This article was originally published here in March 2003
In my job as a computer programmer I get to read a lot of the trade magazines. Most industries have such publications. You may well have received an offer of a free subscription to your industry’s trade magazine. You probably threw the offer in the bin thinking the magazine was not of interest. Of course, you are mostly right, many of the articles are insanely boring. They are still worth reading though. Individual news items can come together to form a more useful picture.
In late 1999 the computer games retailer Electronics Boutique (now called Game Group) announced poor results. On a five-year chart you can see the rapid fall in share price from 70p to 30p. I read about the results and subsequent price decline in the computing press. By March 2000 Sony’s PlayStation 2 was starting to receive attention in computing magazines. The games console had already been launched in Japan to rave reviews. I felt the UK PlayStation launch would revive Electronic Boutique’s fortunes so I bought some shares on the 24th March. It turned out that I had bought in a little early as the share price bottomed at 25p a few months later.
Later in 2000 the more mainstream press began to mention the PlayStation 2. Microsoft also announced its X-Box console. All this news started to attract investors to the computer games sector including Electronics Boutique. By October I had doubled my money but the technology bubble was rapidly deflating. I felt I did not want to be too greedy so I sold my holding. As it turned out I could have been a lot more greedy as the share price peaked at 150p in the middle of last year.
More recently the price has collapsed back to 30p after Game Group warned of disappointing sales over Christmas. If you think history might repeat you will be interested to know that Sony will be launching their PlayStation 3 in 2005.
I live in Bedfordshire but my parents live in Essex. Whilst visiting them a couple of years ago I noticed that The Big Yellow self-storage company seemed to be growing rapidly. The company has a simple business; it rents secure storage space to the public. It had opened new stores where I live and where my parents live. Such activity is a good sign that a company is expanding rapidly which might make it a good investment.
I looked into the company’s financial state. It is normal for a growing company to have high levels of debt, which will be used to fund new business. Back then I felt it had too much debt for me to be happy buying its shares. I made the right decision as since then the share price has steadily declined.
I had another brief look at the financial state of the Big Yellow Group as I wrote this article. It seems its growth strategy has had mixed success. Turnover and assets have grown making the debt more manageable. The problem is the company is still not making a profit. This is probably the reason for the decline in the share price. I will add Big Yellow to the list of companies that I keep an eye on. It will be interesting to see what happens to its business in the event of a downturn in the housing market. Will people sell their extra possessions (reducing their storage space needs) or move down the housing ladder (increasing Big Yellow’s storage business)?
Keep your eyes open and your brain in gear. You never know when you might discover a great new investment idea. Never rely on hype though - always check the numbers behind the story!