Small Cap Value Report (Thu 21 Dec 2017) - Bitcoin, Ground Rents, SOS, STY, TFW, BOTB | Paul Scott

20th Dec '17 by Paul Scott

83 comments 23534 reads

Good morning, it's Paul here.

It's another quiet day today, with the market winding down for Christmas. There are still some interesting things going on though.

Bitcoin mania

My view on this remains unchanged - that blockchain technology sounds fascinating, and could have multiple, game-changing uses. However, that doesn't mean that Bitcoin, and other crypto-currencies, are actually worth anything. Just because there is a limited quantity of something worthless, doesn't mean that it becomes worth anything. In the long run, once this bubble has burst, I see Bitcoin being worth zero, and is likely to be banned by Governments wanting to stamp out something that is mainly of use to criminals. People say that it can't be banned. Of course it can - Governments just pass laws making it illegal to hold, or transact in crypto-currencies. That seems the likely end game to me, eventually.

Here's an amazing statistic (source: CNBC) - the total market cap of the 1,300 (and rising) crypto-currencies has risen 30-fold in 2017 to $600bn. So this is now one of the largest financial manias that the world has ever seen. Bear in mind that these things have zero intrinsic value. What could possibly go wrong?!

I see that there are manias in individual stocks which claim to be doing something to do with crypto-currencies. Again, another classic sign of a bubble. The same thing happened in the late 1990s - numerous share issues occurred in junk companies jumping on the internet & tech bandwagon. They typically resulted in 90%+ losses for the punters who believed the hype.

Here is a list of UK listed companies which seem to be jumping on the blockchain bandwagon - not exactly high quality companies! I see several opportunistic spivs in that list, which confirms my existing thoughts on cryto-currency mania.

In terms of how blockchain mania is going in the USA - as you would expect - our excitable cousins across the pond are going crazy over it. This short article mentions Crypto Co, which listed, and rose 2700% in its first month, valuing it at $11bn. The SEC recently suspended its shares. Another similar company, Longfin, rose a similar percentage, leading to its CEO/Chairman publicly stating that the rise was not justified.

So, it's all an absolutely classic financial bubble, which is inevitably going to end in disaster -…

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RichardK

21st Dec '17

Crypto-currencies may survive a ban by OECD governments through crypto-currency havens emerging where criminals and money launderers continue to trade, typically in small island and central American states.

Andrew L

There is a fund investing in Ground Rents. Ground Rents Income Fund. Not one for me but I can see how ground rents are attractive for investors.

timarr

The problem will be cashing out - holding a few billion dollars worth of Bitcoin is of no use to anyone if they can't spend it or turn it into fiat money. And while Bitcoin transactions are anonymous the transactions themselves can be traced, so if you attempt to cash out Bitcoins that have been used in dodgy places this can be flagged to the regulators.

Regulators have been caught flat-footed by Bitcoin, but they are catching up:

http://www.europarl.europa.eu/...

Providers of exchange services between virtual currencies and fiat currencies (that is to say currencies declared to be legal tender) as well as custodian wallet providers for virtual currencies are under no obligation to identify suspicious activity ... It is therefore essential to extend the scope of Directive (EU) 2015/849 so as to include virtual currency exchange platforms and custodian wallet providers. Competent authorities should be able to monitor the use of virtual currencies.

SmallCappy

HMG keep trying to sort out the Leasehold housing problems and have in fact solved a few of the problems but there are still too many exploitative freeholders around who make a living from ripping off the uninformed. Very strict regulation is required as well as tightening up the law in favour of the leaseholder.

Purely by coincidence I am selling a leasehold flat and the managing agent requires in excess of £300 to provide an information pack without which the property cannot be sold. Blatant exploitation

vik2001

Paul when bitcoins crashes, what affect will it have on the rest of the market. Will it affect regular shares that are nothing to do with crypto-currency? will a crash in bitcoin crash the wider market?
ive never been through any sort of crash so would appreciate thoughts on this, as ive only been investing for last 2 years.

thanks.

bobo

I think bitcoin will cause a lot of damage to the western world, it cleans criminals money, it appears to have some value and has none. When the dutch tulip bubble un wound it took the country for 30 years to recover.

