The GOOG

I've been listening to a lot of financial new programs lately and soaking up as much good knowledge on the market as I can so I can try to beat the S&P in '06. One of the cliched "darlings of Wall Street" right now is Google (ticker: GOOG) and so I have to listen to endless jibber jabber about the company and how great it is, despite the fact that it is trading at a fairly rich valuation (50x forward earnings, or 1.7x forward earnings over long term growth, aka PEG). What I love, though, is to hear non-financial newscasters talk about the stock since they can't seem to grasp the fact that if the company keeps a low number of shares outstanding that the stock price will be optically high (it currently trades at around $440/share). Instead they look at the share price and babble like a idiot (I actually picture them running around the studio in circles like chickens after being de-headed) about "oooh oooh Google, price soo high, this is craaaaazy, a $400 stock? What will we do, what will we do?"

To put it in very simple terms, it's like getting outraged that the crate sized box of Kix (you know, "kid tested, mother approved"?) that you get at Costco is more expensive than a normal sized box you get at the grocery store. With fewer shares of Google outstanding, you own more of the company with every share you purchase, therefore the shares should be more expensive. If Google were to do, say, a 2-for-1 stock split, which is what many companies do when their share price gets optically high, they would trade at around $220/share, while a 4-for-1 split would put them at about $110/share. But of course you own less Google with each share, so net-net you're no better off. It's obvious that Google likes to go a little off-center, especially when it comes to financial matters (they used the famous Dutch-auction IPO) and letting the stock price get optically high like this fits the bill.

Of course Google isn't the only company to do this. There's a guy named Warren Buffet who runs a fairly successful company called Berkshire Hathaway and he has never split his stock. Currently, the class B shares of Berkshire (which have no voting rights) sell at $2,990/share, while the class A shares (with voting rights) sell for a cool $89,990/share. It hasn't worked out so badly for Warren and Berkshire, and, who knows, maybe it won't for Google either. So, if you're in the market right now, or getting into the market, don't get scared off by the $400+ price tag on a Google share, it's only a number (unless of course you plan to invest less than $400 in Google, because then you're stuck - you won't be able to afford a single share); if you're going to get scared, let it be from the big earnings multiple.

In related news, there is a band formerly known as Kumar Pachenko, now known as Sandpaper Valentine, that did a song called Googleburger. I want to get my hands on a copy of Googleburger, so if anyone has info on where to get this cold cut classic, post it up here bitches!

Kopp