Small Cap Value Report (26 Feb 2014) - Bitcoin, SNX, MLIN, IDOX, QRT

26th Feb '14 by Paul Scott

25 comments 22931 reads

Good morning. Lots of results this morning, so I shall crank up a gear and get through as many as I can.

As an aside;

Bitcoin

Is anybody really surprised that things seem to be going badly wrong with Bitcoin? It was only a matter of time before it all went pear-shaped. People who think Bitcoin is a good idea should be sent on a compulsory reading course, to study other financial manias from the tulips, South Sea bubble, technology shares in the 1920's, technology shares in the 1990's, and of course technology shares now! So maybe we should start calling this the Third Technology Shares Boom (& Bust)?

The golden rule in my view is to always remember that anything which creates wealth out of thin air, with nothing of any real value supporting it, is just a speculation that will eventually fail. Some people might flag up fiat currencies, but that's different because they are issued by the State, and hence have the State's revenue raising power behind them. So whilst they can devalue, and become worthless if money printing creates a spiral of hyper-inflation, that's an extreme and rare event, and you can see it coming and get out anyway.

So personally I will always stick to assets where you own something of measurable, and sustainable value - i.e. shares (a part ownership of a business), bonds (a loan), or property (houses, cars, etc.). I will never own Bitcoins.

For people who did want to gamble on Bitcoin, its key selling point was that the whole thing was meant to be secure. It now clearly is not, as an exchange appears to have gone down, along with several hundred million dollars of Bitcoins apparently. That surely will be the death knell of this project? This type of asset is based on confidence, once that's gone you haven't got anything.

Synectics (LON:SNX)

This is a CCTV group that I've been following for years, since the days when it was called Quadnetics, a rather nice name I thought, so it seemed a backward step changing it to the difficult to pronounce Synectics.

Their final results for the year ended 30 Nov 2013 are out today. Whilst the results look OK, the outlook and reduced order book are a concern. The order book…

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jjis

26th Feb '14

You say Jim Rogers said "if you want to become rich, learn to drive a tractor". I'm sure tractor drivers don't get paid that much and farmers are alway bleeting about how poor they are as they nearly run you over in their 4 x 4's or hold you up on the road in their massive tractors. I have a different take on "The best way to get rich."

Calalily

More the tractors owner and I don't know a poor farmer. In reality down to my last tenner is poor, for someone else down to their last £100k or £1m is poor!

bsharman

Hi, He was making the point that the Agricultural sector will be extremely important in the future as demand increases and supply cannot keep up. Farmers will be able to command higher prices and increased margins. Profits will go to the person in the tractor (farm owners and managers)/ or the person selling the tractors....

I know my reply was slightly tongue in cheek and the piece I have suggested is along the same lines - the link should work now.

cig

A peer-to-peer currency at some sort of parity with fiat would be interesting, but it requires inventing new technology. It may be possible, but it's currently an unsolved problem with a solution yet to be invented, and then you also need to invent a way to bootstrap adoption.

Paypal is primarily a fraud regulation network, that's what the fees pay for (the actual money transfer problem is relatively trivial). You pay a fee so that they kick out rogue vendors (and customers) from the network and refund you if you get hit by one before they get kicked out. In Bitcoin-type systems, as used for transactions, theft is the dominant business model: it's always going to be more profitable to sell stuff and keep the money than bothering delivering products or services. It's only moderated by external trust systems which cost something (be it your time to research the vendors) so "fees" of some form come back. If you can run a fraud prevention system better and for less than paypal does, just do it and take their market away from them.

On micropayments the core problem is that the decision cost easily overwhelms the benefits. Nobody wants to spend their day making thousands of 1p decisions (they value their time). Imagine people could pay 1p for your comment, and that it takes 10 seconds to make your mind if you pay or not (assuming actual comment reading for granted). If 1000 people assess your comment, 100 of which decide to pay 1p, you get £1 but people have spent collectively 10000 seconds. Assuming people's time is worth say a modest £20/hour, people would have spent collectively £50+ in opportunity cost so that you get £1. Any payment that is worth making a decision for is working fine through the current infrastructure (the practical minimum for paypal/cards is like £1 or £2).

SevenPillars

Surely all paper money is created from nothing? It is little more than a confidence game with a promise, the banking system essentially being backed by the state. When that confidence and trust collapses 2008 is the result or much worse. Alternative money like gold and silver has to be found and dug out of the ground and therefore there are limits to it, but also a perceived value from the activity required to get it. Bitcoin mining seems to be based on similar principles in that it is supposedly hard to do - hard to create a Bitcoin and therefore would have some value to those that do it. There is a limit to the number of Bitcoins that can exist, so you can see why it might appeal to Libertarians who oppose the continued creation of out of thin air money by the banking system, backed by a state. Of course, the interesting thing about alternative money, at least psychologically, is that their value is measured by fiat currencies. In other words, everyone who had a Bitcoin would have been delighted when it reached $1000 dollars, not so happy now. Same with gold and silver, accept for those few that completely ignore the fiat value placed against it.

