I am bemused by the price of Google shares. And even more bemused by the price analysts are forecasting.
According to the mainstream analysts, they should soon hit around $600, and according to some of the more obscure analysts, they’ll see $2,000 before the year is out. (As Tim Price of Ansbacher Wealth points out, “grotesque price forecasts are proportionate to the obscurity of the stockbroker issuing them”.)
But is a Google price of $2,000 really possible? When the shares are already on a p/e of over 100 times? It doesn’t seem very likely to me, but then I’m no expert on search engines or on any of the other business areas that Google keeps telling us it will soon dominate.
More interesting is that it clearly doesn’t seem very likely to those who are search-engine experts either. Since the start of December, says Tim Price, Google executives Eric Schmidt (CEO), Shona Brown, David Drummond, Jonathan Rosenberg, George Reyes (CFO), Omid Kordestani, Sergey Brin (co-founder), John Hennessy and Larry Page (co-founder) have all been sellers of the stock.
If you are beginning to find yourself seduced by the bulls on this one (and it’s easily done), I would not only remember that the directors haven’t been, but would also suggest a quick read of Jim Mellon’s book Wake Up!
In it, he reminds us how manias have overriden common sense throughout history. In Holland in the 1630s, for example, a bill of sales tells us that one Dutchman paid “two wagon loads of wheat, four loads of rye, four oxen, eight swine, 12 sheep, two hogsheads of wine, four barrels of beer, 1,000 pounds of cheese, a marriage bed with linens and a sizeable wagon” all for just one tulip bulb.
I bet he thought he was getting a deal at the time – just like the Google bulls do today. But he definitely wasn’t. The market crashed soon afterwards and you’d be hard pushed to find an investment that has done as badly as tulip bulbs – ever: on Nextday-bulbs.co.uk, even the most special ones seem to change hands for under a pound each.
We’d very much like to hear your views on the price of Google shares, on tulips, on the value of directors’ dealings as an indicator of share price direction, on bubbles and manias, and on just about anything else related to investing. All thoughts are welcome – send them to editor@moneyweek.com and we’ll put them on the site.