!

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