Yesterday I appeared on CNBC as they announced that I won their Superbowl themed stock picking contest. The contest involved 15 investment professionals choosing amount 21 stocks. It was light-hearted, but as all who know me can attest, I take everything money related quite seriously. I want to take the time to illustrate why I picked the stock that won - Google, and what was wrong with many of the other picks. Unfortunately, shorting wasn't allowed, for if it was my readers and subscribers know that Facebook and Apple would have been shorted in combination with a Google long that would have produced even more spectacular returns and less volatility (risk).
As can be seen below, I usually bring my children to interviews so they can watch me pontificate and debate issues on international television.
I pulled my 6 year old out of school for her to watch the interview and afterwards we discussed the topics at hand:
- paradigm shifts
- the difficulty in analysts and financial professionals seeing shifts in demand and technology
- network effects
- unique business models
I took the risk that her 2nd grade teacher wouldn't be covering those topics last period. I mention this because a big focus later on this week at BoomBustBlog is the risk, bubble and burst of the US education system. It will be part four of my education bubble rant and it will be a doozy, not to mention directly related to the way people invest, manage risk and pick stocks and other risky assets. See the first three installments here:
- How To Profit From The Impending Bursting Of The Education Bubble, pt 1 - A Bubble Bigger Than Subprime & More Dangerous Than Sovereign Debt!
- How To Profit From The Impending Bursting Of The Education Bubble, pt 2 - "Knowledge How", Replicating Grecian Insolvency & Why Most Diplomas Are Depreciating Assets In Real Terms
- How To Profit From The Impending Bursting Of The Education Bubble, pt 3: As Bad As Harvard Endowment Funds -0.05% ROI? The Levered Harvard Diploma!
Theses education articles are hard hitting, and unavailable nearly anywhere else on the Web. They contain info and knowledge that effects us all and thus should have literally millions of views, yet they barely have an average following. This, in and of itself, is representative of the state of true learning in the US and a glimpse into the future of our ability to maintain a leadership role in the world economy. 'Nuff said! Now on to the topic at hand...
One thing that I didn't correct the host on was his assertion that Google makes over 90% of its money from advertising and the rest of the stuff was just a hobby. That is a mischaracterization of Google's business model. Google "cost shifts" thus uses advertising to monetize practically everything. Thus, Google makes its money from search, Android and Chrome mobile OS, Gmail, YouTube, etc., but uses advertising to both subsidize low or zero cost product (of very high quality, may I add) and monetize it. Here's a video from the Max Keiser show where I went into the topic in detail...
Another point of interest is the comment by Herb Greenberg, a reporter who has a true analytical bent (I believe he's a CFA) and a healthy pessimistic curiosity of corporate management proclamations. As he said in the video, we are both known for picking apart companies and finding things wrong. While many who don't know better call it perma-bear, as you can see its really known as fundamental analysis. When there's something wrong, there's something wrong. If you look at companies objectively, you not only see what's wrong, but you also recognize what's right. To be absolutely honest, my calls in this stock picking contest were the absolute antithesis of what Wall Street's sell side analysts have been selling its clients. Let's run through the Wall Street sell side mantra, shall we? Trust me, those who don't regularly follow me should click the links below and read the articles thoroughly. While they said...
- Buy Apple till $1,000 - What Sell Side Wall Street Doesn't Understand About Apple...
- Hurry and get this Facebook IPO while its hot- The Truth About Facebook That No Media Outlet Or Analyst Dare Admit and more to the point, Facebook Registers The WHOLE WORLD! Or At Least They Would Have To In Order To Justify Goldman's Pricing: Here's What $2 Billion Or So Worth Of Goldman HNW Clients Probably Wish They Read This Time Last Week!,
- and short Google to go long Apple - My Thoughts on Roger McNamee's View of Google ...
I said the exact opposite! Are the results a coincidence? I'm afraid not! Did A Blog Best Wall Street's Best of the Best In Gauging The True Value of Google? We Have To Think More Like An Entrepreneur & Less Like A Wall Street Analyst. Google is not the only time Wall Street's sell side fell to this lowly blogger. We're at roughly 72 companies/industries/countries/opportunities and counting... Did Reggie Middleton, a Blogger at BoomBustBlog, Best Wall Streets Best of the Best?
Believe it, naysayers and all!!!
My next post will discuss the other stocks in the stock picking contest which fell behind Google. In the meantime, feel free to peruse both my free and subscription Google research:
Subscribers should reference page 49 in the "Google Final Report" to see the results of Google's historical investment actions.
I feel that margins may increase slightly but for advertising they are on a long-term downward trend. That is the price Google will pay as digital advertising becomes more ubiquitous. What will be bought at this price? Google will permeate all aspects of digital life with cost-shifted products, based in large part on advertising revenues. In general, margins will drop, but revenues will explode. No longer will we get to keep 40% of our single dollar, but we will get 20% on the $10 dollar revenue bill. While Apple is pondering the Apple TV, Google is working on a wide variety if literally paradigm changing products - many of which are literal game changers: Google Glass, driverless cars, Google Fiber...
- More Evidence That Google Is Already The New Microsoft, and Android Is The New Windows (To YOUR OWN Information)
- Cost Shifting Your Way To Prominence Using The Network Effect, Or Google Wins - Apple, RIM & Microsoft Have ALREADY LOST!
- As Lower Margin, High Price iPad Minis Outsell All Other iPads The BoomBustBlog Apple Margin Compression Theory Is Incontrovertible & Mainstream
- Real Numbers That Show Why Facebook's Ad Model Means Google Will Put It Out Of Business
Industry Leading, Subscription Based Google Research
The table of contents outlines how we have broken Google down into distinct businesses and identified both the individual business models and the potential revenue streams, as well as valuation for each business line.
Page 57 of the analysis shows a sensitivity table which outlines the various scenarios that can come into play and how it will change our outlook and valuation opinion.
Professional/institutional subscribers can actually access a subset of the model that we used to create the sensitivity analysis above to plug in their own assumptions in case they somehow disagree with our assumptions or view points. Click here for the model: Google Valuation Model (pro and institutional). Click here to subscribe or upgrade.