How a Misunderstanding About Pokemon Go Caused Nintendo’s Stock Price to Plummet

One of the most fundamental problems in stock investing is the lack of information needed to make perfect stock investing decisions. In part, this is because public investors are not supposed to have some of the information that can affect stock prices. For example, a company’s management has information that is relevant to its stock price before it is released to the public in the form of internal press releases as well as financial statements, but if they leak that information to public investors who make money off of it, both parties would have to be punished for insider trading because they have gained an unfair advantage.

However, it should also be noted that there is so much information that can affect stock prices that there is no way for public investors to know all of it, never mind actually processing all of it in time to guide the decision-making before the window of opportunity closes. As a result, while the best stock investors will have better chances of success than their less skilled and less experienced counterparts, even they can make mistakes from time to time.

However, some bad decisions in stock investing can be blamed on people making foolish choices based on foolish assumptions, which can hurt not just them but also the companies that they choose to invest in. One such example is the recent plummet in Nintendo’s stock price because of the hub-bub surrounding Pokemon Go.

What Caused Nintendo’s Stock Price to Rise?

Pokemon Go has become one of the most popular apps on the planet within a short period of time. While it seems improbable that its popularity will stand the test of time, it seems likely that it will remain extremely popular even once the initial hype dies down, which in turn, means that it will remain extremely profitable.

As a result, it should come as no surprise to learn that people have been buying up Nintendo stock, which has caused a corresponding rise in its stock price because of the sheer number of people competing for a limited number of shares that can be found on the stock exchanges. In fact, there was so much interest in Nintendo stocks that its market capitalization actually rose by $17.6 billion, which is more than the market capitalization of most companies out there. (1)

Unfortunately, this rush of investors was caused by a flawed but rather understandable assumption about what Pokemon Go means for Nintendo’s financial performance. After all, since all but a small number of the Pokemon games have received exclusive releases for Nintendo consoles, it is natural to assume that the Pokemon franchise belongs to Nintendo, particularly when it is treated as one of Nintendo’s franchises in much the same way as either the Mario franchise or the Legend of Zelda franchise.

However, it is important to note that this is a bad assumption because the Pokemon franchise actually belongs to The Pokemon Company, which is owned by Nintendo, Game Freak, Creatures, and other shareholders. (2) Furthermore, it is important to note that Pokemon Go is not an in-house product made by either The Pokemon Company or one of the companies involved in its creation like the other Pokemon games, but a collaboration between Nintendo, The Pokemon Company, and Niantic, which is an American-based mobile app developer that was spun off of Google in 2015.

Understandably, Nintendo must have been concerned about the potential backlash from the sheer number of people attempting to invest in it, which is why it released a statement to curb some of those excesses. In short, the statement said that Nintendo’s stake in Pokemon Go was a relatively small percentage, so much so that it would not need to adjust its predictions for its expected performance. This caused a backlash on Friday, June 22, which wiped out $6.7 billion of Nintendo’s market value.

Why Did Nintendo’s Stock Price to Plummet?

First and foremost, it seems probable that a lot of people bought Nintendo stocks because they were expecting Nintendo to make a lot more money than what the Japanese company was predicting. As a result, they decided to buy Nintendo stocks as soon as possible in anticipation of what those increased profits would mean for their own investments. When those expectations were dashed, it seems probable that many of them decided to make a short-term profit instead by selling their shares as soon as possible instead of holding onto them, knowing that a sell-off would be the inevitable reaction to Nintendo’s statement about Pokemon Go.

However, it is interesting to point out that both the rise and the fall in Nintendo’s stock price is probably being driven in significant part by investor hype. In short, stock investing is a highly emotional matter, meaning that it is easy for investors to be caught up in the general flow of the stock market. While the initial buying and subsequent selling of Nintendo stocks are logical responses to what happened, it seems probable that the stock market is also over-reacting because of its inherently unpredictable nature, meaning that there could be investment opportunities for investors who can get the timing right by buying Nintendo stocks at their lowest point before they start recovering sometime in the future. After all, while Nintendo has a relatively minor stake in Pokemon Go, it is likely to see knock-on benefits from its popularity, particularly once Pokemon Sun & Moon come out sometime later in this year.

Further Considerations

People who are interested in stock investing should take the whole incident as a reminder of what can happen when someone makes stock investing decisions based on bad assumptions about what is happening in the world. Although it can be tedious and time-consuming, they should always make sure to check because having the right information is the only way that they can reliably get what they want from the stock market, even if they will never be able to get all of the information that they want because of their inherent limitations.

References:

  1. http://www.bloomberg.com/news/articles/2016-07-25/nintendo-set-to-plunge-after-saying-pokemon-go-s-impact-limited
  2. https://en.wikipedia.org/wiki/The_Pok%C3%A9mon_Company

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