Read Beyond the Headlines When It Comes to Investing
September 27, 2016 | Your Finances
It was hard to miss Pokémon Go this summer. The players were nearly anywhere you looked. The popularity of the game dominated the headlines, and many of the headlines told stories of players who were caught gaming in inappropriate locations or had gotten themselves in awkward—and even dangerous—situations as they chased their Charmanders and Pikachus. There were several reports of people crashing their cars while playing.
It seemed like everyone was doing it. And as the game dominated the headlines, Nintendo stock more than doubled. With that kind of success, the stock must be worth buying, right?
About 100 million shares of Nintendo stock were traded during the four weeks after the launch, compared to just under 1 million shares traded during the four weeks prior.1 But investors, just like those playing the game, were not paying close enough attention to the world around them. The Pokémon Go app had been downloaded at least 15 million times,2 so Nintendo must be making money hand over fist. Right again? Well, not exactly. Many investors were surprised to learn that while the game gave Nintendo plenty of free press, Nintendo is actually only a 30 percent owner in the Pokémon brand and an even smaller owner of Niantic, the developer of the mobile game.
This information was publicly available prior to and when the game was launched, so one would assume investors did their research and factored that into their decisions. Many had not. Nintendo explained several days after its launch that the game is unlikely to have a material impact on results.3 Couple that with a delayed release of the app in Japan, and the stock, which had soared from its pre-release price of $17 to $37 in a matter of days, quickly dropped to the $25-27 level, where it sat for a bit until a brief bump up to $36 earlier this month and another drop down to $31.4 Still not a bad jump from $17, but as you can imagine, investors who bought in higher than that are either sitting on a loss or have already booked it.
It wasn’t the first time investors reacted emotionally to a big story this year. Following the Brexit vote, I heard from many financial professionals whose clients were looking to pull their money out of the market. Investors were fearful of the impending doom as headline after headline told us the S&P 500 had experienced its worst percentage drop of the year. Scary, yes—but the reality is that the fundamentals were fine, and the markets largely shrugged off the vote and soared to new all-time highs.
In today’s world, you hear about big stories over and over. And as the headlines race by, it can seem natural to let the headline become the story. It can be easy for investors to get caught up in it all. Easier said than done, I know; but it’s more important than ever that investors understand the whole story. That’s because today they are increasingly turning to their investments to help them achieve their own financial security. Regardless of the headlines of the day, the message is the same—have a plan, stay the course, focus on your long-term goals, and carefully consider opportunities as they present themselves. Be wary of anything with too much hype.
Special thanks to my colleague Chris Rykwalder, ChFC®, for providing research and insight for this article.
1Source: Bloomberg Finance L.P.
2“Report: 'Pokémon Go' downloads top 15 million,” USA Today, July 13, 2016, http://www.usatoday.com/story/tech/gaming/2016/07/13/report-pokemon-go-downloads-top-15-million/87022202/
3“Notice Regarding the Impact of ‘Pokémon GO’ on the Consolidated Financial Forecast,” Nintendo Co., Ltd., July 22, 2016, https://www.nintendo.co.jp/ir/pdf/2016/160722e.pdf
4Source: Bloomberg Finance L.P.
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