Right now, like many individual investors, I am thinking about the coming year on Wall Street. What moves should I make? What stocks should I look at? Specifically: How should I position my portfolio?
One company I am almost certain to get rid of is Activision Blizzard (ATVI). I reserve the right to change my mind on this, but data on the video game industry point to a deterioration in the fundamentals. Many headlines throughout the year have trumpeted the fact that the console cycle is aging, and that demand for high-end systems has been satiated.
And there are intrinsic problems with Activision Blizzard itself. The Guitar Hero phenomenon is not as rockin' as it used to be. DJ Hero wasn't as popular as predicted. Such facts take points away from the publisher's thesis.
Technical analysis also goes against the story. Here's an excellent article on ATVI's price action from iStockAnalyst. The bearish conclusion does make an investor reconsider a position in the company.
I would be remiss if I didn't mention criticism of my recent bearish commentary on Activision Blizzard. Comments made on my recent earnings article indicated displeasure at my lack of respect regarding the Blizzard portion of the business.
Yes, it's true: Assets like World of Warcraft and Starcraft do mean a lot to long-term investors.
However, in my particular case, I've held shares of ATVI for a very long period, and I still have a profitable position. If I had sold out earlier, I would have been able to book even bigger gains. For me, the best thing might possibly be to take the position off the table. 2010 could be a year for capital preservation, after all. The reason I'm waiting until 2010 to preserve this bit of capital, by the way, is because it resides in a taxable account.
The way I see it, I can always get back into the stock later on. Why let my gains disappear? Video games are a growth play, but when you see what's happening to Electronic Arts (ERTS) and Nintendo (NTDOY), you simply can't ignore reality: Those who invested in publishers before the recent console cycle should now rethink the short-term prospects for the industry. If you're lucky enough to have a profit (like I am), booking it could be the best strategy.
Disclosure: I own Activision Blizzard; positions can change without notice.