Stalking the market

By Greg Ellis

“The stock market is Las Vegas without the hookers, blow and dependable odds.”

– Dennis Miller

As befuddling as the charts, graphs and ratios are, the one thing that seems to elude all stock market investors is that the system is a human one. Analysts apply various quasi scientific theories to stock performances; forward looking and trailing ratios, cash flow and earnings per share, banking on the market to make sense and act accordingly. They quickly become disappointed, however. It should really come as no surprise, as the expectation for the market to behave rationally does not fit well with the fact that humans are irrational creatures.

The NASDAQ and SP 500 are at four and half year highs, GM shares at a 23 year low, gold at an 18 year high, oil retreating to a five month low only to rebound and Google hitting an all-time high of $424 per share. Google currently represents the supernova leading the fourth quarter tech rally. Scoffed at by Wall Street’s brilliant minds when it was at $85 per share back in August 2004, the shares have currently returned around 370 per cent and new predictions say it will go as high as $500 per share making it one of the top 20 most valuable US companies in terms of market capitalization.

Why not? It’s a search engine and that’s exciting. There is, however, an odour to Google–one that is oddly reminiscent of the tragic tech bubble of Spring 2000. Make no mistake, while Google is a real company with real earnings and stupendous growth, Alan Greenspan’s ominous warning of “irrational exuberance” is holding a pattern around its stock.

Yes, internet advertising is the fastest growing sector of advertising in the world, but how long can Google keep smashing the the Street’s expectations? Let’s not forget how young this company is and stop comparing it to the dot com shams that were its predecessors.

Each month brings a new stock market sentiment and as the market surges to lock in gains and claim tax losses during the Santa Clause rally. I can’t help but remember what Mark Twain said about stocks in October.

“October: This is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.”