This is one where the criminal will gain and everyone else will lose, welcome to being hacked...

GrahamF

As regards Bitcoin there is a rumour that some of the buying is businesses wanting to stock pile bitcoin so that in the event of having to payoff cyber hackers in bitcoin they can do so at lower cost. It sounds just about plausible. But if government made it illegal for companies to hold bitcoin and there are companies that would suddenly all need to sell at the same time that could crash the market.

Regarding CityFibre Infrastructure Holdings (LON:CITY), it is a Neil Woodford holding I believe. So that may be an attraction or the opposite for some.

TamzinPiworld

If you're interested in behavioural aspects of investing, I interviewed Clare Flynn Levy this week, who tracks Fund Managers trading to look for their behavioural bias.

http://www.piworld.co.uk/2017/12/21/behavioural-investing-interview-with-clare-flynn-levy-essentia-analytics/

Clare give insights into various issues, including selling your losers, over confidence and over trading. She emphasises that out performance all comes down to you. Citing the best fund managers are skilled but humble.

Entertaining watching for investors, over Christmas! (c.35 mins)

andrewdb

This follows my experiences of SCSW since June 15.
The sheet itself takes prices from a few days before publication (on a saturday) for its model portfolio.
If you blindly follow the buy tips on the close next monday/tuesday, your return (since June 15) is almost exactly the return on the FTAS - or a bit less as the small companies do not pay much of a dividend (yes, I have a spreadsheet).

The answer is - just like stocko / PS's coverage - dont blindly follow it.

I think you could go short just after lunch the next working day after publication of SCSW, close the trade a month later and make money - I have started seeing if this is really true.

The view I take is that when PS / ST / SCSW / stocks with a high stockrank / choose your own filter
talk approvingly about a stock, it is a place where you start thinking - not stop.

Their work is valuable in that there are thousands of stocks out there, and I (being of little brain :) dont have the time to look at them all, so any filter is useful.

I know I am assuming that these information sources are more effective that a list/blindfold/pin without good evidence - but you have to start somewhere.

The wider impact of a bitcoin crash will depend on how much leverage there is in the market. If all speculative money is personal and corporate equity, then losses will be offset by gains elsewhere - net effect zero, but losers may have to sell other assets or default on other debts. However, if heavily funded by debt there could be significant impacts on banks, mortgage lenders and housing markets, and by proxy equity markets as all asset values fall in parallel. The magnitude is completely unknown.

ambrosia

Paul you said yesterday you were going to talk about IQE, interested to hear yours and others opinion, the chart looks to be developing into a head and shoulders pattern which isnt a good sign

a big factor to concider with bitcoin is apparently less than a thousand people own 40% of all the currency in circulation

cafcash49

Just a little aside on the subject of Bitcoin. About 18 moths ago I did some work for a guy who was a computer whizz and he had machines in his cellar 'mining' bitcoins. No, I didn't understand it either but I now wish I had taken more interest and learned how to buy some. I could have become a millionaire !!!! Oh well, just have to keep 'mining' the stock market and get there slowly. :-) Happy Christmas one and all. Charles

shauniekent

Got to disagree respectfully again on Bitcoin. People seem tomhave trouble separating price from value when it comes to cryptocurrencies. Baby and bath water etc.

Bitcoin may be overvalued by a long stretch...but to suggest its going tomzero belies a lack of understanding or research.

Genuinely its fascinating to understand the background to bitcoin and the solutions it provides(could provide) to a multitude of challenges.

grb

Thanks Paul as ever. One typo - or a spellchecking issue - Sosandar (LON:SOS) was Orogen, not Oregon.

