Harry Potter and the Deathly Investment

News is out this morning that the seventh and final book in the Harry Potter series of door-stoppers is to be called “Harry Potters and the Deathly Hallows”. It is a good time to look back at one aspect of the Potter phenomena, and that it is how crummy an investment it has been.

The main U.S. vehicle by which investors can get some Potter play is Scholastic Corporation, which has the U.S. rights to the popular series. It currently trades at around 21 times earnings, while delivering historically a mid-teens year-over-year increase in profits (and 12% in its most recent quarter reported earlier this week). The Potter books represent a significant chunk of Scholastic’s sales and earnings, something like 10% of Scholastic’s billion dollars in annual revenues.

So, let’s say you bought Scholastic stock back in 2000 when Potter-mania was just getting going. How would you have done? Here’s a graph:

You would be approximately flat over the period, despite Harry Potter taking over the media world. And while the Potter series has only grown in popularity — book sales are up on each successive release — that has not translated into ongoing performance for Scholastic’s stock. Matter of fact, the best recent run the stock has had has been since the middle of this year, since when the stock has climbed from $25 to its current $34.92, a lovely 40% gain, but also the kind of unsustained, short-term run the stock has done repeatedly over the period since 2000.

Has there been any investable pattern, however, to these short-tern runs? For example, has it paid to buy the stock when Potter author Rowling announces the title of a new book? When Scholastic announces a release date? If so, how long a hold has paid out?

Looking back, there seems to have been a decent gain after the June of 2004 announcement of the title of the sixth book, Harry Potter and the Half-Blood Prince (what is it with these creepy titles?). If you go back to October of 2000 when Rowling announced the title of the fourth book in the series, the stock climbed a little further, and then peaked in February of 2001. You would have done well, albeit missing an even larger run that began back in the middle of 2000.

Buy the title, sell the release? More later when I can find additional data.

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  3. The Accidental Investment Banker
  4. Brother, Can You Spare a Venture Investment?
  5. Alan Greenspan: How I Spent My Bubble Bursting Days

Comments

  1. Scholastic may not have made strides with Harry Potter but JK Rowling certainly has come a long way from being a single mother on benefits to being richer than the Queen and being officially a US$ billionairess, although in a uniquely British way she describes her wealth as ‘disproportionate reward’.
    To me, it reflects more on relative value appropriation by players in a value chain than anything else (and yes, this is a flawed comparison but hey, she lives in my town, not far from me, and I feel compelled to comment!).
    Distribution rights are not as value-adding as creating the content in the first place (unless you are a musician with a records company contract!). Further I feel that unless its shareholders/ the market see Scholastic’s performance as over-reliant on one franchise (which I think is the point you are trying to make), I should think it would be fairer to frame their performance in the broader context of everything else they do too.
    As for creepy titles, I am afraid I cannot comment. I am one of those few adults remaining in Britain, who did not read a single Potter book. But I can confirm there is a platform 9-3/4 on Kings Cross station in London, before one reaches the platforms to board trains to Cambridge. It might even have served to change the reputation of Kings Cross to something less seedy than Pet Shop Boys managed with their 1980s song ‘King’s Cross’.

  2. tüğba says:

    hello harry