Value Investing! Why I Invested in Blizzard (ATVI)!

In order to achieve Financial Independence, it is critical to begin investing as early as possible in life

Value Investing

“Value investing is an investment strategy where stocks are selected that trade for less than their intrinsic values. Value investors actively seek stocks they believe the market has undervalued.”

There are many options someone could choose when it comes to investing. The conventional wisdom is to invest in ‘safe’ investments that would yield anywhere from 3%-7% annually. Mutual funds, index funds, or real-estate investment trusts (REITs) are good examples of relatively low-risk financial products that anyone can invest in. The problem that I have with these products is that it is difficult for the common person to have a solid understanding as to how a fund is structured or how to forecast the fund’s future performance. Instead, I truly support individuals investing in individual companies instead of more generic products.

Investing in a singular stock is one of the riskiest investment strategies anyone can commit to. Only about half of American’s own any stocks on the exchange simply due to the risk associated with owning a single stock (link). However, buying stocks at a good value over time can gradually lead to a very promising portfolio. The reason that I promote the strategy of value investing is that everyone is capable of seeing a trend and investing in that trend. SnapChat (SNAP), which IPO’d on March 3rd this year, is a great example of a stock that has been seen as a value investment for many young people, as stated by ‘USA Today’ in this article. Whether you are bullish or bearish on SNAP, young investors today see the potential future growth for the platform, due to the fact that Snapchat is revolutionizing the way younger people communicate today.

Getting a general feeling for an industry is a good start when beginning to think about an investment opportunity. However, there is no point in investing if the price you are paying is too high for the product. It is easy to say that Google is doing well as a company and continues to grow. However, the real question to ask is, when is a good time to buy Google? 

There is definitely a lot of quantitative analysis that is not to be overlooked. Details like the Price/Expense Ratio (P/E Ratio), company financial statements, quarter over quarter growth, and annual growth are just a few key details that I look for when investing in a stock. Don’t become overwhelmed by the sheer numbers related to a company’s performance. 

For purposes of this article, I will explain why I invested purely on a gut feeling.

Hearthstone! My Greenlight to Buy Blizzard, Activision (ATVI)!

The reason why millennials invested in Snapchat, is the same reason why I invested in Blizzard Entertainment, Activision (ATVI).  Simply, because I believe in the future of their industry and more specifically, I believe Blizzard is one of the few gaming companies that have proven their ability to deliver high-quality games and build a loyal customer basis. After watching the BlizzCon 2016 Opening Ceremony, it is really quite obvious how promising the future of Blizzard is.

If you have read my previous articles, you will know that I am a hardcore gamer (at least, I was). I dedicated most, if not all, of my free time playing and mastering competitive video games. Some of my favorite games were all made by Blizzard, such as StarCraft Broodwar, StarCraft II, Diablo II, Diablo III, and WarCraft III (the DOTA part), and most of the Call of Duty Franchise. A lot of these games are probably completely foreign to most of the readers here, but try to stick with me. Traditionally, Blizzard Entertainment made single purchase games that really did not require their customers to spend any additional money after their initial purchase. The exception to this rule were downloadable content items for their Call of Duty games or monthly subscriptions to one of their most popular games, World of WarCraft. Following this on-going purchase model, Activision has made huge strides towards increasing their ongoing revenue by releasing Hearthstone, an online card game, on March 11, 2014.

atvi

For those of you who are unaware, Hearthstone is an online competitive card game that allows players to battle each other with virtual decks of cards. This may sound silly, but I absolutely love Hearthstone.  Hearthstone allows people to spend real dollars in order to get the latest and greatest cards that come out every year. The other option to get the new content is to dedicate endless hours of time to obtain in-game points that can be used as currency to buy the new card packs. The time required to obtain all the cards is too costly and unrealistic for any full-time employed person to commit to.  So in order to obtain the best possible cards, Hearthstone players are now able to pay anywhere from $1 for 1 booster pack (which contains 5 cards per pack) or $40 for 50 booster packs.  I shamefully admit that I have been guilty of spending real money on Hearthstone when I was unable to accumulate enough in-game currency. 

Seems a little crazy that people spend real money on virtual cards, right?

