What to Do When Insiders Exit

Gaming Google

Google is the most controversial of these shorts. But then, it was also a gutsy call when I shorted it at the beginning of January. After just four weeks, I decided to harvest my 27.4% profit. It turns out I likely got out too soon.

When I first shorted Google in January, I admitted that the call was like a little tug on Superman's cape. Now, (with apologies to Jim Croce's estate), I'm at risk of spitting into the wind.

But recent data from comScore seem to indicate that the wind may be coming from behind me this time around. The paid-click report from comScore showed a year-over-year decline for Google in December. While comScore has tried to downplay the stats, I think they were only to be expected.

Economic concerns have beaten up so many sectors of this market already. The concept of an advertising-dependent firm also being vulnerable is hardly a stretch. Google may be a great company, but it will likely not be exempt from any increased frugality from consumers and advertisers alike if, as seems likely, the economy will get weaker before it gets stronger.

Meanwhile, GOOG remains a core holding for most tech funds, and maintains 30 "buy" or "strong buy" ratings from analysts. Even a slightest nod to pessimism by either side of this stock's support should make this short profitable, which seems much more likely than data and sentiment both suddenly reinforcing the religious fervor that still supports GOOG.

Insiders have never backed this stock. To this day, there has not been one open-market purchase by insiders of GOOG. That didn't look suspicious when this stock was soaring. But now that it is in a downtrend, the sales betray a lack of confidence in this stock's ability to regain its old highs anytime soon.