We are all reading story after story about this relatively new company called Google Inc. (NASDAQ: GOOG), which now has a valuation exceeding $145 billion ($190B counting A&B shares) after closing today around $625, adding almost $10 from yesterday's all-time high. In the past year, I probably have done at least 20 stories myself, and the public fascination continues.

Google has very quickly built an empire that even the mighty Microsoft Corp.(NASDAQ: MSFT) is losing sleep over. Microsoft Chairman Steve Ballmer is tired of having to field questions about Google at what are supposed to be Microsoft meetings. However, despite all the good news, I think things are getting a tad pricey right now. But you still hear numbers literally being thrown into the media current by silly guys in need of attention (Henry Blodget) who have long been considered passé, most recently to the tune of Google achieving a $2,000 price tag. Of course, no time frame was associated with this prediction, so it is pretty much worthless gossip.

If Google was $2,000 per share, it would have a capitalization of $470 billion. For comparison, General Electric (NYSE: GE) is valued at $430 billion, and Exxon Mobil (NYSE: XOM) is valued at $516 billion, so it would be jockeying for position as the largest company in the world.

As it stands today, you could trade Google for all of Berkshire Hathaway (NYSE: BRK.A) -- valued at $135 billion -- and have money left over to buy all $9.8 billion worth of Intuitive Surgical (NASDAQ: ISRG), still leaving a few bucks for a lifetime of fine dining. This comes to mind because this is what I have actually done instead. The combination has destroyed Google in terms of stock appreciation. Nevertheless I am gaining appreciation for Google in many ways. I think the company has done, and is doing, many smart things. Many of its adventures have not borne fruit yet, but it has carved out a HUGE swath of the internet that will not be rivaled anytime soon, and it is still growing. Does this growth and these investments (expenditures) justify the price today? The answer to that question in my opinion is no, not today. I think Google will pull back again after its October 18th earnings report.

Sunday's New York Times had a column by Paul J. Lim about the performance of large caps vs. small caps in 2006. Small cap stocks beat the big caps this year, but only because of a huge January, where small caps soared over 7%. The piece addresses the difficulty of handicapping which group will outperform. Financial planner James A. Shambo said that "the market has a tendency to do what most of us think it won't do. It loves to humiliate us."

While it seems clear that picking which category is likely to perform best in any given year is a fool's game, for long-term investors, small-caps have outperformed handily over time. For stock-pickers (which most readers of this blog probably are), it is clear that small-caps are probably the most lucrative source of opportunities. In his book Real Money, CNBC pundit Jim Cramer talks about the strategies of horse race handicapping legend Andrew Beyer, and how they can be applied to financial markets. One of his maxims is: Only go to tracks where there aren't a lot of good players so you can clean up.

The analogy here is obvious. According to the efficient market hypothesis, there are so many people analyzing the stock market all the time that stock prices are always right. Prices are in equilibrium, and the only way to earn superior returns is to take above-average risks. This theory may hold reasonably well for large stocks that are well-followed by Wharton-trained analysts and an army of hedge fund managers. But what about small stocks that are completely off the mainstream radar? Here, people who are willing to devote the time may find undiscovered gems that Wall Street analysts miss because they're too busy endlessly analyzing stocks like GE and Exxon. As Peter Lynch has said, "he who turns over the most rocks wins the game."