by Salman Ahmed
Blockchain headlines just won’t quit. You’ve probably seen them on your phone or TV. In very simple terms, blockchain is a verifiable public record of transactions. The potential uses of the technology have created a lot of excitement, but at this stage, most blockchain companies are “story stocks”.
The price of story stocks is driven more by the news cycle than fundamentals. Investors buy shares because they expect the company or industry to receive positive press. Research on cashflow, profits, or valuation is often an afterthought.
Blockchain stocks appear to be following this pattern. Prices have surged only because companies are involved in the space. This despite many not having a product, clients or sales, let alone profits. Instead, the companies have pitched a wonderful narrative about how blockchain will change the very fabric of our existence, and they are at the precipice. An extreme example is beverage maker Long Island Iced Tea Corp., which saw its stock jump 200% after adding “blockchain” to its name, even though it had yet to decide how to pursue the technology.
Don’t get me wrong. We’re following the technology closely to see how it can improve business processes and have engaged with people in the industry to gain a better understanding. At this stage, however, there are only a handful of successful uses outside of cryptocurrencies.
A few blockchain-related companies will likely end up long-term success stories. But many more will fail. At this stage, the industry is in its infancy and speculation is the main driver of prices. Eventually, fundamentals and valuation will drive performance. This could still be a long way off.
Our managers avoid story stocks. Suffice to say, we’re not putting your money into blockchain-related businesses, or any other story stocks for that matter, that are simply weaving a good tale.
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