NEW YORK (CNN/Money) - Now that Google is going public, do you think individual investors should buy shares of the company?

-- Anonymous

First, let me say that I love the Google offering.

I love the way the S-1 registration statement is written as a chatty, informal letter from co-founder Larry Page instead of the usual mind-numbing lawyerly boilerplate.

I love the honest admission that the dual-class voting structure will give less power to new investors and more control to the founders and current management (though I don't necessarily agree that's a good thing).

And I love that the registration statement is sprinkled with quirky little pieces of the founders' philosophical musings. ("We believe a well functioning society should have abundant, free and unbiased access to high quality information. Google therefore has a responsibility to the world.")

But does that mean I think individuals should buy shares?

I think individual investors should be extremely wary of going for Google, which is to say I believe they should probably wait till the dust settles -- and even then they ought to limit Google to a very small portion of their portfolio. I mean like 5 percent tops.

So how, you may ask, do I reconcile my warm and fuzzy feelings about the Google offering with my cautious advice for individual investors? Let me explain.

What I love about the Google offering is that it turns the conventional Wall Street crony-driven insider-friendly IPO process on its head.

In the traditional Wall Street model, an investment bank sets an attractive offering price (i.e., less than their true market value) for the IPO -- say, $10 a share -- and then doles out those shares to brokerage firms that give them to favored customers.

Related articles and links • Google & the markets • You, the next Google millionaire? • Will Google be giggling?

Sometimes, brokerage firms and investment banks even hand them out to corporate execs as way to bribe (oh, excuse me, I mean entice) them to direct future business the investment bank's way.

The day those IPO shares begin trading on the market, they typically soar in value, rising to $20, $30 or even more, which gives quick profits to the lucky people who got the IPO at the offering price.

Those shares may eventually fall back to earth. But by then the favored few who got in at the offering price have had ample opportunity to make a nice big profit.

There are two big problems with this system. First, it's inherently unfair in that it basically assures a profit to the insiders. If you're not part of the club, you buy at the higher market price and furnish the profit to the insiders.

Second, the company going public gets short-changed. If, say, 1 million shares are offered at $20 apiece, that's all the revenue the company reaps from the stock sale -- $20 per share for a total of $20 million (actually, less since there are registration and investment banking fees).

If the shares zoom to, say, $30 in initial trading, that suggests that the IPO could have been priced higher than $20, much higher, perhaps at $25 per share, maybe even $30 per share. Which means that instead of the company taking in $25 to $30 million to fund its operations, it's getting just $20 million.

Ah, but Google has chosen to go a different route. It will use a version of what's known as a Dutch auction to set the offering price.

Although all the details are yet to be worked out, essentially Google will set a price range for the offering and investor-bidders will then be able to submit bids within that range or, if they prefer, above or below it, to buy a certain number of shares at a certain price.

Those shares will determine a "clearing price" at which all the shares will be offered. (For more on how a Dutch auction works, click here.)

I would expect that this would bring the offering price closer to the price Google shares begin trading at in the market (although there are no guarantees).

This method should also result in more money from the offering making it into the company's coffers.

Finally, it should open up the process to more investors.

I still think there are plenty of reasons for individual investors to take a very, very cautious approach.

Though I like the auction approach, it doesn't prevent the offering price from being set at an inflated level.

Indeed, there's a built-in incentive to bid high, in that you risk the possibility of getting no shares in the auction if you bid too low.

There's also the possibility of the share price zooming to outrageous levels after the auction as investors whose bids were rejected or who didn't participate at all clamor to get a piece of Google.

Sometimes, the mania level is so high that it seems virtually certain that irrational exuberance will carry the day. Yes, Google's earning power is impressive. Its registration statement shows it had net income after taxes last year of $105.7 million on $961.9 million in revenue and, based on revenue and earnings the first quarter of this year, the company could earn upwards of $256 million this year.

But if the offering price results in a valuation of, say, $25 billion, which is apparently what many Google observers expect, that would give Google a price-earnings ratio of 98 on 2004 earnings.

You might say such a P/E is warranted given Google's phenomenal growth rate the past few years. But I think it would be foolish to extrapolate abnormally high rates of growth into the future, especially in an industry like tech where new innovations can quickly undercut a leader's dominant position, just as quickly forcing margins and profits down.

In other words, even with a company that has all the promise of a Google, it's possible to overpay for the stock.

So my advice is that, unless you really feel equipped to wade through the registration statement and other documents, evaluate the financial information and make some informed judgments about the reasonable future prospects for Google and then translate all this back into a reasonable bid, then I'd say skip the auction altogether.

As for buying after Google begins trading, my feeling there is it probably makes sense to hold off a bit to give the market time to digest the offering and to see how investors are valuing the company after the initial mania dies down.

YOUR E-MAIL ALERTS Ask the Expert Google IPOs or Create your own Manage alerts | What is this?

In other words, wait until you can make a more informed decision. After all, it's not as if Google shares won't be available anymore.

Of course, following my advice could mean you end up missing out on the investment of the century. But, as we found out many times over in the '90s, the investment that generates the most hype doesn't always generate the best return.

Walter Updegrave is a senior editor at MONEY Magazine and is the author of "We're Not in Kansas Anymore: Strategies for Retiring Rich in a Totally Changed World." He also answers viewers' questions on CNNfn's Money & Markets at 4:40 PM on Mondays.