What we can learn from the Pokemon Go hype
Pity the poor investors who piled into Nintendo on July 18 in a Pokemon Go buying spree to push up the share price to 37,370 yen (about $473). Nintendo's capitalisation reached 40 billion yen, more than electronics giant Sony.
Investors wanted to profit from the Pokemon Go craze that has seen 30 million users sign up for the smartphone app that gives players animated characters superimposed on real-life images on their phone screens.
But investors need to take care with a hot tech stock like Nintendo. The share price plummeted to 23,220 yen over the next five days, still higher than its 15,530 yen start at the beginning of the year.
What happened? The company said late Friday that the financial benefits from the worldwide hit Pokemon Go will be limited. Also investors failed to understand that Nintendo doesn't own all of Pokemon Go. It has a 32% share in the Pokemon Company along with Google-backed Niantic.
Technology stocks are tricky investments.
"The lesson is the same as in the tech boom. The technology company may be off the charts but the reality is how can the tech company monetise that to help shareholders," says Julian Beaumont, investment director at Bennelong Australian Equity Partners.
"What you really want is to be invested in technology companies that people are prepared to pay money for and they provide value."
The Pokemon Go app is free to download and the revenue comes from purchases that players can make within the app, to increase the exposure to Pokemon creatures.
Technology booms have come and gone on the sharemarket over the past few decades. The dot.com bubble occurred over 1997-2000 with the rise in the internet boom when investors couldn't get enough of tech companies. When the crash came, some companies failed completely while others were decimated but continued to trade and be profitable.
"Technology is often so much more exciting before the fact," says Beaumont. One of the tests is asking whether people with be playing around with the same game in five years' time. "These crazes tend not to stick around."
Instead Beaumont invests in companies that do smart things with technology to improve their businesses. For example he likes Domino's which allows customers to make their own pizza online and is trialling delivery by robot.