Investments That Look Good (But Aren’t)

Over the past 25 years, Electronic Arts (EA) has been an excellent investment. It has compounded at 18.33% annually. A $10,000 investment would have grown into $725,000. The stock doesn’t pay a dividend, so even if you bought it through a taxable account you would have the full value sitting in your account with embedded capital gains. If you sold it, you’d net around $550,000.

By many measurements, it appears to be an exceptional company. After making $75 million in 1999, Electronic Arts is expected to make $1 billion in the next year. The research budget is immense–the company spends hundreds of millions of dollars each year developing new games–and it enjoys a solid stable of lucrative intellectual property that allows the whole company to maintain mouth-watering profit margins. Even in the near term, the skies appear bright as EA will be rolling out a “Star Wars Battlefront” game.

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