The video game industry is cyclical, and leadership within sectors is cyclical as well. A proverbial “buy when the blood is running in the streets” opportunity I think has emerged with three very cash-rich companies. I wrote puts (ZNGA) or bought outright the following three video game stocks.
Zynga @ 2.90
Nintendo @ 13.82
Perfect World @ 11.14
At Interactive Brokers you need to pay $3/month for real time quotes on pink sheet foreign stocks like Nintendo which is ironically hard for me to stomach but then the transaction cost was the same as any other stock — much different than what I remember from the Fidelity desk to buy a foreign OTC stock. I haven’t checked the margin implications.
Margins of safety are hard to come by in technology whose rate of change makes persistent advantages hard to find. But when there are firms that do have some moat — Nintendo’s franchises might be among the deepest in gaming — with nearly 2/3rds of the market capitalization in cash in the first two cases and half for PWRD (offset by some debt) then it is time to back up the truck.