My Money Is on This Company's Management

Today I'm going to tell you about a technology stock that, within the next two months, I'll be putting $4,000 of my own money into. I'm so confident that my pick will outperform the market that, should I sell any shares within the next three years, I'll donate $100 to charity.

This is the second article in a series in which I'm writing about my retirement portfolio, which I'm dubbing "The Cheesehead Portfolio," in honor of my home state of Wisconsin. If you wish to see my first selection for the portfolio, check out my first article:

Three years from now, I fully expect today's pick -- Google (Nasdaq: GOOG  ) -- to handily trounce the market, thanks in no small part to its management team.

These guys stand for something
I try not to get emotional when investing. Study after study after study has shown that doing so only leads to investing troubles. But I can't help getting excited by the fact that Google's founders, Larry Page (now CEO) and Sergey Brin, have taken over the reins.

For starters, they don't give lip service to aligning themselves with shareholders' interests. They've voluntarily elected to receive only nominal cash compensation for the past three years.

Name

Salary (Three-Year Average)

Bonus (Three-Year Average)

Stock and Option Awards

All Other

Total

Larry Page $1.00 $1,171.33 --   --    $ 1,172.33
Sergey Brin $1.00 $1,148.33 --   --    $ 1,149.33

Source: Google DEF 14-A.

This isn't one of those tables where everything is "in millions," or even "in thousands." Those are the actual yearly salaries these two have elected to receive. The real source of their wealth comes from their ownership in Google's Class B common stock. Together, they owned 78.7% of these shares on Dec. 31, 2010. I'm comforted that their future wealth is tied to the same stock price that my retirement money will be tied to.

A rapidly changing field
Make no mistake about it: Google exists in a market where creative destruction can change things in the blink of an eye. And some people readily criticize Google for lacking a clearly defined focus. Among the skeptics' questions:

  • Is Google going to focus on the cloud? The "cloud" is a far-reaching term, and Google will need to face host of competitors in various segments here, most notably Amazon.com (Nasdaq: AMZN  ) , Rackspace Hosting (NYSE: RAX  ) , and -- with the release of iCloud -- Apple (Nasdaq: AAPL  ) .
  • Is Google going to focus on its smartphones? The Android operating system now has a 50% market share in the United States -- twice that of Apple's iOS -- but Google offers it for free. That's a calculated strategy.
  • Will Google have any success in large foreign markets such as China or Russia, where Baidu (Nasdaq: BIDU  ) and Yandex (Nasdaq: YNDX  ) have significant market share in search?
  • Could Microsoft's (Nasdaq: MSFT  ) Bing really bring down Google's search engine?

With Page taking over, these are valid questions. He has ramped up research-and-development costs significantly -- 50% last quarter. When investors don't know where that money is going, they become uncertain.

The market hates uncertainty like that.

Why I'm not worried
As we face all of these questions, let's get one thing straight: Google makes 97% of its revenue from advertising. It's always been that way, and in my opinion, it always will be.

The challenge, then, is simply for Google to remain relevant. As long as it's relevant, people will use its products, and as long as people use Google's products, people will see those all-important, targeted advertisements.

But here a paradox emerges: Investors aren't crazy about the high R&D expenses, but they need Google to remain relevant. To do that, Google has to commit significant amounts of money to R&D. And those funds need to translate into relevant products.

There's no crystal ball to tell us what will be relevant three years from now, and I'm betting Page and Brin are well aware of that. What sets them apart from the pack is their approach to this conundrum.

Trust the process
In his most recent work, Drive: The Surprising Truth About What Motivates Us, best-selling author Daniel Pink highlights what he believes employees really want out of their work. And it ain't money. In no particular order, they want autonomy, mastery, and purpose.

I'm not sure whether Page has read Pink's book, but a statement in Google's most recent 14-A makes it seem possible: "[Monetary] incentives are secondary to career growth, work environment, and engaging work opportunities. We seek to develop a highly motivated and collaborative workforce that pursues achievements for the sake of progress and innovation."

One of the most notable outgrowths from this holistic approach is what Google calls "20-percent time." One day out of the week, all Google employees are encouraged to work on anything they want, especially if it doesn't relate to their day-to-day assignments. Some of Google's more successful ventures have come from "20-percent time," including Gmail, Google News, and Google Translate, to name a few.

Foolish takeaway
As long as these approaches are in place at the company, I have confidence that Google will remain relevant and prosper.

If you're interested in additional ideas in the technology space, I'm going to offer you access to The Motley Fool's new special free report, "The Only Stock You Need to Profit From the NEW Technology Revolution." Inside you'll find out about a breakthrough technology that's changing the face of business by analyzing massive amounts of data. It's yours, absolutely free.

Though Fool contributor Brian Stoffel loves charity, he has no intentions of shelling out by selling early. He owns shares of Apple, Rackspace Hosting, Amazon.com, and Google, and he intends to bring his Google position to at least $4,000 by Aug. 20, 2011.

The Motley Fool owns shares of Microsoft, Google, and Apple. Motley Fool newsletter services have recommended buying shares of Rackspace Hosting, Apple, Baidu, Amazon.com, Microsoft, and Google, creating a diagonal call position in Microsoft, and creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (4) | Recommend This Article (12)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 26, 2011, at 12:46 PM, jekoslosky wrote:

    Because Google derives 97 % of its revenue from advertising, what are its biggest threats?

    It would seem to me that would be a slow economy and the emergence of Facebook as an advertising platform.

    In the print news business, we saw Google take away a lot of our advertising dollars, leading to a lot of cuts.

    For many generations there was no real alternative to newspapers for advertising. Suddenly, there was with Google.

    I guess the question is how long Google can stay on top of that mountain, with competitors looking to knock it off.

    stocksnovice.blogspot.com

  • Report this Comment On June 26, 2011, at 3:48 PM, deasystems wrote:

    Thanks to the world of apps, search is on the decline. The latest surveys show that, thanks to Apple and its iOS, Android is on the decline.

    Meanwhile, Google maintains its policy that 20% of labor hours are undirected and unmanaged.

    Google is so vulnerable. Good luck with your plan...

  • Report this Comment On June 26, 2011, at 4:30 PM, mracz425 wrote:

    I think people underestimate Google. They are in to everything from ads to phones to computers. Lets not forget they now are into cars and alternative energy. They are a giant and will remain that way.

  • Report this Comment On June 27, 2011, at 11:35 AM, production976 wrote:

    RAX is a horrible company. They will be imploded within 5 years. The management and workers are idiots who don't know a thing about the interwebs nor webhosting. Their fanatical support is more like sporatical support, they have no idea whats going on. Smart people would short the hell out of this stock.

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