Hi shauniekent

We don't need Bitcoin to be able to make payments or shift money around, so it's not really clear what its value is, unless you're an anti-government conspiracy theorist or a money launderer for whom anonymity is crucial. People can speculate in anything, it doesn't mean it has any intrinsic value. But if you have some other ideas it would be interesting to hear them.

Blockchain, on the other hand, is genuinely interesting. And people are using the Bitcoin blockchain to implement some clever ideas. But that's blockchain, not Bitcoin, it's nothing to do with cryptocurrencies per se.

timarr

tjl

Merry Christmas and a Happy New Year Paul and thanks for all the great work in these reports.

Tim

whitmad

Paul,

whilst I largely agree with your discussion of bitcoin and crypto-currency, the pedant in me cannot resist arguing with your assertion that "these things have zero intrinsic value". Or rather, I would argue that you can say exactly the same of £20 notes. Just flimsy bits of paper (or plastic) that have no intrinsic value, the value lies solely in the trust that people have in them. One interesting difference between currencies issued by states and bitcoin is that states can at any time arbitrarily increase the quantity in circulation thus destroying their value, as has been seen at various times in various countries. Bitcoin is immune to this.

matylda

Thanks Paul for all you do - Wishing you an enjoyable festive period and a prosperous new year.

tagware

Hi

I think you need to back up this statement. "Governments wanting to stamp out something that is mainly of use to criminals."

You mean the black economy (criminals) that has even larger % of the Flat money?

So, I would stop quoting Government sources that have no idea what they are talking about. As most of them don't have a BSc in any recognised IT industry. I should know. They contacted me and other professionals to sort the mess they had made. Trust me they know how to screw up things.

This is the banks "Amazon" moment. It will fail this time. Like all bubbles. But, like all IT DOT com things in 2000. Amazon was going to fail. Now, look at them. Tesla was going to fail. Now, look at them. Apple in the 1990's wasn't looking too healthy at that time. Now, look at them. PayPal or Square. They are nearly all respectable!

The thing that has them rattled them in EU, USA and China is that they are losing control. Governments don't like that idea. What happens when you don't need a broker to buy and sell shares? No HMRC stamp duty for no reason. BitCoin may disappear. But, plenty of Banks have seen the writing on the wall of BlockChain. The bright ones are adapting rapidly. There will always be a CEO who states "Electric Cars" Humbug! Yes, well if you haven't picked up that the market has swung in 2017. You're asleep.

After starting in computing in 198o's. I can see this getting very interesting in the next 10 years. If you think computers are fast now. Just wait for the Quantum computing effect and DNA memory. It will make a calculation which takes One Billion years back down to 100 seconds.

Happy Xmas everyone.

bsharman

Thanks Paul for all your hard work and dedication in 2017. I wish you and your family a very Happy Christmas!

I'm a happy Styles and Wood (LON:STY) holder - It will be sad to see them leave the portfolio as I've held them since 2010 (it wasn't until 2015 that they were refinanced and consequently started to re-rate). Personally I was looking to sell at a price over £5, but i'll take £4.65. It's a competitive market and margins are fairly thin but having said that the Styles and Wood (LON:STY) management deserve a lot of credit because at their darkest hour, just after the financial crisis, they diversified into different sectors and increased their margins - they were very disciplined in their contract selection and bidding, unlike some of the much bigger companies - mentioning no names!

Everyone seems to be talking about crypto currencies (especially those people not interested in the markets normally) right now and there are lots of videos/articles of people saying that they went from zero to billionaire by investing in [insert crypo currency here] and that you can too! The proverbial taxi driver talking about stocks during the dot com boom or remember those silly stock picking game shows on day-time TV?! Definitely a bubble! How to make money out of the crash - that is the question!

All the Best,

Ben

Small Cap Value Report (Thu 21 Dec 2017) - Bitcoin, Ground rents, SOS, STY, TFW, BOTB

Bitcoin mania

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Paul Scott

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