Does Nintendo’s U-turn mean the bubble is primed to pop?

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Are you old enough to remember the dotcom boom?

Between 1997 and 2000, the NASDAQ, a tech-focused equity market in the US, soared, reaching its peak on March 10, 2000.

Now do you remember the tragic story of Tony Dye, also known as “Dr Doom”?

Tony Dye was an investor at Philips & Drew. His investment style was “value”, not “growth”, which meant that he looked at the underlying characteristics of companies whose share prices were skyrocketing. He looked at their assets. He looked at the operations. He looked at their “defensibility”.

He didn’t like what he saw. As early as 1996, he started moving his investors out of equities and into cash. During that great bull run where the market increased in value by 5x, Tony Dye sat it out. “It won’t last,” he said. “You’ll see.”

By 1999, Philips & Drew was ranked 66th out of 67 fund managers in the UK. It was losing clients hand over fist. In February 2000, Tony Dye was sacked, and Philips & Drew finally moved its clients from cash into equities.

February. In the year 2000. Less than a month before the market crashed.

Imagine sitting out that epic bull run in cash, and only being in equities in the equally epic bear run that followed. (The Economist notes that between 1998 and 2007, the major US and UK share indices earned a real annual return of 2%; putting your money into safe-as-houses US government bonds – which is very, very close to cash – would have delivered a real annual return of 3.7%. Tony Dye was right.)

In hindsight, the sacking of Tony Dye was a sell signal. A man was fired and a strategy was changed because the herd mentality was strong. A principled business had to “go where the money is”. An organisation which didn’t understand this new world felt that it had to be in the game anyway.

Humans are good at seeing patterns. Even when they are not there.

But as a someone who was an equity analyst and then a dotcom CFO during the boom, the echoes with Nintendo’s decision to get into the mobile market are striking.

Is Nintendo’s announcement of its alliance with DeNA a Tony Dye moment in the smart device gaming market? Or am I just seeing patterns where none exist?

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