Friday, November 25, 2005

Hype-disillusionment Cycles

Against my own better judgement, I drank too much of the Google-koolaid and bought shares in Google about 2 months ago. They are now up about 42%. I want to brag on it, but it's important to note that I haven't taken a profit yet, so the jury is still out on this being a good idea.

At around 280 I just got tired of reading all these media stories about Goog and hoping that the Winter Santa rally would hold again took the plunge. What I like about Google as a company is that they're not afraid to innovate "neat" ideas just for the hell of it and worry about making money off it later. Google maps is an interesting idea because they've open sourced the api's to it so anyone can dream up ways to implement the maps. This blog you're reading is courtesy of Google. The concept that they can target a link to an advertiser to what's on a search page Google serves up is not that genius an idea, but putting that link up for auction to the advertisers is. Because of that, Google is making tons of money.

The problem with watching it go up 42% is knowing that it could just as easily go down 42% from where I bought it. Hell, even lower. (I once owned Corning during the DotCom bust. . .)The P/E multiple is easily in the 90's or so which is scary. I tell myself that I'm cool with weathering the downs because I really do have confidence in Google's future. Historically, there have been stocks that have ramped up quite handsomely over a 10 year span and this is what my holding timeframe is for Google.

All that being said, I still recognize that there is a lot of hype here. Google is the subject of a vast assortment of rumors, such as impending listing as a S&P index stock, secret purchaser of vast amounts of cheap dark fiber to create a parallel internet, etc. etc. Who knows.

The chart represents an analysis of what happens to hype stocks. I'm hoping the "peak of inflated expectations" hasn't happened yet and the "trough of disillusionment" isn't too far below where I bought it because I intend to hang on to this one for a while. (Famous last words. . .)