50

Background:

I started investing in stocks in October 2017. I have a $22K portfolio which is 60% software, 20% semiconductor, 10% healthcare, 10% others (retail, banking, etc.). It's tech-heavy because I am a tech guy and I always feel comfortable investing in a tech company.

Even after the recent market correction, I find my portfolio doing quite well (stocks having higher %loss form smaller portions of my portfolio), except Google. I bought Google stocks at $979, $1049, $1183, and $1131 (after seeing 5% drop on recent earnings day). The company seemed to be doing very well, both by seeing its EPS and general company outlook with their products. Since then, the stock has been falling like hell -- has already fallen by ~15% from its peak.

Questions:

  1. What exactly I did wrong while investing in Google?
  2. What are the signals I should have considered while investing?
  3. What should my future strategy for this stock be? (I am thinking of putting a limit buy on 900 and 1000, and a limit sell on 1131 and 1184).
  • 37
    Right now, its P/E ratio is 56.12. I'm in tech too, and lived through the 90s Dot Com Bubble. Thus, that's waaay too high for my stomach. (Every generation, it seems, needs to learn the lesson of irrational exuberance.) – RonJohn Feb 9 '18 at 5:26
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    The entire market is taking a dump right now. What you should be asking is why you expect Google to be somehow immune from a broad market selloff? – J... Feb 9 '18 at 12:32
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    The entire market has taken a "correction" in the last week or two - a rapid fall of more than 10%. Your future strategy should be "stop looking at your balance daily". – ceejayoz Feb 9 '18 at 14:11
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    You didn't say whether or nor you work for a tech company, but if you do you should be very wary of investing so heavily in them. You are already invested in your career and a market segment crash could be devastating if it had a major impact on your investments and your income at the same time. – Paulpro Feb 9 '18 at 18:35
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    What you are doing wrong is investing in stocks when you have no idea how the stock market works. If you do not understand why 4 months is too short a duration to ask "what did I do wrong", perhaps you should stop investing in stocks without an advisor guiding you. – Masked Man Feb 10 '18 at 17:42
255

This is clearly not the answer you’re looking for, but you went wrong by trying to pick stocks and time the market. It’s been shown to be a fool’s game.

Furthermore: if you picked several stocks, and think you did something wrong because one of them went down, then you have some rough days ahead of you. There will be long stretches where most or all of your stocks go down. Are you prepared for that, emotionally? It doesn’t sound like it.

  • 51
    This is so definitively the best answer; I implore the OP to not ignore it and assume there's some magical combination of fundamentals that will let him outperform the market. – WannabeCoder Feb 9 '18 at 16:01
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    If you continue to invest regularly (e.g. x% of your pay), you are eventually going to reach a point where the size of your portfolio is so large that just the regular day to day prices changes are going to cause the value of your portfolio to fluctuate by the amount of your daily pay. And then your weekly pay. And then your monthly pay. – Colin Young Feb 9 '18 at 18:13
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    Also, the OP is asking what went wrong after only about 4 months of trading. – Eric Feb 9 '18 at 18:49
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    Good answer, but should also mention lack of diversity. "trying to pick stocks" touches on this a bit, but 70% in tech is something that should be more clearly called out. – Acccumulation Feb 9 '18 at 21:30
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    I think an extra couple of sentences on why it's a fool's game might be helpful. Specifically: there are people and firms who are paid billions of dollars to find and exploit inefficiencies in the market, so in fact the financial industry is very good at exploiting any low-hanging fruit such as you might be able to find. The act of exploiting an inefficiency corrects the inefficiency, so by the time you personally notice a potential inefficiency which would allow you to extract money predictably from the market, that inefficiency is very likely already gone. – Patrick Stevens Feb 10 '18 at 10:15
62

It's tech-heavy because I am a tech guy and I always feel comfortable investing in a tech company.

