EBAY RESPONSE

In response to a regular readers inquiry in regard to eBay, I quoted several sections from the annual report. As a private investor, I cannot make recommendations but I can report that eBay has been a very profitable holding for my family and that we intend to continue to hold. We bought more two or three weeks back when the stock was in the low 30's.

The numbers reported in the annual report are just like the ones for the past 10 years--truly remarkable. The room for continued growth was also made clear.

"...listed more than 1.4 billion items last year, a 45% increase from 2003."

"...successfully closed listing on eBay, of $34.2 billion in 2004, up from $23.8 billion in 2003."

"Operating profit grew more than 68%..."

"...free cash flows growing more than 95% to $992 million."

"2004 was a year of expansion...in India...Philippines...Malaysia...Korea...US (Rent.com)...Germany...the Netherlands...craigslist.org..."

"PayPal...adding 23 million new accounts in 2004 for a total of 64 million user accounts."

"PayPal now has more accounts than the total cardholder base of Discover and the account base of Bank of America."

I also wrote about the potential I see in China and in continued PayPal growth. No other company has been able to develop a system to compete directly with PayPal. American Express and Visa are not about to roll-over but PayPal is giving old systems a run for the money.

The stock has been and continues to be a very expensive stock. I wrote that my family has invested much more into CAL. CAL is considered by most to be a more risky stock than EBAY but not by me. When one buys EBAY around the current price, he pays $12.83 for $1 of sales. When one buys CAL at the current price, one pays $.09 for $1 of sales. Using Price to Sales as a guide, EBAY is 142 times the price of CAL!

I calculated this morning that my families position in EBAY is less than 1% of our total holdings. We are comfortable holding a very high priced stock as part of a portfolio of assets. We know that high priced stocks historically under-perform the market by a large measure. It is a very rare stock that can maintain a high valuation for decades and that is what it will take for EBAY to be a good investment from here.

A similar blog could be written about My family owns shares in each of these and our largest position is now in GOOG. Brokerage firms are making news as they announce price targets of $300 or better for GOOG. If I did not own the stock, it would be a tough decision to buy it at $270 per share. I believe it will be added to the S&P 500 before long but this is a relatively weak reason to buy a stock.

If I did not own, I would probably buy because the long-term growth is going to be very large from here. However, I am mindful of the many studies (Dreman, O'Shaughnessy, Siegel and others) that show poor long-term performance of high priced stocks. Growth is not as important as what you pay for growth. After the quick Google move from the $190 area to $270, one can argue that the market is now over-excited about the growth prospects. My family will hold onto GOOG, YHOO and EBAY. These bucking broncos should give us an enjoyable ride. Again, we hold a lot of other positions. I avoid mentioning all holdings and strategies (I'm not willing to freely give away all I have learned over the past 40 plus years of investing, but I am willing to assist with the management of portfolios).

BUY THE BIG BULL MARKET! JAPAN HAS FINALLY GOTTEN OVER THE BUST OF 1989! EUROPEAN CENTRAL BANKS ARE READY TO LOWER INTEREST RATES! THE US DOLLAR IS LIKELY TO APPRECIATE FOR THE FIRST TIME IN YEARS! US STOCKS ARE ON A ROLL! THE MARKET MAY HAVE MOVED TOO FAR TOO FAST BUT IT IS A MISTAKE TO PLAY THE GAME OF BUYING ON PULLBACKS! YOU MAY NEVER SEE THESE PRICES AGAIN!