Let Me Explain

For those of you who have read this website in the past few days, you know I came to you with an idea of essentially scalping profits from a trade in GOOG. Obviously that did not work out. I lost money, as did pretty much who owned GOOG heading into today. Now it is the stock market and I understand that there is plenty of risk present in the market. This however, was caused as a result of stupidity, panic and generally a lack of independent thought.

For those of you who were focused on GOOG today here is a rundown on what happened. Essentially CNBC broke a story about the Google CFO warning of slowing growth. What followed was probably the fastest drop in a stock I have ever seen. It went from $395 to $340 in a matter of I am going to guess 3 minutes. Now in pure dollar amounts that is a huge move. My portfolio was bleeding red.

Now what I believe happened was a disconnect between what I think is reality and perception. Now I don't feel like pasting the quote here but essentially the GOOG CFO explained how once your company gets so large, growth inevitably slows. He was essentially explaining a concept of basic math that when numbers get large they must grow even more in absolute dollar amounts to keep the same growth level percentage wise.

Here is an example:


86.4 439.5 1,465.9 3,189.2 6,138.6 9,200.0
408.7% 233.5% 117.6% 92.5% 49.9%

Thats right. You see as the numbers continue to get larger the percentage difference shrinks although the absolute level increases. I know it is an amazing comment. For those of us keeping score, those are the revenue numbers Google has reported from the year ended 12/31/01 to the estimates for the end of this year. As you can see, the revenue growth has slowed, and in fact is projected to post slower revenue growth this year. Yes, I know it is kind of amazing.


So basically we had a stock sell off because traders do not know how to do math. Ohh, yeah and then around 5:00 Pacific Google sent out this:


MOUNTAIN VIEW, Calif.--(BUSINESS WIRE)--Feb. 28, 2006--George Reyes, Chief Financial Officer of Google Inc. (NASDAQ:GOOG - News), participated earlier today in the Merrill Lynch Internet, Advertising, Information, & Education conference. At this conference, Mr. Reyes made remarks regarding, among other things, revenue growth trends and expected sources of revenue growth.
We would like to clarify and provide further information on these statements. As we have stated before, monetization improvements will continue to be a key factor in driving future revenue growth. We still see significant opportunities to improve monetization and intend to continue to focus our efforts in this area.
Moreover, as we have stated in our SEC filings, our revenue growth rate has generally declined over time and we expect that it will continue to do so as a result of the difficulty of maintaining growth rates on a percentage basis as our revenues increase to higher levels.




---Ohhh wow, whoops! Maybe we screwed up and sold this stock down because we panic, we get nervous, and sometimes fear causes us to want to protect ourselves. I went out on a limb todayand bought this stock. I bought alot. I am basically betting that in the end people will figure it out. If not, I will lose huge, but basically I view today as one of those academically non existent inefficient markets and I am betting in the end Google will go higher.

any thoughts: randommarketthoughts@gmail.com