Why do you always get two results for Google’s stock (or Alphabet’s, I can’t ever get used to that!)? The ticker symbol GOOG and GOOGL. Have you ever wondered why Google has two stocks listed in the market? What is the difference between them? And, more importantly, which one should you choose?

If you are a new investor, you might be a bit confused by these different classes of stocks. So, let’s take a look at what these share classes mean for your investment decision.

You probably know Alphabet (Google’s parent company) for its search engine and other services such as Google Maps, Gmail, Google Cloud, Android, and various products. Their headquarters are in Mountainview, California. Since August 19th, 2004, Google has been a public company on Wall Street.

Difference Between GOOG and GOOGL

At the time of writing, the price of both these stocks is roughly the same. So it’s not necessarily the price that is different. The only difference between GOOG and GOOGL is in the voting power these stocks provide you with. As an owner of stocks, you sometimes get voting power. That gives you a voice in company matters that are put to voting. Read more about that below.

GOOG is a stock that does not come with any voting power at all. In contrast, GOOGL shares are the ones that will give you 1 vote per share you own. You have the right to participate in the votes at Google’s annual shareholder meetings.

Google created these new shares in April 2014. They did a very unconventional 2-to-1 split at that time. The motivation for this split was to “preserve the corporate structure that has allowed Google to remain focused on the long term.” Google was concerned about retaining their voting rights. You can diminish your voting rights over time if you make many strategic acquisitions and issue stock as part of such deals.

All Classes Of Shares From Alphabet

Alphabet Inc. actually does have a third class of shares. But only two of them are traded in the open market:

• Class A – This is what you know as GOOGL. It is traded in the public market and, thus, available to you as a retail investor.
• Class B – These shares aren’t traded in the public market. They are reserved for founders and private investors. These shares have 10 times more voting power per share than GOOGL shares.
• Class C – The class c shares are the nonvoting shares. You and all other individual investors can buy those in public markets.

Larry Page and Sergey Brin own 44% and 42% of the Class B shares, respectively. These shares give them a combined majority vote of 51.2% to hold control of the company. They are by far the biggest shareholders of all company insiders and institutional investors. In 2019, they both stepped down from executive roles as CEO and President at Google and Alphabet, but they remain active as co-founders, shareholders, and board members of Alphabet.

Which One Is The Better Investment?

Technically, GOOGL is the more valuable stock of the two. With this stock, you can make your voice heard and vote in Google’s corporate matters and any other major decisions.

This is the reason why GOOGL will sometimes have a slightly higher price. You might have to pay a small premium for that right. But it is really not a lot of difference in reality.

Most retail investors will likely not be able to buy enough shares of GOOGL to really influence Google’s policy. Especially since the Class B shares have a much more influential voting power anyway. You could argue that for this reason, GOOG is the better buy.

Why Do Companies Like Google Have Two Stocks?

Over the decades, companies have embraced dual stock structures. While the most common form is the dual stock, you can have even more stocks listed. And their main difference is always the privilege tied to them, such as voting rights. Dividends can be another reason to offer separate stocks. This is also why Google has two stocks.

Jay R. Ritter from the University of Florida (also known as Mr. IPO) has collected data on IPOs and their stock class structure in his data paper “Initial Public Offerings: Dual Class Structure of IPOs Through 2023“. Below are the percentages of IPOs that started off with a Dual Class stock structure from 1980 to 2023:

It’s easy to see a trend toward a dual-class structure. If you separate tech stocks out, the trend becomes even more prevalent.

These separations of voting rights from the stock have not gone unnoticed. Many investors don’t like this disconnect. Erik Sherman, a Senior contributor for Forbes, writes, “Experts in corporate governance—and many investors over the years—have objected to the separation of control from equity. Those with the most money invested collectively to provide the resources a company needs to grow and thrive hold the most risk because they have the most to lose.”

Prominent Companies Using Two Stocks

What are other examples of companies that have dual stocks? Perhaps the most prominent one is Warren Buffett’s Berkshire Hathaway. But there are many more, like Ford Motor, Comcast, CBS, Nike, etc. These companies don’t always trade all of their stocks in the public market. Nike, for instance, only trades its Class B stock. However, Berkshire Hathaway trades both its original Class A (BRK-A) and the 1996-issued Class B (BRK-B) shares.

You can get a full list of dual-class companies of the Russel 3000 here.

Final Thoughts – Why Does Google Have Two Stocks?

You now know why Google has two stocks listed in the market. If you like the idea of exercising your voting rights for your investments, you should always go for the version of the stock that provides the most voting rights. Other than that, there usually isn’t too much of a difference between the stocks.

You now know the difference between GOOG and GOOGL and can make an informed decision should you decide to invest in Alphabet. When investing in individual companies, always ensure your investment portfolio is properly diversified. This way you can keep your risk level in check and avoid unnecessary risk in the first place.