It seems to me that Bitcoin's problem is mainly one of legitimacy and how it is policed or whether it should be. I would have thought that any totally free currency is open to abuse from criminal elements. As with paper money, trust has to be there somewhere.

Gostevie

Hi Paul,

I remember seeing Molins (LON:MLIN) directors giving a presentation at an investor seminar (Equity Development I think) last year. They were very 'cagey' when questioned regarding the pension deficit and seemed almost embarrassed by it.

Not a company that interested me but good luck with your investment.

Steve

William Partridge

One word - Invensys

rick

Always thought that Bitcoin would end in tears, a bit like some speculative shares with no earnings, or hope of earnings.

However, it could also be said that the value of ANY type of asset is based on confidence. Once that's gone you haven't got anything. So whilst shares, bonds, or property are tangible, they are only as good as the level of confidence we place in them at the time. We found this out in the financial crisis e.g. Bank shares, Emerging market bonds, even house prices (US in particular).

Whilst a select few tech shares seem to be overvalued I'm not sure this is anywhere near either a late 1990's or 1929 bubble.

DJLJ23

Hi Paul,
I'm hoping that you might get round to avingtrans IMS, according to some of the other boards, numbers are not quite right, but i'm not fullys understanding and hoping you might be able to explain.
many thanks for your helpful information and enjoyable reads.
David

maillotàpoisrouges

Paul or anyone else, where is the best site to find broker notes, and is a subscrition required?
Cheers
Hederz

IGC WHITE

I too spoke to Molins directors after the Equity Development seminar (27.11.2013)and found them very open and positive about the pension deficit problem which was described in documents as a "Key Risk". " UK funding valuation at 30th June 2012 close to being completed-expected deficit recovery payments to be £1.7m. p.a. plus annual inflation increases (currently £1.2m p.a. resulting in a 17 year recovery period". Scheme is now closed and member numbers much lower.
.

MichaelFBS

Hi Fegger

I hesitated over this (I have know of the firm for decades as they have a factory near Princes Risborough where I used to live) before I bought Molins but decided that if I decided my investments based on ethical type criteria I restrict my sphere of investment too much. If you say a supplier to the companies that are deemed or could be deemed unethetical (tobacco (this would exclude super markets as they are one of the major purveyors of cigs and what about trucking companies who ship them etc), alcohol producers/sellers, weapons, fast food, processed food, high sugar beveragaes, airlines (polution/climate change), customers and suppliers of all the foregoing), where do you stop? I don't necessarily subscribe to all of the list but am trying to make a point.

Yes I would not invest, even as an ex 40 a dayer (20 years ago now thank god) in tobacco companies directly and I am not sure I would invest in armaments companies but I think I have to draw the line there.

I would be interested in your thoughts or anybody else's.

Hello, Can anyone recommend a good book for a Technical Analysis beginner - with a view to learning spread betting using chart signals and strategies. Thanks.

Malcolm Pryor spreadbetting books, Martin Pring's Intro to TA book also very good. For candlesticks take as look at The Candlestick Course by Steve Nison.

Not a book as such but a video and he does e-mail updates if you want to sign up for them.

http://moneyweek.com/spread-betting/spread-betting-video-tutorial-putting-it-all-together-14900/

Perfect thanks for the info - i'll check those out!

jonesj

I took one look at the bitcoin valuation graph, decided it was a bubble and stopped my research right there.
Seems like a waste of time even researching it.

Paul Scott

2nd Mar '14

BitCoin is something that has zero value, that is then chased up to a high valuation - so it's a classic bubble/ponzi scheme, however people dress it up. Also the supposed safeguards have started to fail. Again, classic signs of a meltdown that will eventually reach zero in value. Just IMHO.

Fiat currencies differ in that they have the backing of the State, and hence the taxpayer's future deep pockets to support their valuation, allowing for the fact that they will scrub off 3% p.a. roughly. When hyperinflation kicks in, then different rules apply, obviously.

Bezhe

4th Mar '14

You have highlighted a dilemma that many conscientious people have - where to draw the line. In the end, most people will pick and choose based on their own priorities: no to tobacco and munitions, ok with supermarkets, alcohol, defence, airlines etc. I would say no to anything related to tobacco myself, including no to Molins.

I found it ironic that the Equity Development research report (well researched and written otherwise) said "Looking ahead, there is a healthy slate of innovative new products coming
on stream." I think he should truthfully have said the exact opposite.

Small Cap Value Report (26 Feb 2014) - Bitcoin, SNX, MLIN, IDOX, QRT

Bitcoin

Synectics (LON:SNX)

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Paul Scott

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