Motley Fool: Google’s many layers add up to smart buy

Shares of Google (Nasdaq: GOOG; Nasdaq: GOOGL) slumped recently, after the company posted disappointing quarterly results. Dismissing Google as a long-term investment would be a mistake, though.

Google has been dealing with declining cost-per-click (CPC) rates for the advertising it sells, spending on far-flung innovations such as its wearable Google Glass and facing competition from upstarts such as Facebook.

Despite that, Google offers many reasons to be optimistic about its stock. At $20 a month and $10 per gigabyte used, Google’s new wireless service is a breath of fresh air in the Wi-Fi space.

Google’s wireless plan is yet another means of providing the world’s mobile consumers with what is quickly becoming an end-to-end suite of online solutions. Already, over half the world’s mobile Web access is via a device using Google’s Android operating system. Toss in its Fiber initiative, and Google is primed to become a total Internet solution.

Google also owns the leading video site in the world. With more than a billion users, YouTube is a potential gold mine.

Meanwhile, Google’s “other revenues” category, including Google Play and cloud-computing sales, is generating billions. For long-term investors, Google has too many growth drivers to ignore. (The Motley Fool owns shares of Google and Facebook and has recommended them.)

Ask the Fool

Q: What’s a “beneficial owner”? – R.C., Kankakee, Illinois

A: It’s the true owner of a security, such as a stock. If some assets are held for you in a trust through a brokerage, for example, you’re the beneficial owner. It’s a common practice for brokerages to hold stocks in “street name” (i.e., their own name) instead of putting the shares in your name. This is routine, and the shares still belong to you: You’re the beneficial owner.

Leaving shares in “street name” is generally a good thing, as you don’t have to safeguard the paper certificates, and when you want to sell shares, you can do so quickly, not having to find and mail in the certificates.

Q: How risky are mutual funds? Can I lose all of my money in one? – J.W., Lexington, Kentucky

A: The average fund is less risky than the average stock, because while some stocks can and do fall to zero, mutual funds rarely do. That’s because they’re diversified, with many different holdings. (Few stocks of well-known companies fall to zero, though. If you keep up with your holdings’ financial reports and news coverage, you’ll likely spot red flags long before a company goes out of business.)

Still, many funds can significantly underperform the overall market. If you don’t have faith in your fund’s management and don’t expect it to perform well in the future, you should sell, taking the loss. Why leave money there, either stagnant or falling in value, when it could be growing elsewhere? Remember that simple index funds often outperform most other funds.

We’ve recommended a bunch of top-notch, low-fee funds and some model portfolios in our “Rule Your Retirement” newsletter. Try it for free at fool.com/shop/ newsletters/index.aspx.

My dumbest investment

I bought shares of a gold mining company when it was $0.27 per share, getting lots of shares because it was so cheap. I lost $500. Then, because it had some kind of SEC filing, I thought, well maybe, so I bought in again at $1.15 per share. I lost money again. I would have been better off buying one share of something that would have had better upside possibilities.

Many people who do not invest told me that I should try a penny stock: “What have you got to lose?” Well, $500. I don’t think those people will give me $500 of their money to buy anything with. I began studying investing from people who can teach me something, people who are doing it and succeeding. And I learned I should know the company that I am buying an ownership in, not just buying it because it is cheap. How many times can I afford to lose $500? – D.H., online

The Fool responds: Those are great lessons. Too few people realize that they can do much better buying, say, two shares of a $250 stock than 2,000 shares of a $0.25 stock, and that stocks trading for less than around $5 per share are often ultra-risky penny stocks.

More good lessons: A low price doesn’t necessarily indicate a bargain. A share of stock represents a small ownership stake in a real company, not just a bet.