First, no you do not feel comfortable. You invested in an incredibly volatile company in a volatile industry and you're complaining about it on the internet to strangers in just a couple of months after investing when you've hit a relatively small decline. Re-evaluate your comfort level with high risk investing.

Second, that "strategy" is silly. Imagine if I said "I know how to play the piano, so I'm comfortable investing in piano manufacturing companies." Knowing how to program computers and knowing how to invest are two completely different things that have nothing whatsoever to do with each other.

What exactly I did wrong while investing in Google?

Who says you did something wrong? Maybe it will go back up a lot before you sell.

Now, maybe you did something wrong; if you did something wrong then what you did was bought a stock at the peak of its value. Don't do that.

What are the signals I should have considered while investing?

All publically available signals are already priced in to the stock. The signals you should be paying attention to are signals related to volatility, because you have far less comfort with volatility than you think you do.

Every buyer has a seller willing to sell to them. Everyone who sold you stock on those days you bought believed they were better off with cash than Google stock. Everyone like you who bought it believed they were better off with Google stock than cash. Plainly half those people were wrong. You happened to be in the "wrong" half.

What should my future strategy for this stock be?

Sell it all, harvest your losses to lower your taxes on the gains. Make a formal, precise list of financial goals, including appetite for risk, and research which investment classes best match those goals. Then carefully and prudently implement that strategy.

  • 20
    I disagree with the notion that one side of a stock transaction is always "wrong." You could be buying a stock from an automated bot that believes it will go down in the next 30 seconds, while you are buying it because you believe it will go up in the next year -- making it completely irrelevant what it does in the next 30 seconds. That, combined with the fact that the stock market as a whole gains in the long run, makes it possible for both sides to be "right." – tlng05 Feb 11 '18 at 19:14
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    @tlng05: Sure. There's also the question of utility. I might be willing to sell a share of Google today to pay rent, even if that means giving up future gains, because I need the cash for rent today. My point though is that people who invest like the original poster -- speculatively, with money they can afford to lose -- are expressing bets about the future value of various assets when they trade. Both sides in a trade think they are better off by making the trade, but often only one of them actually is, since their predictions are likely to be contradictory. – Eric Lippert Feb 11 '18 at 19:18
  • Now, maybe you did something wrong; if you did something wrong then what you did was bought a stock at the peak of its value Realistically, a large percentage of the time over the past hundred years stocks were at or near their peak value. – enderland Feb 13 '18 at 1:25
  • @enderland The stock market is often at an all-time high. Individual stocks rarely grow consistently like the overall market does, simply because virtually all companies decline and die over the years, which is partly why investing in single stock is much riskier than investing in indices. The average lifespan of an S&P 500 company is down to about 20 years. – D Stanley Feb 13 '18 at 2:43
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    "what you did was bought a stock at the peak of its value. Don't do that." - trying to time the market is strategy that will fail, except rare lucky cases. – Mateusz Konieczny Feb 13 '18 at 9:32
24

Check your price to earnings ratios and your price to book ratios for each of your assets. It has been an upward ride, so "foolish" stocks like Alphabet tend to rise faster. I would begin to consider purchasing, if it were me, at $225 per share. Whether I would pay that much would depend on a deep investigation of the firm's financials. I could see an argument made where it could be purchased at $450, but that depends enormously on a serious investigation.

The thing you may be forgetting is that tech is just a business like any other business. You can make a fortune buying stocks in companies that make noodles and lose a fortune in companies that live off of ads. The reverse is also true.

You should avoid paying more than 15 times trailing twelve-month earnings, though you can make exceptions if the operating cash flows and the operating earnings are persistently far apart for reasons that make the operating cash flows more indicative of the money a future shareholder would likely receive in dividends.

You should avoid paying more than 1.5-2.0 times book value after you have made adjustments to convert accounting values to economic values.

A PE of 15 covers most growth rates and most discount rates as the extreme upper bound for a purchase. You can go into the low 20's in the presence of a belief that returns will grow at upper twenty-something rates for a very long time.

