Which way is the stock market headed, up or down? That question is on the minds of many investors these days.

We've a 50% run up since the January lows. Nouriel Roubini said: "Markets have gone up too much, too fast." I see the risk of a correction, especially when the markets now realize that the recovery is not rapid and V-shaped, but more like U-shaped.

I have written up eight companies that have a chance to be among the top 25 stocks for the NEXT 25 years and I thought it might be time for some discussion. You, the readers have sent in quite a bit of responses to the first six names. Most of your responses have been very positive and I certainly appreciate it. But many of you have been raising questions that I believe need a general response.

Let's put a few ideas and myths to rest once and for all.

The top 25 for the NEXT 25 years are bound to be smaller capitalization companies. By definition, they have to be. I recommend a number of companies on my website that are of a larger capitalization, but to make the list, the law of large numbers is against the larger cap names. If a $20 billion market cap names five folds over the next 10 years, that's a great return and no one should be unhappy. But if a $500 million market cap name goes to $20 billion in value, that's a 40 times return. So, the names will be of a smaller cap nature.

With high-growth companies early in their development, don't get hung up on lack of dividends. High growth companies do not pay dividends, nor should they. You want every penny of after-tax earnings to be plowed back into the business. Mature companies tend to pay cash dividends because their growth rates have slowed, the business lines are well-funded, and the excess cash is returned to shareholders. The downfall is that the stocks will not grow as fast in value as a high-growth company that is executing well. The big joke among portfolio managers when Microsoft Corp. (NASDAQ: MSFT) declared its one time $3 dividend and initiated a quarterly dividend was that the party was over! When is the funeral? Microsoft was signaling that the high-growth, plow the earnings back into the business era was over. The stock traded sideways for nearly three years as Microsoft tried to get its footing back.

As the Private Equity deal juggernaut continues at a record pace, the Justice Department continues to send out letters in their probe of PE competitive behavior. The Wall Street Journal reported today that Merrill Lynch & Co., Inc. (NYSE:MER) has joined this inauspicious list. Other letters in the same form, I am sure, will be received by other players. Any Justice Department investigation is bad news and a distraction, and I am sure there is concern throughout the PE industry.

The question at hand is whether PE firms, in pursuing the "club" deals (many firms getting together to pursue a large target, like a bunch of hunters combining to wrestle an elephant) are "colluding" to bring down prices for the assets they are pursuing, thereby undertaking anti-competitive and thus illegal behavior. The Journal speculates that the Hertz transaction is under particular scrutiny. This was not only a large club deal but one where the buyers made a lot of money VERY quickly. To the Justice Department, I am sure, the fact that big bucks were made in short order MUST mean illegal activity. The Federal Government seems to frown upon large scale success, and therefore must investigate.

I have not seen any of these love letters and can only speculate about the investigation, but the facts of life in Private Equity do not support a case for collusion.

Google closed down yesterday finishing at $367.23 per share on a day when the rest of the market moved notably upward. Although I have been very vocal about the stock price being overvalued in my Blogging Stocks posts, (see: 10 Reasons I think Google is going down), Google remains a very good company with a growing brand providing valuable services. So this begs the question: What is GOOG stock worth?

I'm not in the prediction business, I am in the investment business. Is there a price I would pay? Certainly. That price is unquestionably less than most other investors would pay because I always look for deep value. But is there a "fair market value?"

That's a very difficult question because the price is determined by what the last trader feels the stock is worth -- not everyone, not a consensus. For example, if you own a stock that you bought at $20 and it's now trading at $40, and you are holding on long term, then you are not a factor during the day when traders are moving the price up or down a few bucks. Your opinion on the value that day is silent and has no bearing on the price.

In trying to assess what the potential appreciation of the stock might be next year I had to make an assumption about the P/E ratio. This is based on what I envision is the level most traders will be willing to pay. If you use a P/E ratio of 40 and look twelve months out and assume Google's earnings continue to grow on a slower but still strong trajectory, you are looking at a lot of potential upside from here. GOOG's trailing twelve month EPS is $6.82. If it hits EPS of $12 then you might arrive at a value of $480. These are figures commonly discussed in the business pages and by analysts. Some of the thoughtful comments I have received to my posts suggest the same thing. Of course we have read higher estimates by Piper Jaffrey analysts who reached a $600 valuation. But to get there you must allow for EPS of $15 or a P/E of 50. That I am not willing to do, are you?