FIVE INVESTMENT LESSONS FROM A THEME PARK TOUR
Reap the fun rewards of the markets roller-coaster by bravely taking chances
Over the recent holidays I took my boys, ages 10 and 12, on a California roller coaster/theme park tour. They were in heaven, as those are the perfect ages for such an event. As for me, being middle-aged (gulp), maybe not so much.
As usual, though, for people working in the investment world, even when you are on vacation you still think about the stock market. Waiting in line for hours for some crazy roller coaster also gives you lots of “thinking” time. Thus, here are five theme park investment tidbits I couldn’t help but think about last week.
FIRST, THE OBVIOUS: MARKETS ARE VERY MUCH LIKE A ROLLER COASTER
Up, down, all around, and — often — surprising. You have to be well prepared for the “downs,” but at the end of the ride you have (mostly) had some fun. Much like investing, you can’t make money without taking a chance, doing something that might scare you, and sticking it out until the end. Bailing out of a roller coaster mid ride is not going to go well, and often bailing out of a stock because you are scared of further losses doesn’t always end well either.
NEXT, HOW ABOUT INVESTING DIRECTLY IN A THEME PARK/ ROLLER COASTER COMPANY?
There are a few choices, but my boys and I have experienced these three directly: Disney (DIS on NYSE) of course (up six per cent in the past year), Six Flags (SIX on NYSE, up 16 per cent), and Cedar Fair LP (FUN on NYSE; up 21 per cent). All three pay nice dividends and are closely tied to consumer spending patterns. Based on how much park entry costs and how crowded its parks were last week, Disney still seems like the preferred choice here.
“OLD” IS NOT NECESSARILY “BAD”
We went on the ride Twisted Colossus at Six Flags Magic Mountain in Valencia, Calif. It was a wooden coaster, looking kind of lame against the backdrop of the other sleek coasters. We didn’t expect much, and as the teen staff checked and doublechecked our restraint system I thought their boss must have been watching, as it all seemed a bit like overkill to me. Wooden coasters are generally shaky, but overall not very exciting to anyone who has spent any time on other rides. Well, boy did the Colossus ever prove us wrong. By far the fastest wooden coaster I have ever been on, and then — it goes upside down a couple of times. It screams around corners and almost collides with the car it is racing. Then, you go back up the giant ramp — and do it all again against another car full of people. What’s the investment theme here? Well, there are lots of companies in old, tired industries that investors often ignore. Companies such as Transcontinental (TCL.A on TSX), which publishes magazines, or Exco (XTC on TSX) a “boring” auto parts company. But “old” or “boring” does automatically make a stock “bad.” Maybe, but maybe not. Each investment opportunity, as always, should be looked at individually. As an investor, you should never assume anything. Like our experience, you might get on a good ride even with a tired old company.
BIGGER MARKET OPPORTUNITIES CAN BRING BIGGER PROFITS
At Disneyland, I couldn’t help but notice the crowds. We were there on New Year’s Eve, after all. But it was not the size of the crowd I was noticing, it was the diversity. At Six Flags, it was pretty much entirely filled with teenagers and millennials, with the odd parent like me towing around two younger kids. At Disney, though, the crowd consisted of everyone: three-week old babies to 100-year-old Grandmas. Most everyone (kids under two free) has to pay — a lot — to get in. Those not riding rides were almost pure profit for Disney. Not only did they pay to get in, but they likely also spent a small fortune on food and souvenirs. At Six Flags, the teens all ignored the shops and restaurants and focused entirely on the rides. The investment pick up? A company that focuses on everyone, like Disney, or, say Google, might have a better business than a company that limits their market opportunity. There is a lot more involved, of course, but if you can find a company where the entire world is a potential customer it might be a better investment than one — say a teen retailer such as Abercrombie & Fitch (ANF on NYSE; down 51 per cent in the past year) — that focuses on just one market niche.
RESEARCH IS POWER
Disney has a very equitable way of controlling crowds at its rides, called FastPass, and it works very well. But if you hadn’t done your research, you would not be able to utilize the system to the best of its abilities. By carefully planning ahead, we waited five minutes for HyperSpace Mountain, while some customers waited more than two hours. Similarly, at Universal Studios, we simply bought our way to the front of the line, paying way more than a regular ticket. This saved us four hours at the Harry Potter ride. This didn’t feel right, but certainly helped our day in the park. The takeaways: investors — like theme park attendees — need to do their homework to maximize their returns. Park attendees — like companies — might do better if they have the balance sheet strength to utilize to their advantage any way they can.
Good luck with your investments this year. We truly hope the markets are less wild than Tatsu, X2, The Scream, Riddler’s Revenge, Viper, California Screamin’ and The Mummy, to name a few.