Alphabet is a great firm, but a great firm at insane prices should be sold to the other person who doesn't understand the concept of present value.

The very first thing you should do, before purchasing a company, is to try and determine if there are fundamental risks to the survival of the firm. A cursory review of its balance sheet would imply there is no existential risk out there. Although I saw a few things that could trigger distant future concerns from a cursory inspection, there was nothing earth-shattering.

If you have decided that the firm will certainly survive, then you should look at its earning power. What is its capacity to build, grow and preserve earnings? Remember Yahoo was once Google and its profit centers were wider in scope.

After you have decided on its earnings power, you need to decide on a minimum rate of return that you will accept. I use twice the AAA corporate bond rate plus extra if I have concerns about the firm.

Once you have a rate, then you need to discount future cash back to present value. Again, for most things, that ends up being less than or equal to 15 times earnings. When firm prices are too high, people who could have purchased Alphabet can instead fund venture capital firms to find the next Google and eat its lunch. By being an initial investor in these new firms, the rate of return should be through the roof, instead of a subsequent investor such as yourself. It is more valuable to try and kick Alphabet out of the market than to buy it.

Imagine tomorrow morning, GOOG collapsed to $100. Then it would move from the foolish category to the wise category, and you should be loading up on it.

Once you have determined the health, stability, and earnings power of the firm, the price is everything. You want to buy low and then sell it to someone who doesn't know how to discount assets back to present value.

My reading of its SEC filings was cursory. I think there is an 80-90% chance I would own shares in Alphabet if I could purchase them at favorable prices. If it collapsed tomorrow to $100, I would probably buy call options contracts by the boatload so that I could have the time to read and review what I think is most likely an excellent firm. While I didn't really see any material worry in the firm, a cursory review is not due diligence. I have seen firms that looked fine upon cursory review and dreadful once you really read the notes and did serious analysis.

If you are sure of the firm's internal operations, financing decisions and potential in the next iteration of search and other markets, then get out a spreadsheet, pull the quarterly and annual financials as far back as you can go, grab the proxy statement and the initial prospectus and get serious about determining the upper and lower bounds of free cash flows. Discount them backward and make a fortune by underpaying for the privilege of being able to say you own Alphabet.

EDIT Per the request in the comments, I am following up.

I just taught a class today using Apple as the example firm. Now, after the fact, we know that buying one share of Apple at the IPO would send you on a very healthy vacation today. One hundred shares would make you a millionaire. This is known because history has played itself out. This was not known at the outset. Indeed, Apple almost went into bankruptcy on several occasions. Tools for pricing should embrace skepticism and an acknowledgment of the inability to predict the future. Indeed, if one views the price, dividend, income, and cash flow streams of the thousands of firms that have been publically traded, one becomes skeptical.

The use of a 15 PE, assuming the PE is a reasonable estimation of true operating earnings, comes from the fact that if you build a table of growth rates and discount rates, a PE of 15 sits near the frontier of reasonableness given the intrinsic uncertainty going into the future. I, for example, can think of one way to dominate Google's search engine. I am not going out to build an alternative because I have bigger things to do, but I would be surprised if the same idea hasn't crossed the minds of the executives at Google. It may not have. Yahoo's investors would be stunned at its downfall and the assent of Google. Nothing protects Google more than it protected Yahoo than it protected Alta Vista.

A PE of 15 is recommended because you are not a securities analyst and haven't been trained to critically take apart financial statements. A PE of 15 will keep you out of trouble. Could it be higher? Yes. A lot higher? No.

The recommendation of price to book of 1.5 to 2.0 assumes the book value is valid. In the real world, stated book values are a noisy estimator of true book value. I teach students how to restate book just as I have them restate income.

The issue with high price to book ratios, particularly if the industry or industry leader has them, is that they invite competition. It is costly to become publicly traded. This grants a moat around those firms that are already in the public domain because it is costly to go public. This allows a premium to book without a big problem until it becomes large.

