Ready Investor One: How Gaming Became the Business to Bet On

February 20, 2020

You’ve got to conserve resources, time everything right, and then give it your all to win big. This describes how to conquer most video games. However, it also describes a real-life challenge: success on Wall Street!

Investors are looking for markets that will significantly grow and pay out in a major way. Now, it looks like video games may be the hottest investment item of 2020.

How did gaming become the business to bet on, and how can you take advantage of it? Keep reading to discover the answer!

The Investment Cycle

If you’ve never invested in the stock market, you may think it all looks chaotic and random from the outside. From the inside, you can see a very clear and cylical pattern.

“Cyclical” is a buzzword meaning that the market will go through “bust” and “boom” cycles. The housing market is a great example of this. Over a decade ago, housing was in the bust cycle. In fact, it kicked off our last major recession!

Now, housing has bounced into a major “boom” cycle led by millennials looking for a house. The basic principle of investment is simple: get in while the getting is good! If history is any indicator, now is the time to invest in video games.

Study the Past, Understand the Future

Phil Spencer, Head of Gaming at Microsoft, onstage at Xbox E3 2018 Briefing where Microsoft added five more creative teams to the Microsoft Studios family on Sunday, June 10, 2018 in Los Angeles. (Photo by Casey Rodgers/Invision for Microsoft/AP Images)

Obviously, there will always be an element of mystery when it comes to investment. We cannot know for sure what a particular stock will be worth at a given time.

Instead, what we can do is look to the past and forecast future trends. In this case, the major event on the horizon is the next generation of video game consoles. Both Sony and Microsoft will be unleashing their new consoles in time for the 2020 holiday season.

Historically, a new console generation leads to rising stock value. This can kick off a “super cycle” of rising value that may last for half a decade. With a new launch around the corner, this may be your chance to get in on the ground floor of some smart investments.

Values Rise and Then Stabilize

Another reason to invest in video games is that stock value rarely plummets. Instead, it simply cools down relative to past years.

For example, EA’s stock value has been relatively stagnant since 2018. However, their value steadily rose between 2012 and 2018. Those “stagnant” stocks are still valuable, especially to those who were wise enough to invest back in 2012.

Now, gaming stocks could be set to grow yet again with the release of these new systems. And the sooner you invest, the sooner you can see this investment grow.

Timing Is Everything

It’s easy to look at the console release dates as a stock investment date. Let’s say the new consoles come out in December: it would be easy enough to wait until then to invest.

As simple as that may sound, it’s actually a bad investment strategy. Why? Because of the other investors. Stock value is based, in part, on the amount of investor interest in a particular company. Many other people are going to invest in the hottest companies, and it’s only going to drive their value up between now and the actual release of the consoles.

The Holiday Boost

Another thing that makes such investments wise is the holiday timing. Both Microsoft and Sony are gambling that gamers won’t be content to just snag the system and a launch game. Instead, they are hoping gamers will grab several games, either for themselves or as gifts for the family.

Generally speaking, the best investment is in the companies making the software and not the hardware (more on this in a minute). By investing in companies that have hot launch games, you can benefit from an immediate boost in stock value should their launch games be successful.

When Is the Time To Buy?

Let’s say you’ve decided to invest. When, then, is the best time to invest in gaming?

Honestly, there is no time like the present. If you are counting on a new gaming “super cycle,” then you are counting on the idea that gaming stocks are going to keep rising in value for five years or more. And as noted above, that increase in value can occur before the actual release of the new systems.

It’s not the end of the world if you have to wait until closer to December to invest. But the sooner you make your investment, the more you’ll be able to stretch those investment dollars.

What To Invest In

With new consoles on the horizon, Microsoft and Sony are the companies everyone is paying attention to. But keep in mind that these are not necessarily the companies you should invest in.

Instead, the real value comes from investing in the companies producing the hottest games. Historically, this has included companies like EA, Take Two, and Activision Blizzard. 

As an investor, you can always speculate on a smaller company that you think is going to be a breakout star. But if you want to maximize your odds of stock rising in value, there is nothing wrong with backing some proven winners.

Nothing Is Guaranteed

This will hopefully be common sense for most readers, but remember that the stock market can be volatile and unpredictable. The last generation’s super cycle doesn’t guarantee that the next generation will have one. And even betting on the big software winners of the last decade doesn’t mean that they will remain winners forever.

In short: use your head and never invest more money than you can afford to lose. With any luck, your investments will make the next few years that much sweeter for you and your family!

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