Cynk hole - Plenty of extreme sports already exist so there is no need to make investing one
Everybody will have their own idea as to what is and is not ‘fun’ but, even so, The Value Perspective was a little taken aback to read the following comment in a recent Financial Times article: “We are in a bubbly market, but my expectation is that most people who are buying and selling thought they were just having fun speculatively trading a promoted security.”
The speaker was Cromwell Coulson, president and chief executive of OTC Markets, and he was talking after the Securities and Exchange Commission, the US financial watchdog, suspended trading in the shares of Cynk Technologies on 11 July. Presumably that was when the fun stopped but how much of a party had investors been having up to that point?
Cynk, the FT observed, is a “mysterious, Belize-based social media company”, one or more of which descriptions should be enough to send most investors – and certainly The Value Perspective – running for the hills. If not, the fact Cynk was listed on OTC Pink, the lowest tier of the three marketplaces for trading over-the-counter stocks run by OTC, may have been the final straw.
OTC Pink, to quote Investopedia, “offers trading in a wide range of equities through any broker, and includes companies in default or financial distress. Since it has no disclosure requirements, OTC Pink companies are categorised on the basis of information provided by them. OTC Markets somewhat euphemistically bills OTC Pink as ‘The Open Marketplace with Variable Reporting Companies’.”
Among the information Cynk did disclose was the nugget that, from its inception in May 2008 to the end of the third quarter of 2013, the business had generated no revenues. Furthermore, it had no assets, had accumulated losses over a five-year period of $1.5m (£880,000) and, in its most recent filing with OTC Markets in June, had issued a warning about the state of its finances.
“The company has not yet emerged from its development stage, has not established an ongoing source of revenues sufficient to cover its operating cost and requires additional capital to commence its operating plan,” Cynk noted. “If the company is unable to obtain adequate capital, it could be forced to cease operations. These factors raise substantial doubt about its ability to continue as a going concern.”
Despite all this, there were evidently some people who felt Cynk still sounded like, well, fun. Those who got in at the initial five cents a share at which the company listed in May of this year would have seen their holding peak at $22 – a rise of some 36,000% that gave Cynk a market valuation of close to $6bn. Then, as we mentioned earlier, trading in the shares was suspended.
The Value Perspective makes no comment here except to suggest anyone who thinks this sounds like their kind of fun might perhaps like to consider a more relaxing pastime such as bungee jumping, white-water rafting or sky-diving.
Fund Manager, Equity Value
I joined Schroders in 2004 as an equity analyst in the European Equity Team initially specializing in the Industrial sectors before moving on to Consumer-based companies and finally Insurance. In 2007, I became a co-manager on a fund investing in undervalued European companies and took on sole responsibility for the fund in May 2010. Prior to joining Schroders, I worked at Hedley & Co Stockbrokers and Deutsche Asset Management as a trainee analyst.
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