Consider a firm with a real book value of $10 per share that is trading at $30 per share. An individual investor could pay $30 to buy one share, or (and this is a bit mythical because of the dollar amount in the example) invest $10 in three different firms to compete against the incumbent firm. The entire concept of venture capital is predicated on this.

Let us imagine that Google's earnings finally reach $50 per share and Google becomes a cash cow with no real growth past that point. At 15 times earnings, it would be worth $750 per share. Had you paid $225 per share, you would have made a profit. Had you paid $1000 per share you would take a loss, even though it performed well. This is what happened to RCA's investors. The highest price paid was twice the price it ever achieved again in the eighty years that followed until it was bought out by Bertelsmann. The actual internal rates of return vastly exceeded anyone's belief. TV, it turned out, was a big deal. Still, once the price peaked in the 1920s, it never recovered over its entire life.

Now I am not saying Google will top out at $50 per share in earnings. I have no clue. I don't use crystal balls. I don't care enough to really look at Google's drivers either. What I am saying is that over the space of all historical firms, including the most amazing, it comes to an end. It may take a long time, but it comes to an end.

Google is not the only firm on Earth. I did a search for underpriced firms and I was surprised at the names on the list. You would recognize quite a few of them. It is possible that Google's price will never fall again. They may have a secret hidden behind the curtain that will be brought out to the public in an announcement tomorrow morning that will materially change their earnings forever. I work with what I can see. It is a prejudice, but it is a protective prejudice.

EDIT I left out part of my prior comments, but it seems that @salmoncrusher is missing the concept of present value. Limiting the price to earnings ratio to under 15 is linked to the idea of a Kelly bet. A Kelly bet provides the highest possible long-run rate of return when you gamble on any random process.

If return, r, is defined as future value divided by present value minus one such as r=p(t+1)q(t+1)/[p(t)q(t)]-1, dropping the -1 has no impact on our conversation so we will do so. If we ignore bankruptcy, mergers, and stock splits to make the discussion a bit more simple, then we can define q(t)=q(t+1) for all values of t. This reduces the reward for investing to r=p(t+1)/p(t).

Now we can define a price to earnings function h(t)=p(t)/y(t) where y(t) is earnings. The reward for investing can now be thought of as r=h(t+1)y(t+1)/[h(t)y(t)]. We are also ignoring dividends as they just make the math complicated but with the same result.

If we define g(t)=y(t+1)/y(t) then we have our growth factor over the holding period. This could be converted to an annualized rate, but it isn't necessary for the point to be made. The reward for investing can now be defined as r=[h(t+1)/h(t)]g(t). Note that unless you buy out the shares of the firm and control the management then it follows that g(t) is not in your control. You can estimate it, but you cannot control it.

Now, let us imagine the price of GOOG is just a little higher so its PE is 60 instead of 56 so I don't have to do anything other than simple math. If the PE were 60 and it fell to the historical median price, then r=15/60*g(t)=.25g(t). In order to break even g(t)=4. The company has to quadruple its earnings over the holding period just to break even. Now, if the period of time is long enough, then this isn't a big deal. However, what if you wanted to be profitable? Let us imagine you wanted an 8% return.

1.08^t=.25g(t) so t=(log(.25)+log(g(t)))/log(1.08). If t=5 years, then g(t)=5.88. That is a 42% annual compounded growth rate in order to get 8%. Alphabet's earnings have grown at the very healthy rate of 14% per year, but not 42%. It could be it takes 10 years for Alphabet to revert to normal pricing, or 1, or 20. Still, the only thing an investor can control is the highest amount of money they would pay, which brings us to Kelly bets.

We cannot calculate a Kelly bet here for two reasons. The first is that this forum doesn't support mathematical notation and so it would be insane to even attempt it. I have no idea how to talk about integrals or derivatives here. The second is that it isn't really necessary to make the point.

