What can Pokémon Go teach us about irrational investing?

Johnny HopkinsResearchLeave a Comment

(Image Credit: www.pokemon.com)

A lot has been written about the irrationality of investors.

To help them out, they can head over to the SEC website and read the nine investing behaviors that can undermine investment performance. The article’s titled, Investor Bulletin: Behavioral Patterns of U.S. Investors.

“The Library of Congress report identifies nine investing behaviors that can undermine investment performance.  These behaviors include: active trading; the disposition effect; focusing on past performance and ignoring fees; familiarity bias; mania and panic; momentum investing; naïve diversification; noise trading; and inadequate diversification.”

One of my favorites is Noise Trading:

Noise trading occurs when an investor makes a decision to buy or sell an investment without the use of fundamental data (that is, economic, financial, and other qualitative or quantitative data that can affect the value of the investment).  Noise traders generally have poor timing, follow trends, and overreact to good and bad news in the market.”

Seems pretty obvious right…

With this in mind I had just started reading this article called, Nintendo shares plummet after investors realize it doesn’t make Pokémon Go.

Here’s the CNBC video:

According to CNBC, the reason for the drop in Nindendo’s share price was:

“Nintendo shares skyrocketed since following Pokémon Go’s release and instant transformation into global cultural phenomenon, but they fell dramatically Monday after investors realized that Nintendo doesn’t actually make the game.”


“Nintendo put out a statement after the close of trading on Friday pointing out that the bottom-line impact will be “limited” as it only owns 32 percent of The Pokémon Company, and that the game and its Pokémon Go Plus smartwatch peripheral have been accounted for in the company’s current forecasts.”

Who does own Pokémon Go?

“Pokémon Go is a collaboration between The Pokémon Company and Niantic Labs, the developer who previously created the similar AR game Ingress as part of Google. This apparent revelation caused shares to plummet in Monday trading, with the stock dropping 17 percent at one point, representing about $6.4 billion in value; as Bloomberg notes, Tokyo stock exchange rules prevent share prices from moving more than 18 percent in a single day.”


“It appears that Nintendo’s huge stock bump, which took the company past Sony in market capitalization, was fueled by investors with the misguided belief that Pokémon is wholly a Nintendo creation. Nothing that Nintendo said in its announcement on Friday was new information — there isn’t a Nintendo logo to be found anywhere within Pokémon Go itself, and the status of the game’s ownership has been clear since it was announced last year.”

I think this can clearly be defined as Noise Trading!

Investing 101. If you’re going to buy a stock in a company, try to at least understand what they do and what they own!

This is one time I would love to be able to ask legendary investor Charlie Munger a question, “Mr Munger what did you think of those investors who bought Nintendo stock cos they thought it owned Pokémon Go?”.

Can you imagine his response.

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