(B)(N) GOOG Google Incorporated
Deal Book. Somebody had their day in Court today and opened & closed an innocuous discussion of the how the new non-voting Class C stock will affect the price of the Class A stock (GOOG) which is a voting stock but has insufficient power to override the votes of the co-founders, Larry Page and Sergey Brin, who hold the Class B stock which has ten times the voting power of the Class A stock, and is designed for the co-founders to continue to control a majority of the votes (The Associated Press, June 17, 2013, Google settles shareholder lawsuit over stock split, clearing way of new class of shares).
There’s a term for that behavior in psychology (“passive-aggressive”) but it acquires no more cachet because somebody is a minority shareholder; we can spell it out (m-i-n-o-r-i-t-y, as in, m-i-n-o-r, or j-u-v-e-n-i-l-e) but this objection has blocked the sale of Google’s new shares for more than a year, and in that time, the price of a Google share has climbed from $600 to the current $900, and we wonder what we are entitled to since, obviously, $1 of cash in our pocket is not nearly as good as $1 in Google, either on their balance sheet for new ventures, or in their stock. Please see Exhibit 1 below.
The new stock will, of course, dilute the current stock and affect the price, but it should not affect the price pro rata because $1 of new Google stock is actually worth $1.06=$890/$840, and the conversion rate of cash dollars ($1 in our pocket) to dollars of Google stock continues to increase as the Google stock continues to trade above the price of risk, which is currently $840 per share and rising.
Moreover, at the current prices, Google can raise more money with less stock. (Thank you, Google-haters.)
Our estimate of the current downside in the stock price due to the demonstrated volatility is an enormous minus ($90) per share so that we would be no more surprised at $800 than at $980 – take your pick – but we’ve set our stop loss at $850 and can do no worse than make a $50 profit and buy the stock back at lower prices if it’s still trading above the price of risk.
Exhibit 1: (B)(N) GOOG Google Incorporated – Risk Price Chart
(B)(N) GOOG Google Incorporated – June 17 2013
Google Incorporated maintains an index of web sites and other content, and makes this information freely available to anyone with an Internet connection.
(Please Click on the Chart to make it larger if required.)
From the Company: Google Incorporated is a technology company, and builds products and provides services to organize the information and make it universally accessible and useful. It provides Search, a service that delivers relevant search results in response to user queries; Product Listing Ads that offer product information; Search plus Your World; Google Now, a predictive search feature; and Google Knowledge Graph, which enhances Search service. The company also offers AdWords, an auction-based advertising program; AdSense, a program which enables Websites that are part of the Google Network to deliver ads; Google Display, a display advertising network; DoubleClick Ad Exchange, a marketplace for the trading display ad space; and YouTube that provides video, interactive, and other ad formats. In addition, it provides Google Mobile that extends its products and services to mobile device users; Google Local, which provides local information; Android, an open source mobile software platform; Google Chrome OS, an open source operating system; Google Chrome, a Web browser; Google+ for sharing various things online with different people; Google Play, a cloud-based digital entertainment destination; Google Drive, a place for users to create, share, collaborate, and keep their stuff; and Google Wallet, a virtual wallet for in-store contact-less payments. Further, the company offers Google TV, a platform for consumers to use television and the Internet on a single screen; Google Apps, a cloud computing suite of message and collaboration tools; Search Appliance, a search technology for use within enterprises; Google Site Search, a custom search engine; Google Commerce Search for online retail enterprises; Google Maps Application Programming Interface; and Google Earth Enterprise, a software solution for imagery and data visualization. Additionally, it offers mobile wireless devices, and related products and services. Google Incorporated was founded in 1998, has 54,000 employees, and is headquartered in Mountain View, California.
The calculated Risk Price (SF) is a provably effective estimate of the “price of risk” which is “the least stock price at which the company is likeable” (Goetze 2006) and “likeability” is determined by the demonstrated factors of “risk aversion” – we want to keep our money and obtain a hopeful return above the rate of inflation – and the properties of portfolios of such stocks. Stock prices that are less than the price of risk can be said to be “bargain prices” but with the risk attached that the company might never get a higher price other than that due to ambient volatility or “surprise”; on the other hand, investors who are willing to pay the “full price” above the price of risk, and buy and hold the stock at those prices, must also be confident, and have reason to believe, that the company will produce those values, absent new information.
Please see our Posts, The Price of Risk, August 2012 and The Nash Equilibrium & Its Stock Price, October 2012, for more information on the theory.
To see what else “risk averse” investing can do for us, please see our recent Posts, The Wall Street Put, April 2013, and earlier Posts such as The Dow Transports, March 2013, or The Risk Adjusted Dow, March 2013, or The Canada Pension Bond, February 2013, and for a more colorful description of investment risk and the application of the “price of risk” to mergers & acquisitions, please see our Post, Bystanders & Collateral Damage, April 2013.
Postscript
We are The RiskWerk Company and care not a jot for mutual funds, hedge funds, “alternative investments”, the “risk/reward equation” and every other unprovable artifact of investment lore. We have just one product
The Perpetual Bond™“
Alpha-smart with 100% Capital Safety and 100% Liquidity”
Guaranteed
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For more information on RiskWerk, please follow the Tags or Categories attached to this Letter or simply enter Search for additional references to any term that we have used. Related data may be obtained from us for free in a machine readable format by request to RiskWerk@gmail.com.Disclaimer Investing in the bond and stock markets has become a highly regulated and litigious industry but despite that, there remains only one effective rule and that is caveat emptor or “buyer beware”. Nothing that we say should be construed by any person as advice or a recommendation to buy, sell, hold or avoid the common stock or bonds of any public company at any time for any purpose. That is the law and we fully support and respect that law and regulation in every jurisdiction without exception and without qualification to the best of our knowledge and ability. We can only tell you what we do and why we do it or have done it and we know nothing at all about the future or the future of stock prices of any company nor why they are what they are, now. The author retains all copyrights to his works in this blog and on this website. The Perpetual Bond®™ is a registered trademark and patented technology of The RiskWerk Company and RiskWerk Limited (“Company”) . The Canada Pension Bond®™ and The Medina Bond®™ are registered trademarks or trademarks of the Company as are the words and phrases “Alpha-smart”, “100% Capital Safety”, “100% Liquidity”, ”price of risk”, “risk price”, and the symbols “(B)”, “(N)” and N*.
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