What explains the recent price-action in Google's (NASD: GOOG) stock over the last month? As you can see from the chart (with Google in black), it's shares have slouched while the S&P turned in one its best months in years. Perhaps it's because an ominous date looms in the future: August 19th.
That's one year since Google went public and the day when all of the initial investors shares will go "long-term" meaning their capital gains tax burden suddenly drops dramatically. So, while they hold on with their 300% gains, the investor who bought in at $200 per share, and is looking at mere 40% gains is selling now. Faced with a long wait before their shares go "long-term", they're paying the short-term rates now, in case there's a flood of selling after on or around August 19th.
Also, remember the strong restrictions on who could get in on the IPO, with brokers limiting the shares to their higher net-worth clients (despite Google's insistence that they do the opposite)? Well, this only exacerbates the difference between short and long term capital gains, as the gap is much bigger for the wealthy.
So while much ink has been spilled about the "employee lockup" expiration, here comes the end of the public lock up, and investors are bracing themselves rationally. By locking in their gains now.
Correction: Long-term capital gains rates kick in after 1 year plus one day, making August 20th, not August 19th, the critical day.
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