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Yes, the grass always looks greener...

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Have you ever been guilty of believing that one particular type of grass looks greener on the other side?

It’s a thought process that can apply to a multitude of finance-related situations, one which can occasionally grip even the least covetous of us all, invoking a resigned “if only” feeling.

Of course, everyone is a genius with hindsight, especially where money is involved, our belated focus and retrospective inspiration often inspired by greed.

For example, when I read earlier today that shares in Google had slipped beneath the $700 mark, my initial reaction was, “Ouch! If only…”

Prior to the company’s float in 2004, I believed much of the discussion surrounding Google was infused with far too much dotcom-sounding hype. This feeling strengthened when the offer price for the shares was reduced from a projected range of $108-135 to $85-95, thus cutting a cool $10 billion from the company’s market value. I gave them a miss.

The share price cut appeared to justify my concerns, yet today, Google, capitalised at $229 billion, is now miles away from my investment radar.

Nevertheless, I had cause to temper my “what if” reaction when I discovered that while the company’s shares are projected to reach a very precise $799.32 by the end of 2013, the market currently applies an earnings multiple of 23 to its stock. Considering that the current  price/earnings ratio of a FTSE100 company averages around 13, those ‘what if’ notions can be reassuringly sidelined.

However, I do not want to appear hypocritical. Would I have been delighted to have bought Google’s shares at $90? Of course. Would I buy them now? Not a chance.

I keep files on companies I’ve considered investing in and browsed through the thinnish Google one earlier where I found a cutting from The New York Times from January 2006. It pointed out that Google’s inflated share price, “is simply a function of market psychology…a notoriously unstable entity. If investors get nervous about the internet sector, Google investors will lose their shirts.”

Seven years on, is it possible that investors will lose faith in the internet? Can it really be upwards and onwards for Google? When we consider how online retailers continue to decimate our high streets, perhaps there’s little likelihood of consumers abandoning online shopping. What would replace it now that so many high street stores have disappeared?

I have no idea how accurate the predictions for Google’s share price are, but  the New York Times comment should be compulsory reading for anyone currently considering borrowing money to invest in the stock market.

Unbelievably, there are people, no doubt swayed by the sort of ‘analysis’ which predicts that Google’s share price will increase by nearly 15% over the next twelve months, who are contemplating doing just that.

If ever there was an example of the most incredulous, ridiculous, nonsensical bandwagon-jumping, then here it is.

Incidences of investors, disappointed with the returns available on their savings, borrowing money in order to buy shares are apparently increasing at a steady rate. Equities are considered a much better bet than your local high street bank.

Granted, from the shores of a moribund savings sector, the stock market appears a lush, verdant green, but that is a feeble excuse for taking on significant risk in what is a notoriously volatile area of investment.

Nevertheless, while I have absolutely no sympathy for people who may get their fingers burnt as a result of their own stupidity, perhaps the time has come for organisations that employ stock market analysts who shoot from the hip and only consider their actions later to think about their obligations before allowing such people to let rip either online or in public.      

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posted on 22 January 2013 15:59 byPJS

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