In addition to that, I’ve touched on some historical data regarding dual stocks in the stock market. The trend definitely goes towards a dual stock structure that separates equity from voting rights- whether you like that or not.

Disclaimer: The information in this blog post should not be considered investment advice or a replacement thereof. They are solely provided for informational purposes. Please consult with a financial advisor for any specific questions on your financial situation. Remember that past performance is not a good indicator of future returns. Also, none of the mentioned stocks are to be understood as recommendations. Don’t buy yourself something solely based on what you read here.

Stagflation, the unwelcome combination of high inflation and stagnant economic growth, can be a nightmare for investors.

Here are the 5 popular investments to beat Stagflation.

When the economy is experiencing Stagflation, traditional investment strategies may not be as effective, and navigating this treacherous financial landscape may feel like walking through a minefield.

In this blog post, we’ll explore the world of Stagflation and identify some of the best investments during these trying times.

Key Takeaways

• Stagflation is a complex economic challenge, so countercyclical investments like commodities, defensive stocks, and real estate are the best assets to invest in.
• Diversifying your portfolio with value & cyclical stocks can help reduce risk & maximize returns during Stagflation.
• Avoid risky investments such as growth stocks and bonds during this period.
• Best stagflation investments: Commodities and precious metals, defensive stocks, real estate, and REITs.

What is Stagflation?

So, what exactly is Stagflation?

Put simply, it’s a situation in which economic growth is low (stagnant) and inflation is high simultaneously.

This toxic combination of slow economic growth and rising prices can pose a significant challenge for investors.

Traditional investment strategies may not yield the intended results. Stocks tend to underperform due to slow economic growth, and bond returns are diminished because of high inflation and fluctuating interest rates.

There are several economic theories about what causes Stagflation, but that goes beyond the scope of this article.

The 1970s served as a prime example of the devastating impact of Stagflation on the global economy.

The World Bank indicates that families with low or fixed incomes and retirement savers are often hit the hardest during this period.

Best Assets to Invest in During Stagflation

In times of Stagflation, it is smart to prioritize assets like commodities, defensive stocks, and direct investments in real estate or REITs.

These assets can provide stability and potential growth, helping you maintain healthy investment portfolios despite economic uncertainty.

1. Commodities and Precious Metals

Commodities like gold, oil, precious metals, and agriculture tend to perform well during Stagflation, and there are several logical explanations why:

1. Hedge Against Inflation: Commodities like gold, oil, and agricultural products typically serve as a hedge against inflation. During stagflation, inflation rates are high, and commodities can provide a buffer against the eroding value of currency.
2. Supply Constraints: Stagflation occurs when economic growth is stagnant, but inflation rises. In such periods, the supply of goods often becomes constrained, which can drive up the prices of commodities.
3. Non-Correlation with Stocks: Commodities often have a low or negative correlation with stocks, making them a good diversification option. This is particularly useful during Stagflation when equities often perform poorly.
4. Global Demand: Commodities can also be influenced by demand on a global scale. Even if a specific economy faces stagflation, global demand can increase commodity prices.
5. Tangible Assets: Commodities are considered “real assets,” meaning they have a tangible physical form, e.g., gold coins. Real assets often perform well during inflation because their value is not just a financial abstraction.

Invesco DB Commodity Index Tracking (DBC) is an example of an exchange-traded fund that provides exposure to commodities such as energy, agriculture, and base metals. This ETF could be researched to see if it is a good Stagflation investment.

NOTE: Compared to equities, commodities were a boon for investors during the 1970s. The chart below shows real and nominal returns of commodities during this period, which was widely known as one of the most significant periods of stagflation.

According to Kiplingers, the S&P GSCI Index, a measure of commodities investment performance, returned 586% between 1970 and 1979.

2. Defensive Stocks

Defensive stocks, also known as non-cyclical stocks, are those in the consumer staples and healthcare sectors that can provide stability and potential growth during stagflationary periods.

From a quantitative perspective, defensive stocks have a beta of less than 1. This means that if the stock market falls, cyclical stocks will outperform the market, making them excellent stagflation investments.

There are several reasons defensive stocks are considered good investments during periods of stagflation:

1. Stable Demand: These stocks belong to industries with relatively inelastic demand, such as healthcare, utilities, and consumer staples. Even in tough economic conditions, people still need to eat, use electricity, and seek medical care, making their demand stable.
2. Dividend Yields: Defensive stocks often provide steady dividends. When capital gains from stocks are uncertain, these dividends offer a consistent income stream for investors making them popular during Stagflation.
3. Lower Volatility: These stocks are generally less volatile compared to the broader market, offering some level of protection against market downturns (why are they less volatile)
4. Cash Flow: Companies in defensive sectors often have strong and predictable cash flows. This enables them to weather economic downturns more easily compared to cyclical companies.
5. Price Insensitivity: Consumers are less sensitive to price changes for essential goods and services. This helps maintain revenues for companies in defensive sectors during inflationary periods.
6. Hedge Against Uncertainty: In times of economic instability or stagflation, investors often seek safer, less volatile investment options. Defensive stocks can serve as a hedge against economic uncertainty.
7. Portfolio Diversification: Including defensive stocks in a portfolio can help in diversification, reducing the overall risk during economic downturns, including stagflation.
8. Lower Debt Levels: Defensive companies often operate with lower levels of debt compared to cyclical companies, making them less sensitive to interest rate changes, a common occurrence in stagflation.

