Sunday, May 3, 2015
FAIRFIELD-SUISUN, CALIFORNIA
99 CENTS

Stung once, and then stung again

stevenson column sig

By
From page B7 | June 22, 2014 |

There was a story that caught my attention on CNBC on Friday morning. It brought me back to the late 1970s, when there was an orgy, an epidemic, you might even call it mass hysteria, about a burgeoning group of stocks.

For years, of course, Las Vegas was the casino capital of the United States – Reno was the little brother – when the New Jersey legislature legalized gambling in down-at-the-heels Atlantic City. In years past, Atlantic City had been the premier beachfront destination for tourists from New York, Pennsylvania and, of course, New Jersey.

Growing up in suburban New York, a trip to Atlantic City scored a 10 on the excitement scale.

Back in the 1950s, if someone mentioned “The Boardwalk,” there was only one place they could have been talking about. But after 50 years or so as a thriving tourist attraction, Atlantic City lost its luster – and its tourist revenue. The “board” in Boardwalk now seemed to refer to the boarded-up storefronts. Property values plunged, as you can imagine.

Then, an economic miracle occurred: The state legislature legalized casino gambling in Atlantic City. The first major casino opened in May 1978, and the city became known as the Las Vegas of the East.

The anticipation was so great that the stocks of the likely beneficiaries exploded. If I remember correctly, the first big winner was the casino operator Resorts International. I believe it was often the most heavily traded stock on the New York – or maybe the American – Stock Exchange. Resorts stock went from the mid-teens to around $170 a share.

Resorts International was not alone, of course; virtually any hotel company that was opening up in Atlantic City saw its stock take off.

But wait! There was another “industry” if you want to call it that, that attracted speculative attention. Didn’t every casino need slot machines – probably hundreds of them? I forget how I got hooked up with an upstart stock called Silicon Gaming, but within weeks I had violated one of the first rules of investing: Never fall in love with a stock.

I’m embarrassed to confess that this “love affair” began just a few years after another gambling-related disaster. This, as I’m sure I’ve related, was a company called Applied Devices. Its main business had been oil drilling support, but they became a big player in state lotteries. In fact, they won the right to run the California state lottery. But, it seems I was haunted by Murphy’s Law; you know, the one that says if anything can go wrong, it will. The lottery business was not enough to keep Applied Devices afloat, and they eventually declared bankruptcy.

Fast forward to the mid-1980s and a client gave me a “tip” – more like a poison pill – on a company called Silicon Gaming. They were the first company to offer an all-electronic, touch-screen slot machine. Not just any slot machine, but a giant full-screen front that invited you to play.

Guess what? After loading up on SGIC, the stock plunged from about $15 a share to such a low price that it was bought out at 11 cents a share. The irony is that the Silicon Gaming model became very popular in the slot business. Too late for the shareholders, though.

I wonder if we can buy a few thousand shares of that now-bankrupt Revel Casino for, say, 2 cents a share?

In the next few years, hotel after hotel opened, all of them featuring casinos. Atlantic City was saved, so to speak, and became one of the fastest growing cities in the country.

Bud Stevenson, a retired stockbroker, lives in Fairfield. Reach him at [email protected]

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