A Tale of Two Chinese Game Stocks

Booming and Busting

Government Interference

Not Just a GAME


In 2005, as if by magic, Web sites, TV talk and news shows, newspapers and magazines were filled with stories about how the Baby Boom Generation was going to be turning 60.  In 2008, further illustrating the continuing association of the Boomers and the Beatles, the cute features were about the song "When I'm 64," Paul's jaunty little ditty that asked: "Will you still need me/Will you still feed me/When I'm 64?"

And there's not much risk in predicting that when the first Boomers reach full Social Security retirement age--now 66 for those born between 1943 and 1954--there will be another spate of stories.

The Boomers have always been a source of great interest to lots of people (especially themselves) and attitudes toward them vary a lot.

Comedians love to roast Boomers for getting old while never growing up.  I thought the first joke I heard about a group of Sixties Survivors attending a Rolling Stones concert wearing Depends was pretty funny.  The next 15 times, not so much.  Same for the lists of Then and Now jokes (Then: Looking for some good acid.  Now: Looking for some good antacid.)  

Conservatives have never forgiven the Boomers--who were college (and draft) age in the late 1960s--for sex, drugs, rock 'n' roll and protests against the Vietnam War.  That's when things started to fall apart, according to this line of thinking.

Progressives give the generation a hard time for losing revolutionary zeal and relaxing into disco madness and cocaine use in the '70s, then settling down to buy houses, make a living, and raise kids.  Too much work left undone by these lights.

Gen X, Gen Y and subsequent generations are just plain sick of hearing about them.  

But say what you may about the Baby Boom Generation--and since there are 77 million of them, almost everyone has something to say--their age cohort still has the highest earning power and the highest voting power and represents the biggest challenge to the medical and social services industries in the history of the U.S.  What they don't seem to have is enough money to retire on.

Unfortunately, if financial publications are to be believed, Boomers are the least prepared for retirement of any generation before them.  Citing a fall in home prices and stock prices, a study by the McKinsey Global Institute laments that "more than two-thirds of early Baby Boomer households, meaning those between the ages of 50 and 63, are financially unprepared for retirement."

In 2007, one study showed that 53% of households with at least one retirement account had combined balances of just $45,000.  Households of those closest to retirement (head of household between 55 and 64) had median account values of just $100,000.  And those dollar amounts were harvested before the Stock Market Crash of 2008.  Using the interest rates from May 2009, that $100,000 would buy an annuity of just $700 a month for life.  Where I live, that's just enough to pay my property taxes and subscribe to a newspaper.  

A more recent study by the U.S. Census Bureau shows that only 41% of workers between the ages of 25 and 64 have any kind of retirement account at all.  And those who had them had average balances of less than $33,000.  

Whatever your attitude toward Boomers, you have to admit that the potential problem is enormous.  

Some retirement planners advise that you should have 70% of your current annual income in the bank for every year you think you may have of retirement.  

My response: How the heck am I supposed to know how many years of retirement I might have?  As a connoisseur of the obituary writer's art, I see lots of people shuffling off at ages lower than mine.  And at the other extreme I have my father-in-law who is now 93 and doing fine.

I know that I find the idea of making lots of money and then not making more money for the rest of my life a little creepy.  It's like having a period of your life when you fill the bucket and then a period in your life when you empty the bucket.  Just be sure to put in more than you need to and take out less than you want to.  Better safe than broke.

I'm not a Boomer myself.  I'm one of the last of the War Babies.  So I'll keep breaking trail for the Boomers as long as I can.  And I'll watch with interest as reality catches up with the generation that thought it would change the world.  Should be fascinating.

Whether you're a retiree, a Boomer or a Generation whatever, you might want to consider getting more active in working toward retirement.  401(k)s are fine, but they're way too passive to achieve real gains against inflation and predatory markets.  Cabot's newsletters are specifically designed to help individual investors invest successfully.  

I write the Cabot China & Emerging Markets Report, which has been helping investors make money and protect gains in the hottest markets in the world.  Over the past five years, it's the top-performing newsletter of all the newsletters covered by the Hulbert Financial Digest.  It's the perfect way to break out of the passive approach to your retirement.  A no-risk trial subscription is just a click away.



It's one thing to talk about government interference with business in the abstract.  In the U.S. this is usually a matter of massive paperwork, taxes, red tape and restrictions on employment, environmental impact, worker safety and health care.

In China, things can get significantly weirder.

Take the Chinese Web portal and online game company Netease.com (NTES).  NetEase is a competent, thriving enterprise with lots of online services and lots of subscribers.  But the big story for people holding the company's stock was its acquisition of the franchise for World of Warcraft, a massively multiplayer online role-playing game with a huge following.

Netease had been operating the game in a private beta version (free-to-play) and anticipating the good times when it got full government approval to go commercial.  There were just a few objections that the General Administration of Press and Publication (GAPP) had to some content.  It was all going to work out.

Then GAPP found out that NetEase had received an OK from the Ministry of Culture to begin operating the game, which it was doing.  GAPP had a hissy fit and denied the application to run World or Warcraft and terminated the approval process.

The Ministry of Culture has responded that GAPP has no jurisdiction over the World of Warcraft application and that the game is being legally run.

Now the whole brouhaha has been kicked upstairs to the State Council.  That should go well.

This is further proof that, if there's anything worse than getting crossways with a government agency, it's getting caught in the middle of a pissing match between two of them.

The Cabot publications that owned NTES have long since advised selling.  (We made good money, too, having bought back in April.)  As usual, identifying abnormal weakness in a stock allowed us to get out before the bad news hit.  Chart reading remains one of the more vital skills needed for successful growth investing.

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Today's stock pick is a new initial public offering from China that has a great pedigree.  It's Shanda Games (GAME), the revenue-producing portion of Shanda Interactive Entertainment (SNDA) that was spun off from the parent company on September 27.  

Shanda has been around for a while, offering a growing lineup of online games, all the way from casual time-wasters to immersive MMORPGs like Dungeons and Dragons Online.  It's not clear why Shanda Interactive wanted to kick Shanda Games out the door.

But after a post-IPO droop that pulled the stock down from 12 to 9, GAME has shown some life, jumping back on top of its 25-day moving average.

Like a racehorse with good breeding, GAME is an interesting bet on the popularity of online games in China because it has the experience of Shanda's long history behind it.  It will bear watching.

And if you want to know more about the strong stocks of China and the rest of the emerging markets, you might want to check out the Cabot China & Emerging Markets Report.  



Paul Goodwin
For Cabot Wealth Advisory


Paul Goodwin can be found on Google Plus.

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