Google Gamble

It is likely that everyone who has been on the Internet has used Google to search for information. Now that the company has plans to offer more than $2.7 billion worth of shares of stock for sale to the public, many people are eager to invest in a company whose name is so familiar many use it as a verb. Because so many people know and love Google, the company may seem like a good bet for those seeking to make money in the stock market.

There are reasons to think so, especially because the company is turning a profit, somewhat of a rarity in the high-tech world. However, there are also good reasons not to get caught up in the mania surrounding the company’s expected summer initial public offering.

A primary reason to stay away from the IPO is that these frenzies tend to inflate stock prices. Similar high-tech IPOs attracted initial high prices but the stocks are now worth only a fraction of their early prices. Sycamore Networks, for example, went public in October 1999 at a price of $38 a share; it is now trading at $4 a share. Likewise, The Globe went public in November 1998 for $9 a share and is now worth 92 cents a share. At the other extreme, if someone bought $10,000 worth of Microsoft stock when it went public in 1986, he would be sitting on more than $3.5 million now.

Because Google stock will be sold through an auction rather than the traditional means of parceling shares out to brokerage houses that then sell them (often to their favored customers first), a lot of research must be done to come up with a good bid. Further complicating the task, bidders will not be able to see what others have offered. Google is expected to release a prospectus within the next 60 days that will include an estimated price range for shares to be sold during the IPO.

To date, Google has refused to divulge an estimated price range. Investor’s Business Daily recently asked its readers what they’d pay for Google stock. The answers ranged from 10 cents to $230 a share, showing that the whole venture is fraught with uncertainty.

The advice from investment advisers in Bangor and across the country is stay away from the IPO. Wait until the dust clears and there will still be plenty of Google shares to buy through the normal stock-buying process when the price is clear. If you can’t wait, read as much as you can (Google.com, naturally, is a great resource). And then invest only a small portion of your portfolio – no more than 5 percent – in the company, brokers say.

You likely won’t get rich that way. But neither will you have to search Google for ways to get out of debt when it turns out you paid way too much for the stock.