Monday, July 11, 2011

Google+: Facebook's Black Swan.

Wow... Google+ is soooooooo much better than Facebook. Google actually seems to care that there are things that I want to share with the people I hang out with, that I might not want to (or find necessary) share with people that I went to high school with and have not talked to in the better part of a decade. Or, rather that there is a big difference between people that I have met one time and my family. While Facebook always sort of did a bastardized version of this, it was really hard to do, and not lacked much customization. I look forward to seeing what all Google can do with the network. As anyone who knows much about Google, knows that they do a ton of cool stuff with Google Labs.

This is undoubtedly going to force Facebook to change a ton or die off like xanga, myspace, and the many others. Frankly, I think that this is further evidence of why I love the investment style of Ben Graham and generally shy away from development companies. I sleep so much better at night owning parts of companies that can liquidate for more than I buy them for (International Baler or Syms), trade at such a low earnings multiple that they could likely survive such an event and get my money back (SuperValu), is growth at a nice price (Nevada Gold), or, have a huge moat that likely won't change in the future (Steak 'n Shake, Pepsi, or, while I have never invested in it, Coca-Cola).

Granted, there are always exceptions to the rule, but, this is clear: value investment works, not only on a theoretical level, but also in practice. For more on hidden risks (which, is what Google+ was, and probably still is), check out one of my favorite books: The Black Swan. I think that it is interesting that Microsoft's Skype acquisition went from looking stupid when announced, to being brilliant when they announced a partnership with Facebook, to now looking almost futile. Crazy times to live in.

There is no doubt that Google has enormous potential to grow. I am astounded at how many people, after reading a friends status which is to the effect of "I have Google+ invites... want one?", comment on the status "what is Google+?" When they simply could have Googled what it is... These people, who for whatever reason don't highlight a word with their mouse, right click, and then click on the "search Google" bar (which is actually less work than typing out the question, then reading any future response), are what will be great huge for the company's numbers. I have a feeling that numerically, they make up most web users, a small amount of traffic, but, the greatest growth potential for usage.

With all of this said, I don't know that I can/will own Google and feel very comfortable. Unless it trades under 10x earnings in the near future (and on no news), there is simply too much low hanging fruit out there that I would rather allocate investment capital toward. Even if Google's price did get cut in half, I would probably buy LEAPS, rather than the stock. In passing on Google, I fully admit that I may be missing out on huge returns, and that it may well become one of my greatest investment blunders... But, given all that I don't understand about the company and industry when compared to the price that it is trading for, at least I will be able to sleep at night.

If there is one thing that capitalism (and various religious texts) has taught us, it is this: all things come to an end. Will Google outlast Facebook? I have no clue. But I do know that I will enjoy watching from the sidelines.

Disclosure: I one LEAP call options of SVU. I am long IBAL, UWN, and SYMS. I have no other positions of any company that I mention in this article. This is not advice of any kind. Always do a ton of your own research in regard to anything that I say, do, write, or so much as think about.

EDIT: After looking at it some more, it seems that it has combined everything that was great about Facebook, Twitter, Linkedin and has none of the bad. It is kinda cool that you have the option to approve your friends tagging you in certain pictures... Really, all that Google needs to do is get a way to sync up all the info from your other accounts, and they will do really well with it.

Again, I say, with much more conviction: "Facebook, you are going to have to adapt, or die."

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