Reflecting on India's Google, and Google

Editor's Note: This column originally ran as part of the Jan. 30 edition of TheStreet.com Internet Review. It's being republished as a bonus for TheStreet.com readers.

The Internet stock that was most in the news last week was Rediff.com(REDF), an Internet Forever stock that notched a 33% gain during the week, thanks to Jim Cramer's mention of the company on Mad Money on Tuesday.

I was giving a talk in Phoenix later that evening and happened to be in my hotel room watching the show before I was scheduled to speak. I remember when he mentioned REDF and how the ticker started going across the screen: first at $15.90, then $16.40, then $16.80, and finally, I couldn't believe my eyes, $17.90!

The next day, when the stock went as high as $21.40, there was much discussion, from Jim and Doug Kass and others, about the "Mad Money effect" and Jim's effect on the stocks he mentions.

Today, I want to share my own Mad Money anecdote and my thoughts on this phenomenon, and give my two cents on how readers can effectively manage their positions in Internet stocks that get captured by the Mad Money effect.

It was around last February when Jim was doing dress rehearsals for his show, and I went on as a guest (the show was not aired). On the show we argued some of my picks vs. some of his. I liked Terra Lycos and Ask Jeeves at the time, and he hated them for being third- and fourth-rate search engines, an assessment I agreed with. However, both had great balance sheets (hundreds of millions in cash for each of them with no debt at all), and both were trading at single-digit P/E ratios. Additionally, their cash flows were very steady, making them, in my view of things, excellent buyout candidates. In fact, within two to three months, both stocks were bought out at 20%-30% premiums.

Meanwhile, Jim liked Google(GOOG), a stock I had no real opinion on. The stock dipped about 10% in the month after the rehearsal, but Jim's call proved to be the right one, as the stock moved up about 120% in the 11 months since the show.