I bought Google at $200. I wish I bought it at $100 but I really didn't understand the moat these guys have figured out. And I don't buy anything without an identifiable monopoly (Buffett and Morningstar call it Moat, so so do I). Google had enough of the rest of the things I look for (See YUMMMMY post) to buy it long term in my Risky Business account (about 10% of my capital is available for newish ventures that do not have long term history or for some other reason are not very predictable out 20 years). Let's look at it through a Rule #1 investor's glasses:
1. Do I want to own it all? Sure. Cool company. Awesome technology. What's not to like?
2. Do I understand the business? I didn't but ever since I put up this blog and set up a pay per click ad on Google, I understand it very well.
It's a brilliant business plan and it has Bill Gates wondering how to attack them. They have a big lead in innovation, they are stealing some of his best guys (and it's run by guys who, like me, have been on the losing side of a war with Microsoft), and they don't charge anything -- so Gates can't get into a price war with them. Without going into it too much, they could compete with Microsoft. Read this Fortune article, "Gates vs Google". When it came out at $100, I didn't get the business. Now I do.
3. Moat: Huge. They have trade secrets moat - the know how to make the best search results. Far better than anyone. They have brand moat - "google" is now part of our vocabulary. It means "to search the internet". They have price moat - Advertising is brilliantly set up to cost whatever I want it to cost by just bidding for a spot. Simple and elegant. And profitable. Three moats. Yeah. They got moat.
4. Management: Like I said, they hired a bunch of vets from other Microsoft wars. Remains to be seen, so this is a bit unknown, but so far so brilliant.
5. Margin of Safety - This is critical and depends on knowing the value of Google today.
But enough for now - I'll post Google Part II tomorrow, how to do value along with the all important Mr. Market and Yield.
