Sometime in 2003, I looked down at the FedEx package that had just arrived at the office and saw the silicon valley address of Google. I curiously opened the medium sized box to see what in the world could be inside. What was it? A black fleece blanket with the Google colored letters logo on one corner, and a simple card reading something along the lines of:
“Thanks for being a Google Adwords customer”
I tried to find a picture to show you, but I think we threw it away finally after using it under the Christmas tree one year and ironically, it was difficult to find a picture of one via a Google search (image searches remain one of their worst bits of technology in my opinion). But anyway, why are we talking about fleece blankets?
Because it’s the 10th anniversary of one of the most successful IPOs of all time, the now ubiquitous Google, providing us all with a rare chance to look back and see just how stupid we were to not get involved in that offering. How stupid were most of us? A $10,000 investment in Google at its $85 IPO price would now be worth $139,458.82 today, for a smooth 1,294% return, or about 30% per year. I’m sure more than a few of us could have found $10,000 somewhere back in 2004, and could use over $100 grand extra today!
Everyone knows the name Google by now, and even way back in 2003 most people knew what Google was and used it on an increasing basis. But how many people had gotten fleece blankets? And how many people in the financial world had gotten blankets?
Looking back now, I can see that I was not only an early adapter of Google Adwords, but also representative of just how powerful of a platform it could be. It was 2003 and we were a small company with 4 employees and about $600,000 in revenue spending about $50,000 on Adwords a year. That spend on Google seems excessive looking back on it today, but this was money well spent, with the bulk of our early business growth coming from “online” sources via traffic driven by Google Adwords.
What’s more – the altruistic founders Larry Page and Sergey Brin had decided on a Dutch Auction IPO, meaning that anyone could, in theory, participate at the offering price, not just the first trade price once it went public. The WSJ described the fairness of such approach:
“Fans of auctions say they are more democratic, because price is the only thing that determines who gets shares. A bid by Fidelity for 1 million shares would go unfilled if it fell below the clearing price; a retired teacher’s bid for 100 shares would be accepted if it was above that price.”
So, in review – I was intimately aware of the product, able to bid for IPO shares via the Dutch Auction, in the financial world, living proof that they had a very broad customer base willing to pay for online traffic, and financially able to invest $10,000 to $20,000. All systems should have been go, but how much did I actually invest?
Exactly ZERO dollars
Why not? The stars were aligned for me in a way they weren’t for the $1.9 Billion worth of money that did get involved that fateful day. What was I thinking? Well, it’s hard to remember what I had for breakfast yesterday much less what my mental arithmetic was 10 years ago. But they were the usual list of excuses along the lines of:
- $85 was too expensive
- I wasn’t going to make the same 1999 IPO mistakes again
- The initial value of the company would be over $20 Billion!! Way too much.
- I was going to wait for it to trade down and then get in
- The articles touting it as the “hottest IPO in years” made me nervous
- There were a lot of competitors like MSN Search, AltaVista, Looksmart, Yahoo,
- Microsoft could move in and reduce profitability (ha..)
- They wanted to be a “company that does good things for the world even if we forgo some short term gains.”
So why beat myself up about it now, 10 years later? Because if we can’t learn from missed opportunities, we’re doomed to miss them again and again. In my best Yogi Berra impression – if we can’t know now what we should have known then, we won’t know then what we can know now.
Fact of the matter is there was no process in place for me to recognize this opportunity, and weigh these mental ‘excuses’ against the probabilities that Google would become one of the largest and most profitable companies on the planet. It wasn’t my day job to analyze my use of the product and craft an investment thesis out of that use. We were (and are) after all, an alternative investment shop, not financial folks who did analysis on individual stocks.
And here’s the thing – almost nobody else got this ‘trade’ right. The IPO raised a mere $1.9 Billion, out of the roughly $40 Trillion in investable assets under management across the world, meaning only a select few who were really, really good or really, really lucky got it right.
The real lesson, perhaps, is that picking individual stocks is downright hard. Harder than Jim Cramer makes it look. Harder than it seems when reading the articles this week about Google’s 10 year anniversary of its IPO or Apple back at all time highs. It is so hard that professionals with decades of experience get it wrong. It’s so hard that the better approach for 99% of us is to simply buy a low cost index tracking ETF.
As someone, somewhere once said about something, which applies to stock picking: “Don’t quit your day job”.
- Jeff Malec, Attain Capital Founding Partner