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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