Google Lockups

Consider from this weekend’s Barrons:

“Margins of the sort Google generates invariably attract new entrants, so it’s no surprise Microsoft wants a piece of the action. But the process invariably squeezes margins as companies spend to grab consumers’ attention. J.P. Morgan estimates Google itself will boost research and development spending 60% and sales and marketing expenses by 54% next year. If Google doesn’t continue to keep generating top-line growth, or R&D and marketing expenses increase even more, margins obviously would suffer. Whether Google’s inside shareholders will stick around to find out is another question. Lock-up restrictions on 270 million shares will be lifted within six months of the August IPO, including nearly 40 million later this month. CNET reported last week that the Web developer who drew those cutesy holiday logos for Google’s home page registered to sell 2,495 shares for a profit of $489,000 at recent prices. If you saw dot-com stock gains go up in smoke all around you four years ago, what would you do?”

What you should do is trade the trend. Don’t try and predict the trend, just trade it either up or down. If you get out now — what if the share price doubles? Forget price targets, they are not wise. Ride the trend as high as it can go, but just make sure you have an exit plan or go short plan at some point when the trend ends.