Buying Nintendo Stock instead of Wii U

I’d have been better off buying Nintendo shares in stock market 6 years ago than spending 250 euros on buying the original Wii game console when it first launched in 2006. My investment would have tripled up before Nintendo stock collapsed during 2008. Nintendo is now launching its new console called Wii U late this year and I’m now much more impatient to invest in the company. Will history repeat itself?

Nintendo announced last week (September 12) that the new Wii U launch date is set in late November 2012. Nintendo had made a similar announcement regarding the original Wii (launched in November 2006) on September 14, 2006! Back then Nintendo stock price in NYSE had already gained 100% within a year at the time of the announcement and traded at $25. By the time Nintendo Wii had become the market leader in worldwide console sales according to Financial Times (September 2007), Nintendo shares price peaked and the trend reversed, losing 50% of their value in the following 2 years.

Nowadays Nintendo stock hasn’t yet reversed the 4-year downtrend. Yet, Nintendo shares are trading at prices similar to pre-launch of Wii at $15. The Wii U launch date announcement has increased investors’ interest, judging by the recent $2.5 per share gain since July. A much more reliable reversal formation is found in the weekly stock graph, where last week’s candlestick printed new 3-month high whilst MACD and RSI divergence also indicate a likely reversal pattern.

In the meantime consolidation for Nintendo stock is apparent in the Tokyo stock exchange as well. Nintendo stock is gaining more than 2% today in the Asian market but hasn’t gone to new monthly highs, assumingly due to the USD/JPY recent impressive decline that has strengthened the Japanese currency compared to the US dollar.

Risk-averse traders would probably set a loose stop loss at $12, risking $3.5 per share in case the buy Nintendo stock at $15.5. That’s a frightening 22.5% possible loss but the reward can be a whopping 100% gain up to the latest support level. In fact, if history does repeat itself and Nintendo stock skyrockets to previous highs ($80) the reward can max out at 400%! Given that disciplined traders follow proper money management, the stop loss should deplete just 1% of their trading capital making that 22.5% loss less significant in their stock trading performance. At the same time the 4-1 reward-to-risk ratio would increase their capital by 4% minimum. Investing in Nintendo stock though isn’t a short-term investment though since traders most likely will need to hold on their position for month to come.

Disclaimer: I have no positions in any stocks mentioned, but plan to initiate a long position in NTDOY within the next 72 hours.