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Pencils Palace
Re: CNN's Tech prediction for 2006

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By pencils2
April 18, 2006

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Hi Fernando,

I think this guy is right about Google; it won't go up forever. You know how people say buy-low sell-high? The case here is that they aren't doing it. Benjamin Graham (Referred to as the father of value investing) says to never buy a company or index if it is going up (What would have happened if you had followed his advice with the tech rush in the 1990's). If you are going to buy-low, you don't buy a company if it keeps going up (No stock does that, but people get it into their heads), you wait for a downturn.

I don't know about 2006, all I know is Google isn't going up forever; we will see it come down in price. I think it is extremely un-safe to buy into a company that fund managers, analysts, and every investor is hyping every day, but that is beside the point.

I'll explain a bit about Ben Graham's advice, and why we should follow it for our own good. Graham hates it (Or hated it, he died in the 1970's) when the stock market goes up. Why? Because the opportunities are lost. You buy a stock after a downturn. In Jason Zweig's commentary on Graham's chapter he mentions a poll that a web site took of people asking, "How much return do you expect on your stocks?" (Or something along those lines.) People replied that they expect around 15%-20% growth (Remember that this is in the '90's when day-trading was at its best). After the crash, the same web site conducted the same poll, and people expected negative or minimal returns in their portfolios. I wish I had been into the stock market then, because that is where the opportunities were.

I'm looking forward to the next crash, and you may be saying "David, you will lose a ton of money on your current holdings when that happens!". Only if I were to sell. Only if I were to sell would that happen. When you sell on a losing investment you change a paper loss into a real loss. And why would you all of a sudden sell? If you are going to buy-high and sell-low, you will not win in the market. You keep your current holdings, find the bargains, and wait. Ben Graham loved the downturns, and every investor should.

So, getting way off-topic from Google and tech, but this is why I believe buying Google now is not a good idea. Everyone is following it, hyping it, buying without looking at the financials, valuation, income (I see many beginners on the boards who don't know a whole lot about the market and this is the first company they buy), and other key points. The more this happens, the more I believe a downturn for Google is in store. It might not be for 10 years, but I am not comfortable with their position right now. Peter Lynch, the greatest fund manager out there, also stayed away from the hot, heavily followed stocks. He went to the boring, out of favor companies that no one was thinking or knew about. So by investing in Google you are breaking the principles of Warren Buffett (Be fearful when others are greedy; be greedy when others are fearful.), Benjamin Graham, and Peter Lynch. Those are three of the greatest investors in history, three of the most widely known investors out there, yet people don't follow their advice and principles.

That's my feeling anyway, I'd be curious to hear any other thoughts or comments -

David K


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