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
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.
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.
Juan Torres Rodriguez
Fund Manager, Equity Value
I joined Schroders in January 2017 as a member of the Global Value Investment team and manage Emerging Market Value. 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.
The views and opinions displayed are those of Nick Kirrage, Andrew Lyddon, Kevin Murphy, Andrew Williams, Andrew Evans, Simon Adler, Juan Torres Rodriguez, Liam Nunn, Vera German, Tom Biddle and Roberta Barr, 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.
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