Is Google tilting at windmills?

Peter Lynch called it diworsification: the hubris that overtakes a management team that has been successful, and convinces them that they can achieve similar success by branching into new industries. For Google (NASDAQ: GOOG), we can just call it "renewable energy".

According to the New York Times, Google will be spending hundreds of millions of dollars to hire engineers and energy experts. This raise three important questions: What the heck? Why are they doing this? and What are they thinking?

I don't mean to be an alarmist, but this is sort of reminiscent of Enron. While that company will mainly remembered for the lessons it taught about accounting fraud, internal controls and the importance of investor skepticism, Enron's descent into fraud began as a business failure. Having developed a strong niche as a natural gas trader, Enron decided it could do anything: Trade water, bandwidth, build power plants, etc. The problem was that Enron had no expertise in any of those fields (something competitors were well aware of, and sought to exploit), and the ventures led to huge losses. Of course, Enron used creative accounting to hide those losses and you know the rest.

I'm not saying Google is Enron. But investors should be on the lookout for signs of management hubris that could cause a company to stray from its core competency. Google investing in renewable energy looks like a great example of that.