By the way, I’ve also read The Undercover Economist - makes some interesting points I hadn’t considered before.

I read some good news about the industry today; well, good new for the consumer, Ofgem are investigating the industry. I rest of the article is at UK energy guide.

The Wikipedia article he refers to mentions an example with “regression towards the mean” where students take tests and get scored. The article goes on to say that “scores are a combination of skill and luck. If you choose a subset of people who score above the mean, they will be (on average) above the mean on skill and above the mean on luck. On a retest their previously above-average luck will revert to about average. They will therefore score above the mean due to their above-average skill, but not by as much as they did the first time because they will not be as lucky as they were the first time.”
So how does this apply to Google? I think every one would agree that they have had luck, but have they also had skill? The skill will not necessarily regress towards the mean, only the luck will. So has Google results been because of 25% luck and 75% skill, or was it 75% luck and 25% skill. If it was more luck than skill, then yes, regression towards the mean would pull them back to, well, the mean, but that would happen already on the second or third test. For a company like Google, every quarter is a test, regression towards the mean should have pulled them down long ago, in what I read about it there isn’t anything that says you can have 12 good quarters and one bad and THEN regression towards the mean kicks in.
Mark Hines then goes on to talk about Google’s paid search advertising, that “they will eventually need to find new sources of growth” and that “recent initiatives … are very far from the company’s core competencies”. So should they find other sources of growth or shouldn’t they? Mark Hines doesn’t seem to be so sure.

In “Only the Paranoid Survive” by Andy Grove he describes how Intel was once a company whose core competency was memory chips. The company decided to completely ditch memory chips and leave it to their competitors and focus on CPU’s instead. So Intel is an obvious example that a company doesn’t have to stay with its core competency to become even more successful than it originally was. My post mentioned Google initiatives that possibly do take it away from its original core competency. I can’t say for certain that they are in fact doing what Mr. Cringely thinks they are doing, but like him, I think Google can pull it of (if they are doing it).

So, congratulations to Mr. Hines on managing to sell so close to the 52-week high. I think regression toward the mean will mean he won’t be so lucky next time. I am also quite certain that Google’s growth eventually WILL level off; I think it may already have happened, but the level it has levelled of at (and that I hope it stays at for the future) in my eyes still makes it a superb share to own.

Remember, take a look at the disclaimer, I am not a financial adviser; this constitutes my own thinking on the subject.