Google’s Stock Split
Hi Readers! Apologies for the extended absence from this blog. Sometimes life comes up and something has to give, and that something happened to be this blog this time around.
I wanted to write a quick post in response to Google’s announcement this evening that they will be issuing a stock split and doing a couple of other unusual things. I should note that I am in fact a shareholder, although my total investment in the company is rather low. Still, better to include the disclaimer than to leave it out.
For those who are not aware, Google (GOOG) went public back in 2004 and in their initial public offering included a somewhat unusual letter documenting the company’s values and approach to management by a triumvirate, led by then-CEO Eric Schmidt and the two co-founders of the company. At the time the leadership specified that their intention was to follow Berkshire Hathaway’s model set by Warren Buffett and never split the stock. They also issued two types of stock, one only available to company insiders that held rights to 10x the voting power of the publicly-available shares.
In today’s earnings report, which included a significant increase in earnings from last year, CEO Larry Page announced that the company will be issuing a stock split on the publicly-available shares. However, rather than issuing two of the same type of share for each current share held, they will be creating a new type of share with no voting rights and issuing one of those for each currently-held share. What this in effect does is consolidate even more voting power into the hands of the executives.
At some level I can understand this approach, as the company is trying to protect against voting dilution through the likes of employee stock grants and options. In addition, Google tends to take a long-term view, and aims to avoid the shareholder quarter-by-quarter earnings view that plagues many companies. Nevertheless, what they have done here seems a bit deceitful. All this stock split serves to do is to consolidate power in one direction. Under normal circumstances, a split will make shares cheaper and more accessible to everyday buyers. However, it’s clear that no one will willingly choose to buy shares for the same price that come with no voting power, which implies that the new class of shares should be worth less. Since the share prices should remain consistent with one another, this could drive share price down, allowing the company to buy more shares back and control even more voting power.
I’m personally going to hold the stock as Google continues to practically print money. In the long term, though, I’m not sure it’s wise to invest in a company that will actively find ways to screw over the owners of said company. Nevermind the fact that these are the same guys who said they’d never do a stock split.
Don’t jump at that job just because it comes with a higher salary!
This post is topical for me given some things going on in my life (if you can’t figure them out I won’t spell it out, but you probably can). I will likely write more about this in the future, but for now, I thought I would explore the implications of weighing a job offer when you are already employed.
What is a flexible spending account?
Every year your employer asks you to enroll in their benefits plan, including medical, dental, and vision coverage. They likely tout their discount program (which I’ve never found to be worth squat at any employer I’ve worked for) and employee support phone number. But one benefit you may be passing up every year is the flexible spending account, and if that is the case I strongly recommend that you reconsider.
Would a motorcycle or scooter save me money?
My mother would not be happy that I’m writing this post, as she always told me that only an idiot would put himself on a motorcycle. I guess she never thought about gas prices!
You should be investing in index funds
Thanks to reader Jim (jlcollinsnh) for the motivation to write this post. Jim runs his own blog at http://jlcollinsnh.wordpress.com and has also explored this topic a couple of times. If you ever have a topic you’d like me to explore on this blog, please reach out!
I have a secret to tell you. There are some really smart people who work in finance. Really, really smart. And they have really powerful computers. Much more powerful than your MacBook Air. And they spend all of their time focused on how to leverage their money using calls, shorts, and other technical financial vehicles I don’t really understand. They study this stuff, they spend hours poring over company reports and balance sheets, and they often understand the industries their investments are involved in really well. And you cannot beat them.
Retirement Goal – January 2012 Results
One of the goals of this blog is to inspire others to achieve their own financial independence. My hope is that documenting my own journey towards this goal serves as motivation to others. For the sake of anonymity I do not disclose too many details, but I know I find it fascinating to see how others are doing in their goals, so it’s only fair that I share too.
The hidden costs of fancy hotels
I’m spending another weekend traveling as I write this, and just as with my post on overpriced restaurants, this trip got me thinking about the rip-off that is the fancy hotel. I enjoy a nice place to stay as much as the next guy, but when pricing out your next hotel stay, you should really consider the overall cost instead of just the number Expedia or Priceline is showing you.