Not really. Blizzard has released two games since Hearthstone, “Overwatch” and “Heroes of the Storm”. Both of these games have a similar revenue-generating concept in the sense that every few months there is new content released that incentivizes players to spend money on the newest and best the game has to offer.  This content can be cosmetic changes to your characters appearance, audio changes, or even limited-time seasonal offers. Blizzard has been practicing this model of releasing content that players can buy by exchanging in-game currency or real-life dollars, and the results have shown fantastically over the past 5 years (see above).

I did not personally invest in Blizzard as soon as Hearthstone was released but invested a couple years after I fell in love with the game. The combination of their ability to deliver high-quality games and ability to build strong customer loyalty places Blizzard (ATVI) as one of the leaders of gaming. I truly believe the Blizzard will be a company that will stand the test of time (and has stood the test of time). I suggest that if there is a company that you feel has a bright future, then take the time to research and study that company.

Patience Is A Virtue – Especially When It Comes To Investing

Value Investing is a long-term game and is not for people that can’t control their emotions. The ups and downs of a stock’s value can easily cause stress in people’s lives when investing in the market. If you are not willing to see a little bit of ‘red’ in your portfolio, then I suggest investing in more stable investments. However, if you are a willing to have a long time horizon (10+ years), you may potentially witness incredible growth in a single company. The downside is that some companies can go belly-up and you could lose the entire investment. The upside is that some stock investments may grow in multiples, hopefully outweighing any losses. The key is to simply pick more ‘winners’ than ‘losers’.

It is very easy to become anxious or nervous when an investment is not doing well, especially when it comes to a single stock’s performance. There are plenty of variables that affect the performance of a particular stock that are very much out of the control of the common investor. As stocks go up and down in value, it is important to not react emotionally if there are any particular periods of poor performance. In general, investing requires focusing on the long-term strategy and having the dedication to stick with your strategy.

Value Investing in stocks is the current way that I choose to invest my limited dollars. I personally enjoy the ability to invest small amounts of money over time in stocks that I believe in. Over time, I am confident that my portfolio will transform into a very promising group of stocks that I had %100 control in choosing. With the cost of just $10 for the commission, there are plenty of platforms (I use e-trade) that allow anyone with a checking account to buy a stock and begin investing. Investing online or on your phone is easier than ever, but beware, as it is just as easy to be wrong about an investment as it is to be right about an investment.

The general rule of thumb is, take as much time thinking and researching about the investment as the time required to make the money you are investing. If you have been saving up a nice nest egg, don’t invest recklessly. There is absolutely no excuse with today’s technology to not self-educate and be aware of the latest news, information, or market trends. Take the time to ensure that the investment you are making is a wise decision. Most importantly, individual stocks may not be everyone’s ‘cup of tea’. So, invest in what you believe will yield the best return in the future. Invest in your future by educating yourself more! Invest in real-estate if you prefer the landlord lifestyle! Invest in mutual funds or index funds if you want a more steady, less volatile return! Whatever path you choose to invest in really doesn’t matter. There are many ways to build wealth, the key is to do what so few people do, and invest in something!

– Jack

 

 

*DISCLAIMER – DO NOT INVEST IN ANY STOCKS BASED SOLELY ON THE INFO ABOVE*

 

10 comments

  1. You are probably the first person on the FI path to advocate individual stocks rather than indexing for the stock market portion of investments. I’m primarily an indexer myself (with a few blue-chip holdings), but I look forward to seeing how your portfolio does overall with this strategy

    1. Thanks for the comment!

      So far, I am up a total of 16% split across 9 stocks at this moment. I have been as down as -3% and up as much as 22%.

      I would recommend people to invest in what they know. I just find it strange that many of us carry iPhones in our pockets, but just a small fraction of those people have ever bought Apple (AAPL) stock.

      Why not buy Apple? They are on their way to become the first trillion dollar company.

      -Jack

      P.S. I am looking at HMMJ, a marijuana index fund, as my first potential index fund. Since I am not sure who will win the green rush, I want to hedge my bets more generally across the sector.

      1. Nicely done! I bought individual stocks in the past because that’s what I was told to do, but even with research I was hit and miss. Now I feel more comfortable with the setup of index funds–less stress, holdings spread out (like your HMMJ fund) and I know I should at least follow the market.

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