One of the first things you learn as a value investor is to dig below the surface of any potential investment – analysing a business’s balance sheet and other data to ensure you really understand its underlying value, its financial strength and how it works.
In short, a relentless focus on the numbers means we are not tempted to take anything at face value – to judge a book by its cover or, indeed, a company by its name.
And yet plenty of investors are more than happy to do so – particularly when the company name reflects a hot new trend.
A note by ‘future technology’ specialists at Autonomous Next entitled The BlockChain Pretenders neatly encapsulates the point by counting 31 companies that have so far either added ‘Blockchain’ to their name or announced a switch in focus to blockchain technologies.
This practice of assimilating the latest buzzword into one’s business is known as ‘name-gaming’ and, if history is any guide, we are set to see more than 100 bitcoin-related instances in 2018.
The Autonomous Next analysts – pointing to a 2002 academic study, The Game of the Name, found examples of name-gaming during the dotcom bubble jumped from 13 in 1998 to 126 in 1999 before falling back to 36 in 2000.
The trend later reversed, with 57 companies deleting ‘dotcom’ from their names by the end of 2001.
The Autonomous Next analysts go on to note the median stock among their blockchain sample rose by an eye-catching 265 per cent in 2017.
“This puts the dotcom name game to shame, where stocks with name changes only went up 118 per cent,” they add drily. Paltry compared to the rise of bitcoin – but what isn’t?”
And they conclude: “We don’t recommend anything about these companies, other than noting they exist, are doing this and are gaming the pin-balling valuation mechanics between the public, private and crypto markets.”
- Kevin Murphy is an author on The Value Perspective, a blog about value investing. It is a long-term investing approach which focuses on exploiting swings in stock market sentiment, targeting companies which are valued at less than their true worth and waiting for a correction. Get a weekly round-up of the best ideas
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