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8:30 AM Tuesday, June 28, 2005: The "theory" is simple. To be seen as a successful mutual fund manager, you need to own Google (GOOG) on June 30 -- when your holdings are made public. That's Cramer's theory and it makes as much sense as any other. The second theory is that Google is more profitable and faster-growing than Yahoo! Therefore it deserves a comparable valuation -- at least around $350. The downside to it is Google's main business is falling apart as a result of click fraud and bad clicks -- ones that don't lead to a sale. I suspect we'll see another couple of days of Google price hikes until this Friday, July 1. At that point I'd take profits. The New York Times had a piece on them today. First, their chart.

Here's part of the Times' article:

At $300 a Share, Google Looks Pricey and Still Irresistible
SAN FRANCISCO, June 27 - David Edwards, a financial analyst with American Technology Research, wants to believe in Google. But how do you embrace a stock that has more than tripled in 10 months and cracked the $300-a-share barrier so quickly since going public that much of its growth potential seems already built into the price?

In early May, when Google was trading for $236, Mr. Edwards sent a note to clients of his firm, a group that includes wealthy individuals and money managers, recommending that they buy Google stock.

But Mr. Edwards, who has been analyzing publicly traded stocks for seven years, acknowledges that Google has him flummoxed now that it has sprinted past $300, to close at $304.10 on Monday, up $6.85. As the stock continues to climb as if it is 1999 all over again, many of his counterparts, including those working for more prominent investment banks, continue to recommend the stock.

Heath P. Terry, for instance, an analyst with Credit Suisse First Boston, predicted back in February, when Google was trading at just over $200 a share, that the stock would hit $275 within the year. When three months later the stock crossed $277, Mr. Terry raised his target price to $350, prompting several others to follow suit in the Wall Street equivalent of "can you top this?"

Mr. Edwards, too, says he believes in Google's long-term prospects, but he describes himself as stumped about the advice he should give clients in the short term. "It seems like everyone has jumped on the price-raising bandwagon, which has left me sitting here and scratching my head," he said. He does not have the conviction to advise clients to buy the stock, nor is he pessimistic enough to advise them to sell. "Let's just say if I was owning Google stock right now, I'd be selling some," he said.

Few if any are suggesting that the torrid rise in Google's share price signals an industrywide bubble as in the late 1990's. Google, based in Mountain View, Calif., had more than $3 billion in revenue last year, almost all from its advertising business, and its profits have increased more than sevenfold since July 2004.

By contrast, most of the dot-coms that flamed out so spectacularly in 2000 and 2001 never turned a profit, if they even had much in the way of revenue. Yet even some of those who were bullish on Google when it went public in August, at $85 a share, wonder if investors have forgotten some of the lessons of the 1990's.

Until recently, John Tinker, an analyst with ThinkEquity, a San Francisco-based investment bank specializing in growth companies, had set the highest price target on Google. Yet even Mr. Tinker uses the "B" word - bubble - when describing the market's giddy embrace of Google, even as he has a price target of $330 on Google.

"The good news is this is a one-stock bubble," Mr. Tinker said. "Remember, in 1998, everything went up. That's a huge difference this time."

At the close of trading on Monday, the cumulative worth of all shares of Google stock added up to $84.47 billion. That gives Google a market capitalization of nearly the combined worth of the other two publicly traded giants created by the Internet: eBay, worth $45.37 billion, and Yahoo, worth $49.83 billion.

Comparisons are also being made between Google and Time Warner, another company deriving the bulk of its revenue from advertising. Time Warner had a market capitalization of $79.19 billion at the close of the market on Monday, below Google's though it posted first-quarter revenue eight times that of Google, and profits about three times as large. ...

Any number of theories might explain the most recent run-up in Google's stock, which has risen 67 percent since April 1. Those range from data suggesting that Internet advertising revenue is rising by as much as 40 percent a year -- a trend sure to benefit Google -- to a herd mentality among mutual fund managers ready to declare that resistance is futile: to post the kind of returns that would put them in the upper echelons of performance tables, they need to own shares in Google.

"This is where you can say this is like 1998," Mr. Tinker said. "Institutions realize they can't afford not to be in, whatever the price." ...

John Battelle, the author of a book on Google called "The Search," to be published in September by Portfolio Hardcover, says it is only natural that people want to believe in Google. Those who wanted to believe that the Internet could make them rich might have learned a hard lesson in 2000 and 2001, but that did not mean the dream entirely died.

