Whooogle?

When people were asked about internet success stories in the nineties (and early noughties), they would talk about random stocks such as Amazon.com, Yahoo.com, LastMinute.com and Boo.com, the once-adored online seller of clothes. But when the bubble burst around the start of the new millennium, all that were left of these ‘new economy’ ventures were relics of a time gone-by when anything with a whiff of ‘dotcom’ in the prospectus was worth it’s weight in platinum.

Fast forward to March ‘08, and in the midst of a potentially detrimental recession, the same ‘experts’ at companies such as Citigroup and Merrill Lynch are trumpeting the successes of these absurdly overvalued outfits, as if the streets in downtown Silicon Valley were paved in 24-carat gold. But what many don’t realise about these upgrade/downgrade announcements of the biggest megafinancials is that their opinions are worthless. At best their managed funds simply fail to obtain the performance of the S&P 500 or DJIA, but at worst they just promote stocks of major companies they advise or securities some of their wealthiest clients have holdings in. They also have a vested interest in frequently upgrading and downgrading particular stocks, they get commission through their broking businesses. The key American commercial financial institutions are notorious for putting their desire to make a quick buck ahead of protecting the best interests of small shareholders. In fact, the main reason why nearly all publications fail to question their erratic behaviour is because their upgrades and downgrades are a staple of finance editors and newspaper columns can’t be filled without some sort of interview with a senior trader at some obscure research company. If the press questioned and criticized as it is both entitled and obliged to, some of these companies would inspire the same confidence as Northern Rock.

Of course, it isn’t the Amazons and Ebays of this world who are completely to blame for their share prices being too high, these matters are almost entirely out of control of the directors who control these firms, unless they would be engaging in an Enron-style scandal. The fact that these companies have ridiculously high PE’s (many are as high as 60 - a sure sign of an impending crash) has probably gotten more to do with sloppy analysts and murky venture capitalists than creative accounting or even real growth opportunities.

Which brings us back to the whole point of this article - Google Inc. Google was founded in September 1998. Since then, mostly fuelled by ostensible corporate speak and bizarre predictions (‘don’t be evil’, ‘we’re going to operate a space transport elevator by 2099′, etc.), Google has gone from strength to strength, though mostly because of the hype propagated by naive young journalists writing for the popular press, forgetting Fleet Street’s stiff standards of integrity and critical questioning which must be adhered to. The primary concern for Google’s management must be, therefore, that a better company could emerge from the thousands of vying competitors and take its crown in search or advertising. (Apparently, there are quite a few already)

When Google floated on the NASDAQ in 2004, shares were a little under $80 apiece, and even then they were said to represent poor value. But since then, even the most respectable institutions have been posting price targets as high as $900. Even after the credit-crunch-crisis emerged, tech were flagged as a ‘hot buy’ on the front pages of finance sites, and the ‘smart money‘ found a home in the internet giants. However, market analysts tend to be quite fickle in their recommendations, and when the ensuing carnage emerged in the form of a massive plummet in prices during the past month or so, the small investor really understood how little Wall Street cared about him or her.

Since their peaks around three to six months ago, some technology stocks have had their prices slashed by as much as 10%. So called ‘experts’ charged that these companies have become much more solid since the last bubble due to better revenues, but this only serves to acknowledge that another bubble is inevitable, just not as dramatic as the last one.  Whatever happened to the $900 Google?

So, what are your opinions on investing in techs? Please feel free to comment in the box below.

Regards,

~~~~Shane Halloran.