As h(t) becomes smaller, r automatically becomes larger, regardless of the value of g(t) or h(t+1). The probability of accomplishing some goal increases if the goal can be stated in terms of something such as r>8% per year. In that case, the problem becomes a binomial which is convenient because most stocks lack a mean return because the density function cannot have one. If the limit book was normally distributed about the equilibrium prices, then in the example above, the density of r must be the truncated Cauchy distribution. See http://mathworld.wolfram.com/RatioDistribution.html for more information.

By being able to state a fixed minimum goal, you inherit the properties of the binomial distribution. As purchase price falls or as purchase PE falls the probability of accomplishing your goal increases and the variance of outcome decreases. This is due to the fact that the maximum variance of a binomial is at a 50% probability and falls when you move in either direction.

By exposing less money per unit of risk and by reducing the probability of goal failure, you have reduced aggregate risks. You can use this fact to construct optimal allocation rules under a Kelly bet. A limiting PE of 15 isn't sacred, I believe Benjamin Graham limited it to 20 for passive investors that didn't want high returns and didn't want to do much work, but 15 for investors who were looking for better deals and higher returns. See the Intelligent Investor by Graham.

Nonetheless, a low PE is protective and provides higher returns. If mathematical notation was allowed, then we could do a more formal discussion of the linkage between Kelly bets, price to X ratios, and the concept of present value.

  • 44
    You make a lot of claims like "You should avoid paying more than 15 times trailing twelve-month earnings" or "You should avoid paying more than 1.5-2.0 times book value". Do you have sources for this or is it personal experience? – Bananenaffe Feb 9 '18 at 9:55
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    Comments are not for extended discussion; this conversation has been moved to chat. As suggested, please edit any further details into the answer. – Ganesh Sittampalam Feb 9 '18 at 21:31
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    You seem to be saying that you would not buy $GOOG based on your knowledge and personal investment philosophy. That is at best tangentially relevant to the question of whether $GOOG is a good or bad investment for OP. Additionally, it is very strange that you seemingly take such care to preserve your capital but if $GOOG dropped you would "buy call options"; essentially a short-term directional gamble on the price. "A P/E of 15 will keep you out of trouble" is a rule that is much more likely to get you into trouble than you keep you out of it. – Salmoncrusher Feb 13 '18 at 5:46
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    @Salmoncrusher while it is based on my knowledge, it isn't a personal investment philosophy unless the idea of present value, Bayesian decision theory, and Kelly bets are personal philosophy. It isn't possible to completely answer if it is a good investment or bad investment for OP because OP didn't define good or bad. I know a person who buys Disney stock because they like the pictures on the certificates. That is how they define a good investment. Non-financial utility based answers require disclosures not made here. – Dave Harris Feb 13 '18 at 10:40
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    "Good or bad" IS dependent on your knowledge as an investor. The fact that you're unaware that Google is growing revenues at 20% and earnings even faster, does not mean that OP is unaware of this. The fact that you think that P/E is an adequate substitute for DCF for a growth stock does not mean that other investors agree. If you don't understand these things, then a P/E of 30 looks expensive and there is nothing wrong with not buying the stock. I'm not saying "you should buy Google" but you should probably learn the concept of DCF before you say that a stock is overvalued. – Salmoncrusher Feb 14 '18 at 15:41
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If there was an easy answer to your question, everybody would be millionaires.

I suggest reading "One Up on Wall Street" by Peter Lynch. After you are done with that, read "Security Analysis" by Graham and Dodd. Professor Graham was Warren Buffet's mentor.

The nature of many equities (like Google) is that their pricing far exceeds any possible value the company could have. The reason why is that the stock is being used to store wealth, like gold. Anything that is used as a store of wealth will have complex price dynamics that depend on a wide range of factors, including sovereign integrity (i.e., how good is the United States doing?) So, what this means is that the price of something like Google can be effected by random political events that you have no way to predict or control.

