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I don't agree with this kind of singular thinking. Capital should go wherever returns are best. If you have a steel company and you are at the top of the cycle

by jakarta 16y ago

I don't agree with this kind of singular thinking. Capital should go wherever returns are best. If you have a steel company and you are at the top of the cycle, investing in steel plants or doing acquisitions in the steel space will be a destructive use of capital. Let's say you are Google and you do indeed believe that startup valuations are getting too high to warrant acquisitions. Maybe you pull back and look for other opportunities. You have $33B in cash and 10-years are only yielding ~3%. You're better off redeploying that capital to somewhere that will be truly accretive versus chasing bad deals or sticking in treasuries. Maybe right now the current R&D ideas just aren't appealing either. So you decide to sit tight in that area and go do a real estate deal where you can get a good IRR. Study Henry Singleton, the founder of Teledyne and see how he chose to allocate capital wherever he could get the most value at that particular point in time.

ams6110 16y ago
When you're Google's size the normal rules don't always apply, but I would say that generally any "non-core" investments should at least have some strategic purpose. McDonald's for example, owns or leases huge amounts of real-estate, which they sublease to their franchisees. One reason for this is to maintain control over the franchisees. A franchise owner can't decide to close up and open a Burger King instead, because McDonald's would cancel his lease on the property. I'm not sure how owning real-estate relates to what Google does. They are not a retailer so the physical location of their offices is not critical. Even if a particular opportunity is a "good deal" it's still a distraction from their core business. Even if management and maintenance is subbed out, somebody in Google has to keep an eye on things to some degree.
qq66 16y ago
Jeez. How far we've come. Whatever happened to writing a dividend check and letting shareholders buy real estate themselves if they want?

by jakarta 16y ago

ams6110 16y ago

When you're Google's size the normal rules don't always apply, but I would say that generally any "non-core" investments should at least have some strategic purpose. McDonald's for example, owns or leases huge amounts of real-estate, which they sublease to their franchisees. One reason for this is to maintain control over the franchisees. A franchise owner can't decide to close up and open a Burger King instead, because McDonald's would cancel his lease on the property. I'm not sure how owning real-estate relates to what Google does. They are not a retailer so the physical location of their offices is not critical. Even if a particular opportunity is a "good deal" it's still a distraction from their core business. Even if management and maintenance is subbed out, somebody in Google has to keep an eye on things to some degree.

qq66 16y ago

Jeez. How far we've come. Whatever happened to writing a dividend check and letting shareholders buy real estate themselves if they want?