Filed under: Major movement, Rants and raves, Google (GOOG), Apple Inc (AAPL), Berkshire Hathaway (BRK.A), Market matters, Intuitive Surgical Inc (ISRG)
Towards the end of 2007 when the overall stock market was softening, Google Inc. (NASDAQ: GOOG) and Apple Inc. (NASDAQ: AAPL) were still soaring to new highs, and the optimism most assuredly reached euphoria and beyond. What is the next level beyond euphoria — madness — and that’s the kiss of death!
When the notorious Henry Bloggett proclaimed that GOOG was destined to reach $2,000 I do not think there was a dry eye in the house, either laughing at this ridiculous comment, which by the way offered no time frame or reference point, or crying for the shame of it all — that was the kiss of death.
When I read about this I could not resist tempering the madness and posted Serious Money: Google (GOOG) $2,000? No way, it’s too high now! The madness produced many interesting metrics to prove a point, including that you could have traded Google for both Berkshire Hathaway (NYSE: BRK.A) and Intuitive Surgical (NASDAQ: ISRG), two of my favorites, as an even swap (in capitalization only). That would be a heck of deal don’t you think?!
My colleague Georges Yared was overly optimistic about Apple’s growth potential, but I give more credence to his commentary because he had called it right for several years. However, I did part ways on his call for Apple to reach $300 (another kiss of death) and stand by my own comments (back of the napkin again) that Apple might reach the $150 to $160 range this summer. It just seemed to me that piling on another 50% growth on top of the already high metrics was not attainable. This did not stop some folks from frothing at the mouth and ranting about Apple reaching even higher to as much as $400 — the madness was palpable.
Most of the time I try to temper what I see as over zealous commentary as I did last Friday posting Dow below 12,000 — do I hear 11,000? Yes I do! This may not seem so moderate to those suffering 40% drops from AAPL and GOOG highs but it is within a tighter range than many are discussing. Still, some readers I received comments from grabbed the baton from me and proclaimed that the DJIA could sink to 10,000 or even as low as 8,000. I think not.
There are entire industries that are so essential and so active that there is a limit to their theoretical demise. These include healthcare, agriculture, energy, defense, transportation, education, utilities, and, largest of all, government.
When the market was raging on it was difficult for many to imagine that things could fall so fast. Now when things look rather pessimistic it is hard to imagine that things will improve any time soon. I am here to say they can get better. They will stabilize. All the ranting and raving creating euphoria and gloom, is just that, ranting and raving. I have shared the back of the napkin approach as a metaphor for basic investing principals.
When Apple and Google were flying high most stories were biased toward the upside. James Cramer is a leading example of that. Now that both companies have been cut down to size, writers are piling on biased toward the downside. I would advise my readers to ignore the noise in both cases. From my perspective both companies have more long term upside than down, although I personally am a much bigger fan of the diversified Apple Inc. and would not venture very deep into the Google Inc. one trick pony.
I doubt whether ‘my pal Warren’ used much more in any of his analysis as he leaped to the top of the investment world and would be shocked to find any of my long distance mentors using super computers to support their decisions. When you hear things like GOOG will be $2,000 or Apple will be $300 you should interpret these comments the same way you would any get rich quick scheme, and back away from the madness.
One more thing, if you do not have a napkin handy, the back of an envelope or business card is a suitable alternative.
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: I currently own shares in BRK.B and ISRG.
