Google’s Quest
Pfäffikon SZ, Switzerland – For investors, 2014 has had a bumpy start. Global concerns remain, China is stagnating and there is a possible further interest rate rise in the U.S. later this year. In Europe, France is playing with fire as you already know. Russia needs to reform according to the OECD, a subject that I will come back to in a later column. The process in Russia is fairly predictable; eventually the hefty discount provided to the West will be eliminated. Furthermore, this is a long term process. Many investors today do not have the patience anymore.
For the long term, I am positive on the equities asset class. Lately, I have been increasingly thinking back to the nineties of the last century. Then, as now, it seemed unbelievable that the economy could move on. Later a new economy emerged, which, of course, did not really exist. The so-called burn rate is still a nice term from that time. Maurice de Hond can precisely explain how that works.
Greed
Eventually the madness culminated in the famous internet bubble where greed had the last move. Many investors, I prefer to call them speculators, still feel the pain from the idiocy. But prices increased for years in succession before that. 2013 was a good year for many equity investors. I do not rule out the possibility that the coming years will also end positively with 2014 acting as a gap year. Much will depend on the growth in the U.S. But the path to higher rates will be erratic and volatile. That’s why I see many similarities to the nineties. Even now, many companies are involved with very impressive technologies and these companies may become targets for acquisition. This may just bring back the feel good factor to the stock market. Additionally, there are believers who won’t believe their fads are simply hype. For example, as a value investor I intend to stay far away from Bitcoins.
Future Purchases
This week, there was a press release about a company that clearly wants to buy the future. Google bought Nest Labs for $3.2 billion. That’s a drop in the ocean for Google. We were already aware of the company through the investment vehicle, Google Ventures, which I think is a very good initiative by the search giant. I believe Google to be a great company in many ways. Doubters will frown and think of the word, ‘privacy’. However, my interest in Google is as a Fund Manager.
A lot is said about Google. In the past year we have received hundreds of e-mails and alerts telling us why we should sell Google. But I believe Google is widely misunderstood. It is company that is well-positioned to take advantage of the migration of on-line advertising budgets. I think Google will continue to strengthen its leading position in the coming years. Online video appears to be the ideal, additional way to reach TV consumers. This target audience is very important for most TV advertisers.
The Conscious Home
With Nest Labs, Google is entering your living room. A very interesting development. Honeywell probably never imagined that Google would be a competitor. For Google, it is the second largest acquisition ever. Nest Labs is busy working on smart thermostats and interactive smoke detectors. Tony Fadell, the CEO of Nest Labs, is a former Apple employee and one of the founders of the original iPod. He is working towards ‘The Conscious Home’, a household that adapts to its inhabitants. With a little imagination, the possibilities are limitless in a still totally unexplored area.
Slowly Google is tying up all the loose ends and in this, it is unique – something I, as an investor, love. For the next decade I remain excited about Google. Our plan is not to sell but to take advantage of buying opportunities during the potential market correction that may occur in the coming months.
And there is more
Finally, I would like to point you towards a recently published documentary about the great hedge fund hero, Steven A Cohen of SAC Capital Advisors. It involves securities fraud in combination with insider trading. Cohen describes the securities laws as vague and requiring clarification concerning the general rule that prohibits insider trading. To find good investments, insider information is not required.
It remains for me to wish you a good weekend.
Jan Dwarshuis is a senior asset manager at Thirteen Asset Management AG, where he is responsible for the Thirteen Diversified Fund. Dwarshuis writes his columns in a personal capacity and is not paid for them. Nor is he paying for his columns to be placed. Professionally, he holds positions in major European, American and Russian stock funds. The information in his columns is not intended as professional investment advice or a recommendation to make certain investments. At the time of writing, he has position in Google and no position in other above shares and has no intention of doing so in the next 72 hours.
