|Dow||+91.26 to 16,651.80
|S&P 500||+12.97 to 1,946.72|
|Nasdaq||+44.88 to 4,434.13|
|10-YR Yield||-0.029 to 2.413%
|Gold||+$2.30 to $1,312.90|
|Crude Oil||+$0.03 to $97.40|
Confession time: I played Candy Crush for a while. I wasn’t a first-wave, early adopter mind you. But while I was waiting at the repair shop to get some new tires on my car several months ago, my youngest daughter, Zoey, encouraged me to download it on my iPhone to pass the time.
Many, many levels and countless hours of “lost” time later, I realized it just wasn’t for me anymore. Spending a few bucks on extra lives or game upgrades really was a waste of money. And let’s face it, that in-game music gets really annoying after a while!
That brings me to the market disaster-du-jour in shares of King Digital Entertainment Plc (KING, Weiss Ratings: C). The maker of the Candy Crush game plunged 23% after it reported disappointing sales and provided guidance that failed to wow investors or analysts.
|“Avoid flash-in-the-pan type stocks whose fortunes are tied to only one or two products that have a limited shelf life.”|
The company’s second-quarter revenue of $593.6 million missed forecasts for $609 million. It also slashed its gross bookings forecast for the year to as little as $2.25 billion from $2.55 billion in May. Those bookings are what gamers pay for perks and items in the game environment online, and the reduced guidance clearly shows the fading popularity of Candy Crush.
The stock went public at $22.50 in March. Including today’s decline, it has now handed investors a loss of 38% in just five months!
So what’s the message you can take away? Watch out for “Fad Investments”! I’m talking about flash-in-the-pan type stocks whose fortunes are tied very closely to only one or two products that have a limited shelf life.
Look at all the losers that fall into this category. One of King’s primary competitors in online game publishing, Zynga (ZNGA, Weiss Ratings: D), comes to mind. It has plunged more than 80 percent from its post-IPO peak.
So does a stock like the GPS navigation device maker TomTom NV (TMOAF), which now trades irregularly as an over-the-counter tracking stock in the U.S. Those shares went for around $98 in late 2007, versus only $7 now.
|Disappointing sales of Candy Crush helped batter the shares of its maker.|
It remains to be seen whether more recent examples, like GoPro (GPRO), can avoid the curse. That stock has pulled back from its post-IPO peak of around $50 to the $39 area today. But suffice it to say, when you buy into a fad stock, you’re taking your investment life into your own hands.
What has your experience been with names like these? Did you get crushed by King, too? Zinged by Zynga? Do you have any investment rules you follow with these kinds of stocks? Are there ways you can make money with them, then get out of the way before the fad fades? Let me know at the Money and Markets comment section!
|OUR READERS SPEAK|
Master limited partnership stocks had another powerful upside move today. In fact, one of my favorite names in the Safe Money Report model portfolio jumped more than a buck to within a whisker of a fresh all-time high.
Reader J.S. brought up one of the potential hazards of investing in these stocks — namely, the tax reporting requirements involved with them. The comment:
“I held, for several years, and then sold Kinder Morgan Energy Partners (KMP, Weiss Ratings: C+) and had a huge tax bill because the so-called income was actually return on investment and anything after that was taxed as ordinary income. I had to come up with $10,000 to pay the additional taxes. Note that my taxes are prepared by an EA who knows what’s she’s doing.”
J.S., my view is what I stated the other day. I never put the tax cart before the investment horse. If I like a stock or MLP, and think it can deliver nice yields, nice capital gains, or some combination thereof, then I will recommend it. After all, while tax reporting and tracking for MLPs can be more complex than with common stocks, if you make 10-15-20 percent or more a year on these companies, I don’t think you’ll mind too much, right?
Many MLP firms also provide detailed information to help you file your taxes. For instance, KMP offers this website to assist with tax filing requirements.
Meanwhile, Reader Dean weighed in on the positive impact of the American energy renaissance. He said the following about the way it’s helping the city of Pittsburgh: “Excellent Idea. I’m glad to see the airport and jobs being saved through this even though I never fly to or from there.”
Reader Joseph S. also weighed in on the positive impact that the energy revolution is having in his backyard in Texas: “The game changer was the perfection of horizontal (directional) drilling. My small ranch is located in the eastern part of Texas in the area covered by the Haynesville shale.
“During the ‘boom’ in 2009-2012, one could see dozens of drilling rigs lighting up the sky at night all around my ranch. Yes I have a drill site on my land; in fact there are drill sites all around me … My and my neighbors’ well water is sweet and my grass is green with fat cows grazing … with the added bonus of a royalty check once a month in the mail.”
But Reader B.Z. warned that air, water and land pollution can be a problem, what with the potential for fracking fluid to pollute aquifers and the construction of access roads to foul the air and land. The words of caution: “They don’t tell the inside story!”
So where do you come down on this debate? If you want to weigh in, the website is the place to do so!
|OTHER DEVELOPMENTS OF THE DAY|
Are more American boots going to be on the ground in Iraq soon, pledges otherwise notwithstanding? That’s a real possibility being explored by the Obama administration.
More than a hundred American military advisers and special operations forces are either already in-country or potentially headed there as part of the rescue and supply operation underway. It’s designed to prevent ISIS militants from massacring thousands of Yazidi refugees trapped in the country’s north.
Retail spending flat-lined in July after five months of gains. Excluding a drop in cars and car parts, sales inched up 0.1 percent.
But that was somewhat weaker than economists were expecting. It’s worth noting that shares of Macy’s (M, Weiss Ratings: B+) got pasted after the department store retailer reported disappointing guidance.
European countries like Germany have been somewhat reluctant partners when it comes to sanctioning Russian President Vladimir Putin. Why? Because they have much closer trade ties to Russia than we do.
The New York Times says that’s changing now, though. Businessmen and women, politicians, and the public are increasingly turning against the country, even though some 7,000 German firms do business there.
Reminder: You can let me know what you think by putting your comments here.
Until next time,
P.S. Wealthy investors are surprisingly picky about the companies they invest in — demanding the very best in order to preserve their capital and make it grow. Simply put: They have patience. Would you like to know what else separates them from average investors? Then click here for Bill Hall’s FREE report.