Nintendo Co., Ltd (ADR): Don’t Let NTDOY Stock Fool You Again

When traders miss an opportunity in the stock market, a second chance may never come. Fortunately for Nintendo Co., Ltd (ADR) (OTCMKTS:NTDOY) traders, they have a second chance with NTDOY stock sooner than they expected.

NTDOY Stock: Don’t Let Nintendo Fool You AgainFollowing the release of the wildly popular Pokemon GO mobile game, NTDOY stock spiked an incredible 110% from July 1 to July 18. I described the Pokemon GO hysteria back on July 14 and told traders to go ahead and take profits on the trade.

While calling the exact top in a stock is nearly impossible, the trade played out just as I had anticipated. After skyrocketing up to an unreasonably high price, NTDOY stock spent the next several days plummeting back down to reality.

By July 28, NTDOY stock was down more than 33% from its peak price. Although it drifted higher in the weeks that followed, it never came anywhere close to its Pokemon GO peak of $38.25.

NTDOY Stock: The Anatomy of a Hysteria Trade

The Pokemon Go-related price action in NTDOY stock was certainly unusual for Nintendo. However, this type of market behavior is fairly typical. Pop culture phenomenons like Pokemon GO come along and lure traders into the market that don’t typically trade.

The first stage of a hysteria trade is that people become aware of the catalyst for the move. In Nintendo’s case, that means that people see everyone roaming around the neighborhood hunting for Pokemon. People start to buy NTDOY stock, and the stock starts to rise.

So far, all of this made sense. Nintendo had a hit new game, and the stock climbed higher. However, the next phase of the trade is what Nobel Prize-winning economist Robert Shiller calls “irrational exuberance.”

During this phase of the trade, the stock’s share price skyrockets way above any reasonable level. This is part of an irrational buying frenzy in the market. Traders that owned the stock prior to the rise are simply along for the ride. In fact, they are looking for the best time to sell. Once it becomes clear that the upward momentum has run out of steam, there is a flood of traders dumping their shares and cashing in on their gains. The stock starts to plummet, and within days or weeks, it has fallen back down to a reasonable valuation.

Lessons for NTDOY Traders

When a phenomenon like Pokemon GO hits the scene, a stock can seem like a “can’t miss” buy. This idea often lures buyers to the market at exactly the worst time. These buyers were scooping up NTDOY stock in the $28 to $38 range back in July. When the stock subsequently comes crashing back down to earth, these traders often feel as if they have been cheated by the market or as if the market is “rigged.” How could a stock responsible for such a popular product not go up?

The important thing to remember is that stock trading isn’t simply about finding the right stock. It’s about buying at the right price. Even at NTDOY’s lowest post-Pokemon price, the stock was still up nearly 40% in less than a month. That’s huge. And that’s also some major value that Pokemon GO created for NTDOY shareholders. Nothing about that is rigged.

Déjà vu for Nintendo

The good news for anyone who got burned on the Pokemon GO trade is that NTDOY shocked the world again this week when it announced Super Mario Run at Apple Inc.‘s (NASDAQ:AAPL) iPhone 7 launch event. NTDOY stock did its best Pokemon GO impression, and shares surged 28% in a single day. The stock spiked as high as $36.55, not quite reaching its previous Pokemon GO peak. However, in the two days since the announcement, the stock is down 9.4%.

I’ve seen very little analysis from Wall Street on what type of revenue/income NTDOY can expect from Super Mario Run. However, if you think NTDOY is in the early stages of a long-term resurgence, consider waiting for the stock to chill out a bit before you buy.

Barring any surprise announcements from the company in coming weeks, there’s a good chance you’ll be able to take a position in NTDOY stock at a much cheaper price than $33 in the near future. Just wait for the Super Mario Run hysteria to die down.

If you’re one of the NTDOY traders that got burned on Pokemon GO, do yourself a favor and follow these infamous words of wisdom from former President George W. Bush: “Fool me once, shame on — shame on you. Fool me — you can’t get fooled again.”

As of this writing, Wayne Duggan did not hold a position in any of the aforementioned securities.

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