Don’t say I didn’t warn you.

In my last article, A New Era of Video Games: The End of Shovelware, I highlighted THQ (THQI) as a victim of the new discriminating video game environment. In November, THQ warned its investors with bleak guidance and the stock dropped to the 4’s.

Video game analysts must be scratching their heads. How could Electronic Arts (ERTS), the former leader of third party publishers, suddenly produce such dire warnings about its business guidance? How could THQ (THQI), a company that was doing so well just a couple years ago, have a decimated stock price now trading just slightly above its cash position?

The major reason is actually not the economy, as video game sales are altogether not seeing dramatic declines. The major reason is the rise of Nintendo (NTDOY.PK).

I will forever remember the easiest and quickest 20% return I ever made in my life. It only happened a few weeks ago. The wave of selling was just indiscriminate. I looked at Anheuser-Busch's (BUD) stock price and saw a $57 stock with a $70 approved buyout offer from a major foreign company, which implied there should have been a major risk to its deal. But I searched and searched and found little risk at all. Each company kept insisting everything was fine as they were already announcing managers who would be in charge of the newly combined company. And yet, much of the market was not interested in listening. They were just trying to survive. Anybody who bought into that company's stock had a positive return while the rest of the market dealt with a storm.

Beer and video games is my thing, so naturally I also follow video game stocks. Again, all I see is indiscriminate carnage. The one that strikes me the most is Take-Two Interactive Software, Inc. (TTWO). It's trading as if a $26 buy-out offer from industry leader Electronic Arts (ERTS), which Take-Two rejected – and which was pulled a little over a month ago – never happened at all. The stock currently trades at around $11 while it has $4.40 in cash as of July. Not only that, they appear to have more cash building up as they dumped a lot of properties into the market in their recently completed quarter. On Thursday, they even significantly beat analyst expectations for the month of October 2008 – of all months.

This weekend, I looked at an ugly chart showing the 6-month stock performance of the so-called “Big Four” video game publishers in North America (performance may not be the right word). Activision Blizzard (ATVI) has fallen 14.48% in that timespan. Meanwhile, former industry leader Electronic Arts (ERTS) has fallen 51.92%, Take Two Interactive (TTWO) has fallen 56.49% and THQ (THQI) has fallen 64.68%. What has happened?

I’ve been looking for answers beyond the obvious economic downturn and recently asked some managers of Gamestop (GME), a game-retailer whose stock has also fallen hard. The word was that the economic slowdown hasn’t drastically affected video game sales at all -- a fact confirmed recently by earnings reports from Microsoft (MSFT), Sony (SNE) and French publisher Ubisoft. So are these recent stock discounts simply a result of indiscriminate selling by hedge funds with margin calls?