Blog

Would we see more readers as ‘The Bitcoin Perspective’?

Investors now backing any stock that suddenly boasts a connection to blockchain or any cryptocurrency, such as bitcoin, are playing a risky game

02/02/2018

Juan Torres Rodriguez

Juan Torres Rodriguez

Research Analyst, Equity Value

So which do you prefer? 'The Blockchain Perspective' or 'The Value Blockchain'?

We have been trying a few new names on for size recently – all variations on blockchain or the growing ranks of the cryptocurrencies, such as bitcoin – in the hope of enjoying a significant uptick in the number of people visiting this site.

To be on the safe side, maybe we should rechristen ourselves 'The Blockchain Blockchain'.

OK, so we are not being serious – well, not much – but dozens of businesses are now seeking to attract investors’ attention by flagging up a connection with blockchain in their name or focus – exactly as happened with the word ‘dotcom’ 20 or so years ago. What is more, despite that unpromising precedent, this manoeuvre appears to be paying off – quite literally – for a number of businesses.

Name-gaming

To pick out just a couple of recent examples, imaging company Eastman Kodak saw its share price soar almost 250% in the space of two days after announcing it would be partnering with a photo agency to launch a cryptocurrency token while, even more extraordinarily, the share price of beverage firm Long Island Tea Corp rocketed 500% the day it changed its name to LongBlockchainCorp. 

The company – which, as this Financial Times piece notes, has never reported a profit – announced it was “shifting its primary corporate focus towards the exploration of an investment in opportunities that leverage the benefits of blockchain technology”.

Time will tell how that all works out – as of course it will with Eastman Kodak’s new plans.

What we would say about the latter venture from a value investment perspective is this is a business that was actually already in the process of turning itself around and could have made for a very interesting deep-value play indeed. That is if its prospects were founded on more solid considerations than merely introducing a cryptocurrency twist to the Eastman Kodak story.

Human beings are emotional creatures

One of the fundamental premises of value investing (the art of buying stocks which trade at a significant discount to their intrinsic value) is that, rather than basing their investment decisions on objective facts and numbers, human beings overreact emotionally to news about companies and markets.

When they perceive the news as ‘bad’, share prices can drop excessively and, should a share price fall below what a business is actually worth, the risk of buying into that business also falls.

The opposite also holds true, however, and when investors perceive news as ‘good’,  share prices can increase excessively and, should a share price rise above what a business is actually worth, the risk of buying into that business also rises.

Investors now backing any stock that suddenly boasts a cryptocurrency connection would do well to consider whether a company by any other name would smell as sweet.

Author

Juan Torres Rodriguez

Juan Torres Rodriguez

Research Analyst, Equity Value

I joined Schroders in January 2017 as a member of the Global Value Investment team. Prior to joining Schroders I worked for the Global Emerging Markets value and income funds at Pictet Asset Management with responsibility over different sectors, among those Consumer, Telecoms and Utilities. Before joining Pictet I was a member of the Customs Solution Group at HOLT Credit Suisse.  

Don’t miss the latest value investing ideas.

Enter your email for alerts on new posts from The Value Perspective team.

We store your information securely, and we never share it with third parties. We'll only send you emails relevant to you and you can opt out at any time.

Important Information:

The views and opinions displayed are those of Ian Kelly, Nick Kirrage, Andrew Lyddon, Kevin Murphy, Andrew Williams, Andrew Evans and Simon Adler, members of the Schroder Global Value Equity Team (the Value Perspective Team), and other independent commentators where stated. They do not necessarily represent views expressed or reflected in other Schroders' communications, strategies or funds. The Team has expressed its own views and opinions on this website and these may change.

This article is intended to be for information purposes only and it is not intended as promotional material in any respect. Reliance should not be placed on the views and information on the website when taking individual investment and/or strategic decisions. Nothing in this article should be construed as advice. The sectors/securities shown above are for illustrative purposes only and are not to be considered a recommendation to buy/sell.

Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested.