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Hello all,

The focus of this post is to remind people that shortsightedness is not an ideal investing strategy.  Many times, people are fearful of low-performing companies.  While this may be the case of Nintendo in the past three years, this is not the case and will not be the case of Nintendo in the future.  I want to focus a bit on Nintendo’s most recent IR statements (also a bit on their finances), which I believe, shows that Nintendo is heading in the right direction.  It is important to also note that pessimism helps bring the price of shares down, which leads to some good buys.

The first point I want to make about Nintendo is their increase in research and development cost.  Satoru Iwata made it clear that these R&D costs were going to be unique and should not be expected to sharply rise again.  This means we can expect these costs to come back into orbit and to a lower amount.  However, I want to emphasis this a bit.  Nintendo has lots of liquid assets lying around that they must have put towards increasing R&D.  This is something that I have enjoyed by Nintendo’s management:  Keeping cash around for dire situations, such as a bad selling product like the Wii U.  This conservative style compliments the riskiness of their business model.

Another great thing about Nintendo is they experiment with new technologies… high-risk strategy with a  high-risk business model (Nintendo doesn’t have much product diversification).  The Wii U hasn’t done the best, so this probably represents when this high-risk strategy doesn’t always pan out.  Comparatively, we can also observe what Satoru Iwata’s leadership and management style has created:  Some of the best console cycles Nintendo has ever experienced.  The example I am talking about here is the case of the Wii and the DS, both of which drove Nintendo’s shares very high prior to the Great Recession.  This makes me convinced that the future will be good for Nintendo and its shareholders.

Another interesting thing that we can takeaway from the IR report is Nintendo will eventually buy back shares.  Most investors would view this as a sign of optimism, because Nintendo is purchasing back its own shares.  This is a sign of confidence on Nintendo’s part, because this will be the second purchase of shares in the last one or two years.  This increases the equity for all shareholders, simple supply and demand will point to increases in the price per share (less supply).

I myself, am a bit optimistic of what the increases in R&D will bring.  We can obviously expect some new technologies coming out from Nintendo:  the quality of life platform (new market), new low-cost console (for developing countries), and getting more use out of the Wii U (NFC technology).  I am excited to see exactly what will happen, but I have a feeling we are going to see Nintendo’s high-risk strategies paying off.  If not, Nintendo still has cash lying around to invest in other products.  Until their high risk strategy pays off again, the strength of their IP will keep them afloat to some extent.  There is a lot more information we can get from the IR report, so I’ll provide another post in the coming weeks on it and other things we can expect from Nintendo in the coming months.