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Proceed With Caution On Stock, Advisers Say


Google says it will allocate most of its IPO shares by auction. (Noah Berger -- Bloomberg News)

_____Live Online_____
Transcript: Leslie Walker will be online to answer reader questions about Google's IPO and its implications for the broader technology sector.
Google Timeline: It hasn't taken long for Google to grow into the world's largest search engine.
What Google Shouldn't Ignite: .com columnist Leslie Walker warns that "Google Gold could turn out to be Fool's Gold." (Apr 29, 2004)
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To Derive Bid, Use Dow + Pi Your Age (The Washington Post, May 2, 2004)
After IPO, Google Founders Plan to Remain in Control (The Washington Post, May 1, 2004)
Aiming to Auction Its Way To a More 'Inclusive' IPO (The Washington Post, Apr 30, 2004)
Taking Stock of Google (The Washington Post, Apr 30, 2004)
Google E-Mail Ad Plans Raise Fears About Privacy (The Washington Post, Apr 2, 2004)
Google Improves Searches In a Number of Ways (The Washington Post, Jan 18, 2004)
Google Fans Fill Web With Buzz Over IPO (The Washington Post, Jan 13, 2004)
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By Ben White
Washington Post Staff Writer
Saturday, May 1, 2004; Page E01

So maybe you can get in on the Google IPO. But should you?

That question burned up Internet chat rooms and dominated talk among investment advisers yesterday. The consensus answer: If you have some extra cash and want to gamble, go for it. But if you are looking for a safe investment, or a quick buck, you had better think twice.

"We've been wresting with the question all morning," said Stephen C. Thormahlen, president of Fiduciary Investment Management International Inc. in the District. "Do you try to participate in the IPO or wait to see where it settles in the after-market? . . . Right now, I'd have to say at least wait and see where it shakes out."

No one knows, of course, whether Google's initial public shares will turn out to be the investment opportunity of the decade, another dot-com mirage or something in between. But for now, many investment advisers predict that the tremendous hype surrounding Google's long-anticipated offering will drive up prices for the company's unique share auction. Such a spike would enrich company founders who sell their shares but possibly lead to a significant drop once the stock starts trading on the open market.

Such a drop in price theoretically could accelerate , money managers said, if IPO investors see shares start trading below what they paid and decide to quickly bail out and cut their losses.

"It's generated so much excitement that the bids might just go too high," said Michael Obuchowski, money manager at Altair Investments in New York.

Google announced Thursday that it would allocate most of its IPO shares through an auction system little used in the United States. Investors with brokerage accounts at firms underwriting the IPO will be able to bid for how many shares they want and at what price. Morgan Stanley and Credit Suisse First Boston are the only listed underwriters of the offering, but other big brokerage firms will be added.

Google and the underwriters will use the bids to determine a "clearing price," the highest price at which all the shares can be sold to prospective investors. Anyone who submits a bid at or above the clearing price will be eligible to receive shares. The company said it will use the clearing price as the "principal" factor in determining the IPO price but could also decide to offer the shares at a lower price.

"If you really want it, you have to bid high," Obuchowski said. "But you could also go low and see what happens. You might not get" shares, but you also won't take as much risk.

Obuchowski added that the worst possible choice would be to make a high bid for a large number of shares simply because you love using Google. "When you are emotionally involved in a stock, you know you are doing something wrong," he said.

Advice on investment Web sites followed a similar line. Bob Babala, managing editor of the Motley Fool Web site, warned investors about Google's short track record and the long history of poorly performing technology IPOs.

"[W]hile any successful dot-com is a liberating prospect for investors burned by the crash of so many dot-bombs a couple of years ago," he wrote, "caution is always the best recourse when you're considering IPO's."Fane Lozman, a veteran day trader and founder of market analysis site, said he might short Google stock, a strategy that means he would profit if the share price fell. "The smart day trader will look for that stock to fade off just like all the other jacked-up dot-coms," he said.

For investors who don't get any initial shares, the question will be whether to buy them once they start trading. Some say yes, because the firm is profitable and enjoys almost total dominance in the search engine market.

"From what I've seen, analysts seem to be pleasantly surprised at the size of the company and its profitability," said James Luke, director of growth equity investing at BB&T Asset Management in Raleigh.

But Luke said he would like to see more than one set of good numbers before advising clients to buy shares. "My basic position would be, let's see how it does over the next two or three quarters. . . . I'd rather buy later when it's seasoned just a bit more in the market."

Others were even less sanguine. Henry Cavanna of Cavanna Capital Management said the Google hype is "more a comment on human nature and market psychology" than on the company.

But Cavanna said investors with a little extra cash and an appetite for adventure might consider bidding. "If that kind of thing attracts you," he said, "then I suppose you take the risk." Home

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