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OPINION

Fantasy investing

Fantasy investing
May 16, 2019
Fantasy investing

What I didn’t know then, as I refined my putting stroke, was the financial potential of fantasy gaming, something that I discovered many years later when I began writing for Investors Chronicle. I say discovered, when what I really mean is suspected, for while I understood the company – which again graces the pages of the magazine this week – and its market, I had no idea just how much its shares would rise in the near-decade since I suggested buying them in the summer of 2010. At over £43 a share they have risen nearly 10-fold; if we include the generous dividends paid over the years, the total return hits a mighty 1,898 per cent. It is the stuff of investors’ fantasies, not just those of Games Workshop’s customers. 

There are so many lessons to be learned from this case study that it’s hard to know where to start. It tells us to run winners – although that’s easy to say with hindsight, given the path from 425p to £43 has not always been a smooth one (do your homework and stay strong could be another learning). It illustrates how much a single stock can contribute to long-term portfolio returns – for even if in aggregate my tips have comfortably beaten the market, no others have achieved the same heady heights. And we can see clearly what an important role reinvested dividends play in those returns – in this case half of the total, even with quite incredible capital appreciation. 

What can we learn from the business itself that may help us spot similar winners in the future? Perhaps that while niche hobbies can be lucrative, they are not in themselves a licence to print money – the sad decline of Hornby, whose models were in equally strong demand from nerdish schoolboys for much of the 20th century, tells us that no business is immune to changing consumer tastes. The same is true of philately specialist Stanley Gibbons, whose fortunes have mirrored declining interest in what was once the near-ubiquitous practice of stamp collecting. In both instances, management’s strategic responses to these market shifts compounded rather than combatted their problems. 

That’s why it’s encouraging to see that, increased scale aside thanks to a genuinely global market for its products, Games Workshop looks much the same as it did a decade ago: a well-managed company that understands the limitations of its niche and sticks to its knitting – as it happens another incredibly popular UK hobby, albeit one yet to find its way onto the stock market. It can only be a matter of time…