How to Invest in Pokemon

By | August 5th, 2016 08:08 PM EST | posted in Basic ETF Concepts, Custom Strategy Insights, Growth Strategy Insights, Press Releases, Spotlight

Today, we’re taking a look at the phenomenon that is – Pokemon Go and how to invest in Pokemon. Launched on July 6th, 2016, Pokemon Go is a gaming app for your android or IOS device that has now topped Twitter in active daily users and Facebook in time spent on its app.

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Minutes on App in Week 1 of Launch for Android Users

Minutes on App in Week 1 of Lauch for Android Users

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Created over 20 years ago, Pokemon takes players into exotic worlds populated by snakes, dragons, dinosaurs, birds, eggs, trees, and even swords. “Trainers” tame these creatures, and, ultimately use them to battle against each other.

A digital egg hunt of sorts, Pokemon Go is based on the Japanese hobby of bug catching. The game objective is to collect all of these virtual creatures by way of augmented virtual reality through the use of your phone camera and GPS capabilities.

Nintendo, a parent company of Pokemon, has drawn great interest from investors in the last month.

When we look at Nintendo and its competitors, it becomes apparent just how enthusiastic investors are:

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Nintendo’s trading price, relative to earnings, outpaces every relevant industry comparable by 2 to 10x, making Nintendo the most “expensive” security in the gaming space.

In-game sales as well as some future revenue generating opportunities are not Nintendo’s revenue to keep. In fact, Nintendo owns the intellectual property to Pokemon, and has little control of the game itself. Revenue generated lines the pockets of Niantec, the games developer, as well as Apple and Google, through their itunes and play stores.

An initial increase of $25 billion dollar in market value for Nintendo suggests future revenues from Pokemon Go and derivative products at over $100 billion dollars. Is this assumption realistic?

If so, the $25 billion in additional value was justified. However, confidence in future revenues of such large numbers is not shared by all investors.

Last week, Nintendo announced the impact of Pokemon Go was not as large as what many Investors had hoped for. The value of the company adjusted to reflect the new information, representing a 34% decline in value since July 19th.

For investors who want exposure to events like Pokemon Go, there are investment methods, for example, a gaming index, that provide the opportunity to profit from large swings in a company’s value, without absorbing the risk of a market correction that often wipes out any earlier gains.

These strategies spread the risk across the entire asset class, for a smoother return profile, allowing investors to tolerate variations is their portfolio. Investors often refer to these indexed strategies as having a “dominant risk-reward profile”. The following chart displays just how volatile Nintendo (green line) is relative to a Video Game Index (blue line).

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To cite hedge fund billionaire George Soros: “markets are supposed to swing like a pendulum; they may fluctuate wildly in response to exogenous shocks, but eventually they are supposed to come to rest at an equilibrium point”.

ISA  vigilantly monitors this pendulum, and our index strategies allow us to capitalize when large shifts occur.

To learn more about ISA and our gaming index strategies, visit www.indexstrategyadvisors.com and click “Talk to an Advisor”.  We look forward to your call.

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Sources: Index Strategy Advisors, Inc.. This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of its stamped publication date, and may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and nonproprietary sources deemed by Index Strategy Advisors to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. Past performance is no guarantee of future results. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader. Investment involves risks. International investing involves additional risks, including risks related to foreign currency, limited liquidity, less government regulation and the possibility of substantial volatility due to adverse political, economic or other developments. The two main risks related to fixed income investing are interest rate risk and credit risk. Typically, when interest rates rise, there is a corresponding decline in the market value of bonds. Credit risk refers to the possibility that the issuer of the bond will not be able to make principal and interest payments. Index performance is shown for illustrative purposes only. You cannot invest directly in an index.