"If you really believe in something, you're looking for a place where you can prove you were right the first time," he said. "And Google is such a place."

Fudging one's credit card expiration date works: No one will give me a credit card with longer than a 3-year expiration. This is inconvenient every three years when Manhattan Cable says, once again, "I'm a deadbeat" and cuts off my service. So I give myself a longer expiration date. When they ask "When does your credit card expire?" I add a year or two. So far, it's been working. I wonder how many years I can add before their silly system catches me?

How much should you be earning on your cash? My savings bank is paying me 2.79% pre-tax. Emigrant-Direct will pay 3.25%. A three-month Treasury bill will give me 3.10% taxable by the Feds -- or 2.17% pre-tax (assuming a 30% federal tax rate and no local state or city taxes). My triple tax-free New York muni bond floaters are paying 2.51%. If I assume I'm paying tax at 35%, then the muni bonds are paying me the equivalent of 3.86% pre-tax. Hence, the muni bond floaters are my best deal. This week short-term rates will rise again. That will be nice.

Lateef's investment policy. Lateef is a money manager I'm looking at. I like what I read on their web site:

Following are some of our main investment criteria for identifying specific growth companies for investment. We like companies that ...

1. are industry leaders,
2. have proprietary products and/or special know-how in their respective industries,
3. are one-of-a-kind companies,
4. have low debt/equity ratios,
5. are in fields having high barriers to entry, i.e. limited direct competition,
6. are low cost producers and work hard at maintaining that advantage,
7. retain pricing power,
8. have the ability to self finance growth (finance growth from retained earnings),
9. have significant and sustainable competitive advantages,
10. have sustainable, above average profitability both in terms of operating margins and/or return on equity capital, and . . .
11. operate in open-end, growing markets.

Our valuation preference, when we find an outstanding leadership company, is that the stock of that company be depressed for some temporary, "non structural" reason, or from some misperception by Wall Street so that the earnings multiple of the stock is at a significant discount from return on equity (net income as a % of net worth, or equity capital, or book value).

Wimbledon today is quarter finals: Who can work when there's great tennis to wathc and play? Here's the TV schedule:

Odd Rabbi Out:
These four rabbis had a series of theological arguments, and three were always in accord against the fourth. One day, the odd rabbi out, after the usual "3 to 1, majority rules" statement that signified that he had lost again, decided to appeal to a higher authority.

"Oh, God!" he cried. "I know in my heart that I am right and they are wrong! Please give me a sign to prove it to them!"

It was a beautiful, sunny day. As soon as the rabbi finished his prayer, a storm cloud moved across the sky above the four. It rumbled once and dissolved. "A sign from God! See, I'm right, I knew it!" But the other three disagreed, pointing out that storm clouds form on hot days.

So the rabbi prayed again: "Oh, God, I need a bigger sign to show that I am right and they are wrong. So please, God, a bigger sign!" This time four storm clouds appeared, rushed toward each other to form one big cloud, and a bolt of lightning slammed into a tree on a nearby hill."I told you I was right!" cried the rabbi, but his friends insisted that nothing had happened that could not be explained by natural causes.

The rabbi was getting ready to ask for a VERY big sign, but just as he said, "Oh God...," the sky turned pitch black, the earth shook, and a deep, booming voice intoned, "HEEEEEEEE'S RIIIIIIIGHT!"

The rabbi put his hands on his hips, turned to the other three, and said, "Well?"

"So," shrugged one of the other rabbis, "now it's 3 to 2."

Harry Newton

This column is about my personal search for the perfect investment. I don't give investment advice. For that you have to be registered with regulatory authorities, which I am not. I am a reporter and an investor. I make my daily column -- Monday through Friday -- freely available for three reasons: Writing is good for sorting things out in my brain. Second, the column is research for a book I'm writing called "In Search of the Perfect Investment." Third, I encourage my readers to send me their ideas, concerns and experiences. That way we can all learn together. My email address is . You can't click on my email address. You have to re-type it . This protects me from software scanning the Internet for email addresses to spam. I have no role in choosing the Google ads. Thus I cannot endorse any, though some look mighty interesting. If you click on a link, Google may send me money. That money will help pay Claire's law school tuition. Read more about Google AdSense, click here and here.
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