As indicated by a Schoreders study, utilities, and consumer staples are the best performing stocks during a stagflationary environment.

Meanwhile, cyclical stocks such as IT and industrials are some of the worst performers during Stagflation.

Allocating funds to defensive stocks can safeguard your portfolio from the adverse impacts of Stagflation.

3. Real Estate and REITs

Real estate investments, including rental properties and publicly traded REITs, can serve as a hedge against inflation and provide reliable returns during Stagflation.

Historically, real estate has been one of the top-performing assets during Stagflation because it can offer tangible value and help protect your money from inflation.

3 Reasons why real estate and REITs make good Stagflation investments:

1. Tangible Asset: Real estate is a tangible asset, which makes it less susceptible to inflation’s erosive impact on purchasing power. The intrinsic value of property often remains stable or even increases during inflationary periods.

For example, The FTSE Nareit Index, which is a market capitalization-weighted index of U.S. equity REITs,  gained 100% in total return between 1971, when data was first available, to the end of 1981.

2. Interest Rate Sensitivity: Although stagflation often leads to higher interest rates, real estate investments that were acquired with fixed-rate mortgages can benefit from having locked-in lower payments while rental income and property values are rising.

3. Consistent Rental Income: Real estate properties can generate a steady stream of income and landlords can increase rental prices during inflationary periods, making it an ideal investment during Stagflation when other investments may be underperforming.

In addition to directly investing in real estate, investing in Real Estate Investment Trusts (REITs) can also provide exposure to the real estate market and the potential for stable returns during Stagflation.

You can invest in physical real estate through popular real estate crowdfunding platforms like Fundrise and Groundfloor. Or, invest in popular publicly-traded REITs through your online brokerage account.

4. Treasury Inflation-Protected Securities:

Another popular Stagflation investment is Treasury Inflation-Protected Securities, known as TIPS. These securities are government treasury securities that provide a real return that is linked to the Consumer Price Index, which is the widely accepted benchmark for inflation.

During times of Stagflation, you can at least get returns that are on par with inflation, thus keeping your investment portfolio protected.

You can invest in TIPs directly through the TreasuryDirect website, or through an ETF like the iShares TIPS Bond ETF.

5. Short Selling Cylical Equities

A less common way to invest during inflation is to short-sell cyclical equities. Cyclical equities are stocks of companies that produce or sell items that are considered non-essential – like an iPhone. So in times difficult economic times, individuals will be less likely to buy non-essential items like a new car, or television.

Cyclical sectors have a market beta of greater than 1, meaning they generally underperform when the stock market falls, thus presenting a short-selling opportunity.

Short selling is an investment strategy where an investor borrows shares of a stock from a broker and sells them in the open market, with the intention of buying them back later at a lower price. The goal is to profit from the decline in the stock’s price.

Here’s how it works in simple terms:

1. Borrow Shares: The investor borrows shares of a stock they believe will decrease in value.
2. Sell Shares: The borrowed shares are then sold in the open market at the current price.
3. Buy Back Shares: If the stock price declines, the investor buys back the same number of shares at a lower price.
4. Return Shares: The investor returns the borrowed shares to the broker, keeping the difference between the selling price and the buying price as profit.
5. Risk: If the stock price increases instead of declining, the investor will incur a loss when buying back the shares at a higher price.

The strategy is considered high risk because the potential for loss is theoretically unlimited; a stock’s price can rise indefinitely, leading to mounting losses for the short seller.

Some popular cyclical stocks include Disney and Expedia.

Diversifying Your Portfolio for Stagflation

Diversification, a vital element in any successful investment strategy, is even more important during Stagflation.

Spreading your investments across various assets or asset classes can lower your portfolio’s overall risk and potentially amplify your returns.

A well-diversified portfolio that includes a mix of value and cyclical stocks can help protect your investments during Stagflation.

Value stocks, which trade at a lower price compared to their underlying fundamentals, can offer long-term growth potential during economic downturns.

Meanwhile, cyclical stocks, which follow economic cycles, can present opportunities to buy low and sell high as the economy rebounds from Stagflation.

Investing in both stock types can mitigate loss risks and boost your returns during these tough times, as stock prices may fluctuate.

Value Investing