Market (Ir)Rationality

News like this makes me shake my head in bewilderment. Or maybe not… maybe it just confirms my presumption that market participants are not always particularly rational.

SAN FRANCISCO (MarketWatch) — Shares of Google Inc. dropped sharply Tuesday but recovered some of the earlier losses prompted by the chief financial officer’s comment that the company’s growth rates were slowing down. Google ended the day down $28.17, or 7%, to $362.27.

…The stock fell as much as 14% to $338.51 immediately after Chief Financial Officer George Reyes’ comment about “slowing” growth, though some analysts quickly sought to dampen the market’s interpretation of the remarks by suggesting that Reyes was not giving financial guidance nor was he sharing information that wasn’t already expected.

…Google said that it had stated in SEC filings that its “revenue growth rate has generally declined over time and we expect that it will continue to do so as a result of the difficulty of maintaining growth rates on a percentage basis as our revenues increase to higher levels.”

Earlier Tuesday, Reyes responded to a question asked at a Merrill Lynch investor conference about why Google’s third-quarter revenue had been so strong and what Google had done to ignite such growth… “Clearly, our growth rates are slowing and you see that every quarter,” Reyes responded.

All of this market turmoil seems to be over this “news”: Google’s CFO said that their growth rate will fall from the roughly 100% growth rates they’ve enjoyed recently.

Are you shocked? Is that surprising to you? Then perhaps you should sell your shares in Google, too.

Note that I don’t really have an opinion about whether Google is overpriced, underpriced, or appropriately valued (though I can’t help but be reminded of how highly Amazon was valued in 1999-2000). Nevertheless, this “news” seems like a stupid reason to sell a stock that Tuesday’s sellers presumably thought was appropriately valued on Monday.