You know a product has “made it” when it’s added to the popular lexicon. For example, we don’t use a bandage on a booboo; we use a band-aid. People don’t order a cola; they order a coke. And when we want to find more information about something we don’t say, “do an internet search.” We say “google it.”

Google has “made it.” People love the search engine. They also love the email and mapping services Google offers, too. I love the free software and hosting service Google offers for this blog.

And investors love the stock.

At the current price of $300 per share, investors love the stock enough to give it a multiple of over 80 times its earnings of the past 12 months. (This compares to roughly 30 times for Yahoo! and 25 times for Microsoft.) Jim Cramer, of CNBC’s “Mad Money” fame and a prominent Google-lover, recently argued that the stock is actually undervalued and should trade closer to $400 per share.

But I think that the most enlightening way of looking at Google’s valuation is to look at its total market capitalization of $82 billion. For purposes of comparison, let’s look at the valuation of a few other media companies.

Omnicom, the largest advertising agency in the world, carries a market cap of $15 billion. Gannett, publisher of 101 daily newspapers including USA Today and owner of 21 television stations, is valued by the market at $18 billion. Yahoo!, probably Google’s closest competitor, trades for $48 billion. Put all of these together and they still don’t add up to the current market value of Google.

Another interesting comparison can be made with Time Warner. Time Warner, one of the largest and most successful media companies in the world, carries a market capitalization of $77 billion, or $5 billion less than Google.

Remember that Google’s main business, its only real profit engine, is search (actually the advertising revenue attached to the search engine).

Time Warner, a media behemoth, owns, among other businesses, Warner Brothers and New Line Cinema, creators of the Lord of the Rings and Harry Potter movies. It also owns the HBO, TBS, TNT, CNN, CNN Headline News, the WB, and Cartoon Network television channels. In addition, the company owns Time Magazine, People, Sports Illustrated, Entertainment Weekly, Fortune Magazine and one of the largest cable television providers in the country. And I shouldn’t forget to include that other little internet company owned by Time Warner, AOL.

Comparing the two companies, any rational person would have to say that Time Warner is a much more valuable company simply for the diversity and competitive strength of their individual businesses. Or take our hypothetical conglomerate of Omnicom, Gannett and Yahoo! I can’t imagine anyone, besides madman Jim Cramer, truly believing that Google could be more valuable.

In contrast to Cramer’s $400 per share price target, John Hussman, one of the smartest investors I know of, has written that he can’t find any way Google should be priced over $30. This difference of opinion, of course, is what makes a market.

One of these guys, however, is wrong.

It comes down to this: either all of our comparison companies are drastically undervalued or Google is drastically overvalued. And if you believe the former to be true, I’ve got a boatload of stocks to sell you.

That doesn’t change the fact that Google has a great product. I love Google… just not its stock.
LIV

You know a product has “made it” when it’s added to the popular lexicon. For example, we don’t use a bandage on a booboo; we use a band-aid. People don’t order a cola; they order a coke. And when we want to find more information about something we don’t say, “do an internet search.” We say “google it.”

Google has “made it.” People love the search engine. They also love the email and mapping services Google offers, too. I love the free software and hosting service Google offers for this blog.

And investors love the stock.

At the current price of $300 per share, investors love the stock enough to give it a multiple of over 80 times its earnings of the past 12 months. (This compares to roughly 30 times for Yahoo! and 25 times for Microsoft.) Jim Cramer, of CNBC’s “Mad Money” fame and a prominent Google-lover, recently argued that the stock is actually undervalued and should trade closer to $400 per share.

But I think that the most enlightening way of looking at Google’s valuation is to look at its total market capitalization of $82 billion. For purposes of comparison, let’s look at the valuation of a few other media companies.

Omnicom, the largest advertising agency in the world, carries a market cap of $15 billion. Gannett, publisher of 101 daily newspapers including USA Today and owner of 21 television stations, is valued by the market at $18 billion. Yahoo!, probably Google’s closest competitor, trades for $48 billion. Put all of these together and they still don’t add up to the current market value of Google.

Another interesting comparison can be made with Time Warner. Time Warner, one of the largest and most successful media companies in the world, carries a market capitalization of $77 billion, or $5 billion less than Google.

Remember that Google’s main business, its only real profit engine, is search (actually the advertising revenue attached to the search engine).

Time Warner, a media behemoth, owns, among other businesses, Warner Brothers and New Line Cinema, creators of the Lord of the Rings and Harry Potter movies. It also owns the HBO, TBS, TNT, CNN, CNN Headline News, the WB, and Cartoon Network television channels. In addition, the company owns Time Magazine, People, Sports Illustrated, Entertainment Weekly, Fortune Magazine and one of the largest cable television providers in the country. And I shouldn’t forget to include that other little internet company owned by Time Warner, AOL.

Comparing the two companies, any rational person would have to say that Time Warner is a much more valuable company simply for the diversity and competitive strength of their individual businesses. Or take our hypothetical conglomerate of Omnicom, Gannett and Yahoo! I can’t imagine anyone, besides madman Jim Cramer, truly believing that Google could be more valuable.

In contrast to Cramer’s $400 per share price target, John Hussman, one of the smartest investors I know of, has written that he can’t find any way Google should be priced over $30. This difference of opinion, of course, is what makes a market.

