I Love you do death II: Or, hugging the benchmark

In the last post I cast aspersions on Google leadership by comparing Google's performance with that of Apple. This could be viewed as not entirely fair, since Apple sets an extremely high standard, and maybe Google's management, while not in Apple's league, is still very strong? With this goal in mind, let us compare Google's performance with that of S&P 500 (with dividends reinvested) -- we use the SPY ETF as proxy (this will have the effect of making S&P 500 returns look very slightly worse than they really are). Let us see what would happen if our GOOG-r-us hedge fund constructed a dollar neutral portfolio, which was long GOOG and short SPY. Here is what our results would look like:

You see that our fund would have done very well in the first three years of its existence, but it would have floundered aimlessly for the last five years: since mid-2007 Google has been tracking the S&P 500, so its performance has been (in a technical sense) mediocre. To avoid cluttering this post, I will not include a beta-hedged chart, but the results look exactly the same (Google's beta vs the S&P 500 is 0.8, which is good, but hardly a spectacular accomplishment for "the company of the future.")

• On the one hand, this bears out the contention in the last post that the skill set require to start a company is quite different from that required to keep it going, and it seems that Brin-Page-Schmidt have the former but not the latter.
• On the other hand, an even more cynical observer would remark that Google historical performance is exactly what you would see for a fund perpetrating the scan described in a recent post:: very impressive performance from inception, but hugging the benchmark for the last several years.

Either way, not a great argument for giving Google founders any more rope, er, voting power.