Avoid These Blockchain Imposters

Nick’s Note: Don’t miss my January Elite 25 update below.


By Nick Rokke, analyst, The Palm Beach Daily

With the stroke of a pen, MIS International’s share price rose 10 times in less than one week…

The year was 1999. Investors were excited about one thing—and one thing only—internet stocks.

If a company didn’t have “.com” in its name, the market forgot about it.

That’s what happened to MIS International—the market ignored it. And rightfully so.

I’m not sure what its business plan was. And the company had yet to turn a profit.

But suddenly, sentiment changed. Investors who had once ignored the stock got all excited about the company.

You see, MIS International changed its name to Cosmoz.com.

The stock—which was worth less than 50 cents—spiked virtually overnight to $5. Now that this profitless company had a dot-com name, investors found it interesting.

But the price spike was temporary. After hitting $5, it quickly fell to $2. And was almost worthless by the end of 2000.

This wasn’t a one-off event, either…

Computer Literacy changed its name to Fatbrain.com. It rose 36% the following day. But that was the peak. It fell 80% before another company bought it.

Hundreds of other companies did the same…

A Purdue University study followed 95 companies that added “.com,” “.net,” or “Internet” to their names.

Their average price increased 74% for the 10 days surrounding the announcement day. That’s regardless of whether the company actually did any business online.

And after the initial excitement wore off, the stocks quickly tanked. Many investors lost their shirts.

At the Palm Beach Research Group, we don’t rush headlong into the latest craze. That’s what irrational investors do.

We put in hundreds of hours vetting our recommendations. We know what we own. And we can make effective decisions that way.

Here’s why that’s important…

“Blockchain” Is the New “Dot-Com”

Today, some companies are pulling a page out of the dot-com playbook.

They add “blockchain” to their names, hoping to get a huge boost from the stock market.

Take beverage maker Long Island Iced Tea, for example. Last month, it changed its name to Long Blockchain. Just look at this chart…

The stock shot up 200% on the news. Yet, the company sells iced tea and juice beverages and had a market value of just $23.8 million.

Bioptix markets biotech diagnostic equipment. In October, it changed its name to Riot Blockchain. Its stock soared as well.

And just this Tuesday, Chanticleer Holdings surged 63% after it announced a blockchain-based customer loyalty program. Chanticleer owns burger joints and Hooters restaurants.

No one is going to Hooters because of a blockchain loyalty program.

Some of you might be tempted to invest in the next company that adds blockchain to its name. But short of having insider information, there’s no way to know which company that changes its name will hit it big.

Here’s what to do instead…

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Beware of Landmines

Whenever a mania hits a sector, unscrupulous companies will try to capitalize. And the easiest way to do that is to change its name.

Hundreds of companies did this during the dot-com craze.

In the 1920s, there was a mania over airplane-related stocks. One company lured investors by changing its name to Seaboard Airlines—even though it was in the railroad business.

We’re seeing similar scenarios play out in the blockchain space today.

We don’t want you to make the same mistakes as those investors who lost money buying Cosmoz.com or Fatbrain.com.

So, if you don’t want to end up like them, do the following when it comes to investing in blockchain companies:

  • Do your research. Don’t buy a company just because it changed its name. Make sure it has a legitimate business plan that will benefit from blockchain technology.

  • Don’t chase prices. Especially if they ran up because of a name change.

  • Have a plan and stick to it. If you take a gamble and buy one of these types of companies, have an exit strategy for when it turns.

Regards,

Nick Rokke, CFA
Analyst, The Palm Beach Daily

P.S. What investing strategy do you use to avoid manias? Let us know right here

ELITE 25 JANUARY UPDATE

December was another winning month for our Elite 25 stocks.

The portfolio was up 1.5%, while the S&P 500 was only up 1.2%.

December was calmer than November for the Elite 25. But that didn’t mean there weren’t any big movers.

Qiwi rose 17.7% and United Therapeutics rose 13.9%. On the downside, Argan fell 23.7% and Natural Health Trends fell 15.4%

Portfolio Changes

This month, we have three new positions.

We’re removing:

  • American Outdoor Brands (AOBC)

  • Natural Health Trends (NHTC)

  • S&P Global (SPGI)

We’re adding:

  • Brinker International (EAT)

  • Robert Half International (RHI)

  • Winnebago Industries (WGO)

Click here for the updated Elite 25 list.

[Palm Beach Letter subscribers can read our Elite 25 special report right here.]

IN CASE YOU MISSED IT…

Legendary speculator Doug Casey invites Palm Beach Daily readers to take part in his elite Marijuana Millionaire Summit at 8 p.m. ET on January 10.

During the summit, Doug and his team will tell you what you need to get rich in the second marijuana boom…

If you missed out on the first wave of marijuana investing, make sure to reserve your spot today for this free event

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