Monday, July 25, 2011

Why I Will Never Buy Google Stock (Again)

I think Google is a pretty good company.  At least for the time being, they seem to be able to capitalize on their current strengths (search) as well as have an eye on future growth opportunities (Android).  I think that they are currently fairly valued at about $600 per share.  Last summer, when they dropped below $500 per share over fears about an aging business model, I thought they were undervalued and I bought.  The stock went back up to $600 and I sold.  This spring, the stock dropped below $500 again (same old fears, no new evidence) and I thought: "I should buy."  But I didn't for one simple reason, and I subsequently missed out on the rise back to $600 that the stock experienced when it released its earnings.  And I am not the least bit upset about not grabbing that opportunity.

The reason is that while I think Google's business model is sound, I don't trust the Justice Department to leave it alone.  Google is the new Microsoft, meaning that one day or another, the government will see it as an unstoppable behemoth (tell that to Mark Zuckerberg) worth of an antitrust suit.  The more successful Google's business becomes, the more likely this outcome.  The writing is already on the wall.  This is what antitrust does to strategy and investing.  If the government decides that Google controls too much of search, their goes their revenue stream and shareholders take a haircut.  Frankly, I just don't think it's worth the risk.

It is important to note, I think, that since antitrust came on the scene, most prosecutions are not instigated by the government, they are instigated by competitors complaining that the companies out-competing them in the marketplace are being "anti-competitive" by competing too well.  This is what laws like antitrust do to competition.  Firms succeed based on their ability to lobby the Justice Department and the FTC, not on their ability to provide superior value.  Ironically, most of the antitrust threats against Google are coming from Microsoft.  Now tell me, faced with an environment like this, why would a person of integrity ever want to go into business?  They'd get eaten alive.

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