Response to Fortune Magazine article "Don't Go Gaga Over Google" by Geoff Colvin

To quickly summarize the assertions by Mr. Geoff Colvin in Fortune Magazine dated August 6th, 2007

- The business is dynamo, the stock is a pipe dream
- Earnings have been exceptional, with increased growth every year
- Only three companies have created more wealth (in respect to market cap) GE, Exxon Mobil, and Microsoft.
- Past performance does not always dictate the future
- Irrational valuations eventually correct themselves
- Google's economic value added (EVA), the dollar amount by which return on capital exceeds the cost of capital, will most likely fall short of expectations, pushing Google's stock price lower.

Colvin does a nice job getting to the point, while summarizing his valuation based on the EVA. Like Colvin, I tend to view a stock price from the efficient market hypothesis point of view, where all future dividends, profits, and expectations are already factored into the price of the stock today. However, this is a long term approach; therefore, interruptions and miscalculations by investors cause the price of the stock to vary in the short term.

However, the efficient market hypothesis claims that short term interruptions are not significant enough for the small investor to take advantage. This part of the theory I continue to question.

I think there are opportunities for the small investor to take advantage of these short term interruptions if they are willing to put in time to do research, follow a trading range (while remaining flexible to range changes), and accumulating both a short term and long term position.

Therefore, in a stock like Google (GOOG), an investor who remains bullish about the company should have both a short term and long term position, trading some within a range, and holding shares for the long term.

In the short term, I expect a lot of volatility from Google, from which a savvy short term investor could capitalize. However, in the long term, the market will get it right, and Google's share price will eventually move towards its efficient or actual value.

Recommendation: take both a short term and long term position in Google. Trading some shares due to minor market corrections, while holding some long term.

EVA recommendation: Eventually, Google will not make its lofty expectations regarding earnings, which should return the stock price to its efficient value.

I currently do not own shares of Google.

Book Review: The Wal-Mart Effect by Charles Fishman

Author Charles Fishman does an excellent job using facts instead of feelings to discuss the issues surrounding the largest company in the world. A renowned journalist, Fishman backs up his assertions using gobs of data and interesting short stories in this page turning non-fiction novel.

In using fact instead of opinion, he forces the reader to examine both sides of the hottest issues surrounding Wal-Mart, and their involvement in a decent society. Will the largest discount retailer in the world continue its expansion into other countries? How can they sell this stuff so cheap? What would Sam Walton think about his company today? Will same store sales continue to lag? How is globalization changing America?

If you really want to understand the inner workings of the company, and the "effect" of Wal-Mart worldwide, this book is a must read!

Rating: ****

Aluminum China Corp. (ACH)

In case you haven't been following individual stocks closely, the Motley Fool pointed out that Aluminum China Corp. is on the biggest one year gainers list.

I personally have not made money buying Aluminum China (ACH), but I know people who have. The fundamentals, if true, are remarkable. Even at the current price of nearly $70 a share (even after a 3:1 split a year and a half ago) the P/E ratio is around 5.

The thing that troubles me about the company is the industry. Typically metals and minerals are declared "safe and boring." However, Aluminum China is anything but; and I am still bullish due to industry averages. In the U.S., aluminum companies with P/E ratios under 20 are still considered "acceptable" as evidenced by Alcoa (AA) and Alcan (AL) with P/E ratios of 13 and 19 respectively.

With globalization, and China's rapid expansion, their economy still has room for maturation, which means potentially larger profits from both domestic and worldwide exports from Aluminum China.

Although it never hurts to take profits in the short term, especially if you are up significantly, I remain bullish on the stock long term. Current valuation is well below American industry standards, which could push the price even further.

Even if the stock were $150 a share today, the P/E would only be 11.8. Who knows, we may be headed for another 3:1 split.

Recommendation: Take both a short term and long term position, taking profits in the short term and holding some for the long haul.

I currently do not own shares of this company.

Buy and Hold Forever: What if I Want More!

Simply put, the only way to ensure a fair and decent return from common stocks is to own them all........yes, not one or two.........but the whole market. Total market index funds with minimal costs are still the best way to ensure success in the stock market, just as they were 30 years ago! Liquidity issues, the housing market, consumer slowdowns, inflation, etc..........None of this matters to the smart investor. Every month, every year, for your entire life just keep investing! And guess what? Who cares what the markets are doing! I DO!

Although indexing is the best thing going long term, what about some short term success? Is it possible? I will update regularly with news and comments, including current holdings along with buy, sell, and hold recommendations.

After all, a 100% indexed portfolio is boring and dull! So lets take 10% of the total value and play. Who knows, maybe we will hit a home run....