As a believer in Facebook, I have been verbally smashing Google lately. GoogleTV sucks, Google+ sucks, the paid ad business is a “bubble” (I hate using that overused word) and this and that. Well, no company is perfect and I carried my criticism too far when I said GOOG was a short. I never actually traded it, so that might tell you something about my degree of conviction.
Actually, I am a big fan of lots of Google products. I use Gmail, Chrome, YouTube and Maps–Google is best in class in most things we do online. One rule I have on short selling is: Never short a company whose products you like to use. The reason you use the product is that you prefer it to the alternatives; and if you prefer it to the alternatives, it must be pretty good. You don’t make consistent money by shorting good names, only the bad ones. Ben Graham said as much in his memoirs:
Another operation ended in a goodly loss with comical overtones. I had come to pride myself on being able to detect both greatly overvalued and significantly undervalued common stocks. I would operate on pairs of such securities, buying a cheap stock and selling a dear stock short against it. One of the stocks I considered overpriced was Shattuck Corporation, the owner of Schrafft’s Restaurants. The company was doing well, but the speculators had inflated the price of the shares to what I thought was ridiculous heights. So I bought one of the numerous undervalued issues that I was always digging up and shorted a few hundred Shattuck shares against it.
From the start I had arranged a regular weekly luncheon to discuss my exploits. As it happened, these meetings took place at a Schrafft’s Restaurant which was a favorite with Lou Harris. When we went short on the stock, we all felt it was against our interest to support the enemy with our lunch checks, so we found another place to eat. Time went by and Shattuck stock continued to go up. (It is an inconvenient characteristic of these popular and therefore overvalued issues that they sometimes continue to be popular and grow more overvalued than ever before they drop to a normal and proper price.) When the price had advanced from our 70 to a most bothersome 100, we held a council of war and decided it was unwise to “fight City Hall” any longer. Anyway, we couldn’t expect every operation to turn out well; our overall batting average was high enough; it was good discipline to accept a loss now and then; and so on. So we undid the operation, with a loss of some thousands of dollars. Lou Harris’s comment was “Well, one good thing about taking this loss is that I can go back to eating lunch at Schrafft’s.” We needed the laugh.
After all the news about Google’s invasion of privacy, I stopped using Google Chrome. Not because I do anything online I don’t want people to know about, but because Google’s sketchiness offended me. Well, after a few weeks of using Safari (Apple’s browser), I couldn’t stand it anymore. Now I’m back to using Chrome. The worse thing is I started using Yahoo! as my default search engine. It felt like I was smashing my head against a wood board.
Google is a great company and, despite what some on the Street think, management is capable. I recommend reading the letters of Larry Page and Sergey Brin (http://investor.google.com/corporate/founders-letter.html); they are truly one-of-a-kind in the tech world. Google definitely has made the world a better place, and they’ve figured out a way to make money doing it. The stock isn’t overpriced, given their moats in various businesses. But I wouldn’t want to own it.