For a small investor, it is usually wiser to invest in "small cap" stocks that are easier to analyze and understand and are not subject to store-of-wealth issues. Peter Lynch discusses such things in detail. Read his book.

  • 2
    Would it not be easier still to not make individual decisions and invest in a broad fund that puts the burden on an experienced fund manager (or computer)? – Cloud Feb 9 '18 at 16:53
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    +1 for the phrase "If there was an easy answer to your question, everybody would be millionaires." – sdrawkcabdear Feb 10 '18 at 1:04
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    @Cloud, there's little to no evidence that "experienced fund managers" exist, or that they make a difference if they do. Streaks of funds beating the market average follow exactly the same pattern you'd expect if the manager was picking investments by throwing darts at a board while blindfolded. – Mark Feb 10 '18 at 3:19
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    @Mark Case in point, I remember an amusing not-really-scientific study where a stock-picking cat did better than a team of professionals for a while. – Nic Hartley Feb 11 '18 at 6:31
  • @NicHartley I would love to readt that, if you have a link haha – Cloud Feb 12 '18 at 10:18
14

It's tech-heavy because I am a tech guy and I always feel comfortable investing in a tech company.

That's a huge mistake. You're investing in your own industry, which is a lot like investing in your own employer. All your eggs (job, investments) are in one basket.

I'm reluctant to say "go the other way: choose industries that are orthogonal to your industry" for reasons I'll get into.

I wholeheartedly approve of timing the market, in the sense of Buy Low, Sell High. This is harder than you think: it precisely means buying when everyone else is panicking. Don't think of it as armageddon: think of it as "Wall Street is having a 50% off sale" That one comment, from an elder friend, got me back into investing after being spooked by my early trading blunders.

"Don't time the market" is really about lawsuit avoidance: brokers want rigid, pre-approved investment plans. While this is not negligent, it is also not agile.

On those stocks you have invested in, I would ease out of them, remembering the rule Buy Low, Sell High but completely ignore the past loss; that is irretrievable and behind you. Invest like you bought all that GOOGL stock today at today's price. Look only forward. Don't be talked into a "get out" panic sale, but also don't let your money languish in them when it could be put in better investments.

Factor for, as part of it, the painful bite of "short-term capital gains" tax on stock held less than one year. It is an ouchy 25-35% (same as salary) -- contrasted with >1 year "long-term capital gains" tax, which is 10-15%.


There are professional stock-pickers in New York with an army of staff doing research for them. They are the people who manage mutual funds, or buckets of many stocks. I gather you realize you can't do better than them, but you think you don't need to: the stock market is a tide that floats all boats, the opposite of a zero-sum game, and that just being in the game is likely to be successful. That is true.

But not all investments are equal, and that's where the New York funds managers -- Big Surprise! Read John Bogle's book. Turns out those guys suck too. Yes, they beat a monkey (market averages) - but not by enough to pay for their research staff. This overhead is typically 1.5%, and they don't beat the market (or the monkey) by that much.

You can't even do that. You can still win in a bull market, but you leave a lot of "win" on the table for somebody else to take.

Bogle's prescription is don't even pay the monkey - just plop the whole index into a bucket: an index mutual fund. Their overhead is 0.08%. The 1.42% difference is your gain (or avoided loss). A managed fund would have to beat the index by 1.42%, and they don't. That is the scientific method of getting every dollar on the table.

Upshot: you stink at picking stocks only because picking stocks stinks.

