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The Future of Making Money Online: Part 4 – Is Google A Sound Long-Term Investment?

1 October 2010 24 Comments

Last part in the series on the future of making money online.  Be sure to check out parts one, two and three prior to reading this.

In this part of the series, we’re going to shift gears slightly and look at Google as an investment.  I’ve laid out the case that I believe a shift is occurring in which search is becoming less important (still very important, but less).  Obviously, Google being the global leader in search for years now, this would have a very large impact on their business if indeed this trend is materializing.

Again, you need to read the previous parts to this series regarding search if you haven’t yet.

Buy & Hold Investing

Buy and hold investing is what most investors do.  Usually it’s via a passive investing vehicle like a 401(k).  What I want to look at here is whether Google (GOOG) is an appropriate long-term buy & hold investment.  By long-term, I mean 10-20 years and up.

The technology industry is a tough industry to find long-term buy & hold investments.  Obviously, companies like Microsoft (MSFT) have been good buy & hold investments to an extent, but again it’s difficult.  The reason it is difficult is because the technology landscape changes so rapidly.  The internet is no different as we’ve talked about already.

In fact, the internet might be even faster in terms of evolution than other forms of technology.  Something as large and as dynamic as the web is tough to control, tough to put inside a box, and tough to dominate for a lengthy period of time.  Google dominates the web right now, because they are sort of the gate keeper of the wealth of information that resides on the web.  You goto Google to find what you need.

If this changes, Google becomes much less important, and Google loses a large bit of control over the web.  Google’s control is a big part of their profitability.  If people don’t turn to Google, people won’t turn to Google’s advertisements which impacts the bottom line.

Investments I Like

I’m not a fan of buy-and-hold investing in the sense that most people do it.  Most people buy and hold a portfolio of stocks and would probably be better off just buying an S&P Index ETF.  The only companies that I do like to buy-and-hold are long-term dividend raising stocks that have a well established business, a solid competitive advantage and are in a fairly stagnant field.  The three that come to mind are Philip Morris Int’l (PM), McDonalds (MCD) and Wal-Mart (WMT).  Yes, much less sexy names when compared to high-flying Google.  Again, technology stocks are tough to buy-and-hold since it is such a rapidly changing environment.

Google is an incredible company and isn’t going anywhere, but buy-and-hold doesn’t apply to its stock in my opinion.

24 Comments »

  • TaJ said:

    The key to any investment is the question – how am I going to make money off of this? With a dividend stock, that question has an easy answer. A stock that doesn't pay out is much trickier… it's really more of a speculation on the asset than anything else.

    I'm pretty sure some of the index funds I own probably own Google stock, but I wouldn't want to own it as a stock pick. Not in this market environment.

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    I agree with this “Buy and hold investing is what most investors do.” That is why Google dominates the web for now and I’m sure it will last to the future.

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