One of these guys, however, is wrong.

It comes down to this: either all of our comparison companies are drastically undervalued or Google is drastically overvalued. And if you believe the former to be true, I’ve got a boatload of stocks to sell you.

That doesn’t change the fact that Google has a great product. I love Google… just not its stock.
LIV

I have written in the past about the culture of America becoming a culture of gambling. The evidence is seen in people buying stocks despite minuscule yields and historically overvalued prices; it is seen in the wide acceptance of “junk” bonds; it is seen in the rampant speculation in real estate; and it is seen, most obviously, in the popularity of poker-realted television shows and web-sites.

What I have not discussed adequately is the risk participants in today’s asset markets face. People buying stocks, many types of bonds and real estate, are playing Russian Roulette with their finances. There is a live round in the chamber and it represents the makings of a crash.

Admittedly, a crash in the financial markets is a rare thing. A crash in real estate is even rarer still. However, every crash I can think of has occurred when prices were inflated beyond reasonable levels.

The stock market crashes of 1929 and 1987 followed bull markets that carried prices too far by valuation measures. (Not even as high as today’s levels, however.) The Los Angeles real estate boom of 1887 and Florida real estate boom of 1926 both ended in crashes. Real estate in Japan, after exploding in price through the 1980’s, didn’t technically crash but after more than a decade of annual price declines I think any Japanese would probably say it has been even more painful than a crash.

The lesson to be learned from history, a lesson that the general public has obviously not discovered, is that overvaluation necessarily leads to sub-par returns and, at times, crashes in the asset markets. Overvaluation is a bullet in the chamber.

I am not suggesting, in any way, that a crash is on the horizon. I am merely suggesting that there is a greater-than-normal chance we may see a crash in one or all of these markets at some time in the future. After all, while five of the chambers may be empty, the sixth is, indeed, loaded and American “investors” just keep smiling and pulling the trigger.
LIV

I have written in the past about the culture of America becoming a culture of gambling. The evidence is seen in people buying stocks despite minuscule yields and historically overvalued prices; it is seen in the wide acceptance of “junk” bonds; it is seen in the rampant speculation in real estate; and it is seen, most obviously, in the popularity of poker-realted television shows and web-sites.

What I have not discussed adequately is the risk participants in today’s asset markets face. People buying stocks, many types of bonds and real estate, are playing Russian Roulette with their finances. There is a live round in the chamber and it represents the makings of a crash.

Admittedly, a crash in the financial markets is a rare thing. A crash in real estate is even rarer still. However, every crash I can think of has occurred when prices were inflated beyond reasonable levels.

The stock market crashes of 1929 and 1987 followed bull markets that carried prices too far by valuation measures. (Not even as high as today’s levels, however.) The Los Angeles real estate boom of 1887 and Florida real estate boom of 1926 both ended in crashes. Real estate in Japan, after exploding in price through the 1980’s, didn’t technically crash but after more than a decade of annual price declines I think any Japanese would probably say it has been even more painful than a crash.

The lesson to be learned from history, a lesson that the general public has obviously not discovered, is that overvaluation necessarily leads to sub-par returns and, at times, crashes in the asset markets. Overvaluation is a bullet in the chamber.

I am not suggesting, in any way, that a crash is on the horizon. I am merely suggesting that there is a greater-than-normal chance we may see a crash in one or all of these markets at some time in the future. After all, while five of the chambers may be empty, the sixth is, indeed, loaded and American “investors” just keep smiling and pulling the trigger.
LIV

Recent reports about a study conducted by researchers from Australia and Finland declare Linus Pauling was wrong, “vitamin C Doesn’t Cure the Common Cold.”

If the reporters of the stories had taken the time to read Pauling’s books they would realize that the recent research, in fact, actually verifies his claims!

To clarify, Linus Pauling never said that vitamin C was a miracle drug that could cure the common cold. He merely hypothesized that it could improve people’s overall health by some measure and that it had some benefit in managing the common cold, including reducing the incidence and duration of colds.

His thesis was basically this: one drawback to human evolution is that our bodies lost the ability to naturally produce vitamin C. Nearly every other animal on earth retains this ability.

In addition to humans, gorillas, guinea pigs and fruit bats, are the only other mammals to have lost the ability to produce vitamin C internally. These other animals, however, are all vegetarians and thus get an adequate amount of vitamin C through their diets (for example, gorillas eat 50 pounds of fruits and veggies a day!).

Pauling recommended that, having given up vegetarianism as a species long ago, human beings should supplement in a similar amount to that which the average animal creates naturally, 10 to 12 grams (10,000 to 12,000 milligrams). Either that, or eat 125 to 150 oranges per day.

Back to the study. Even though it used much smaller doses than Pauling recommended (200 mg versus the 1,000 mg minimum espoused by Pauling) it still bears out his hypothesis.

The reports reveal that:

“People who had taken vitamin C before developing symptoms tended to have a 14 percent reduction in the duration of the cold.”

“People exposed to extreme physical exertion or cold weather… had a 50 percent reduction in the incidence of colds.”

“Patients… [who] used a single massive dose of eight grams of vitamin C on the first day that respiratory symptoms appeared, experienced a shorter illness than those taking placebo.”

(Pauling specifically recommended this last technique. Also note that the “massive dose” is still below what Pauling considered average.)