  • Is Bogle's book applicable to any market, or is it heavily geared towards the U.S.? – AnoE Feb 11 '18 at 20:44
  • @AnoE The principles are applicable anywhere multiple/numerous stocks are placed in a bucket and sold as a security. – Harper Feb 11 '18 at 22:32
  • However, chances are you're paying Bogle's company Vanguard... not that there's anything wrong with index funds, nor saying that index funds can't at least in part be blamed for the next big crisis caused by mindless investing. – Archimedix Feb 14 '18 at 11:55
  • @Archimedix Bogle has a right to profit from his idea, and Vanguard can prove they're only taking 0.08%, so I'm sympatico with that... if you're not, use Fidelity. Given the frosty reception I received here when floating the "what happens if everyone uses index funds" argument, I thought I was alone! However I don't believe they've done any damage yet. – Harper Feb 14 '18 at 16:22
6

You have to understand that months mean nothing. Even a couple of years mean nothing. Try 5 or 10 years.

What is the fair value of google, and I mean the value of the whole company? You didn't try to calculate that? There's your problem.

How do you think google is going to fare in the future? How is their business solid and protected from competition? You didn't think about that? There's your problem.

What do think of google's policy towards stockholders? You don't know? There's your problem.

Have you read any of the last annual reports? No? There's your problem.

You don't seem to have asked yourself any the relevant questions and are looking at meaningless charts.

2

Part of the reason for Google's fall in stock price might be bad analysis of fundamentals like the highly upvoted comment about P/E ratio. If you read Google's latest earnings report, they say

The Tax Act was enacted on December 22, 2017 and resulted in additional tax expense of $9.9 billion in the fourth quarter of 2017 primarily due to the one-time transition tax on accumulated foreign subsidiary earnings and deferred tax impacts.

They go on to specify

Diluted earnings per share, excluding the impact of the Tax Act (Non-GAAP)

to be $9.7 per share. The P/E you see was calculated based on quarterly earnings of –$4.35. If you use the tax excluding figure, you calculate $32 per share on the year, which makes their P/E 32.9, which is much more reasonable.

Also, I'm not sure, but Google's repatriation of its foreign earnings might provide cheaper capital for domestic projects.

  • 1
    A 32.9 P/E ratio still means that it takes 33 years of profit to pay for a share of stock, which is too rich for my stomach. – RonJohn Feb 13 '18 at 7:04
  • @RonJohn I don't think that's a good way to think about it. How risky do you think investing in Alphabet is? If it were risk free, then a 33 P/E is like a bank account that pays 3% interest, which is pretty awesome. Of course there's risk, but then there's also upside. – Neil G Feb 13 '18 at 7:08
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    Risk that the company will go bankrupt? Low. Risk that I overpaid and that sanity will eventually take hold, dropping the price? Higher. – RonJohn Feb 13 '18 at 8:55
  • @RonJohn No, risk that the cash flow will drop. – Neil G Feb 13 '18 at 19:39
0

Your "mistake" was not allowing for share price momentum (or "trend"): many investors use indicators that cause them to buy a share when the price is rising, and to sell when the price is falling - so rising prices tend to go too high, and falling prices tend to go too low. With heavily traded shares (like Alphabet), it's often easy to look at the 5 year chart and identify the four phases of trading - accumulation, markup, distribution, markdown (see the Investopedia "stock cycle" article). If you invest in the cycle at the wrong time, you will lose money in the short term, even if you choose a good company like Alphabet.

As to what to do in the future: IMO, most people will make more money by visiting a "financial robo advisor" and letting it choose a fund for them rather than directly buying their own shares.

-1

Maybe I'm wrong and is not the case here, but I've been reading about tech stocks and some years after hiring a lot of engineers, these engineers can cash out their stock options and go out to new ventures.

Engineers that are not stock investors and for them actual google price is too juice to say no.

Also a price like current one is a good time for investors to cash out and invest in small startups.

  • 2
    Welcome to PF&M. Please add a reference or calculation that shows that employees exercising stock options can drop a company's share price by 15%. – Rupert Morrish Feb 11 '18 at 19:58
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    @RupertMorrish where did they say that? – Tim Feb 11 '18 at 22:01
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    The OP: "Since then, the stock has been falling like hell -- has already fallen by ~15% from its peak. " – Rupert Morrish Feb 11 '18 at 22:30

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