Value.able: Roger Montgomery

Here are three speculative stocks that could change the world ... or not

During older bull markets, such as the one we have recently experienced, there are inevitably investors who are frustrated that they haven’t participated fully. Like a cheer squad they urge their brokers to find the next big thing. This enthusiasm is eventually transmitted into share prices and if momentum can be generated it can feed on itself.

Towards the final stages of a bull market some very strange behaviours can be observed. Witness, for example, the recent surge in the share price of a New York company, Long Island Iced Tea. The only thing it did to trigger exuberance was to change its name to Long Blockchain.

And when Kodak announced that it was creating a cryptocurrency, its shares also surged.

More recently in the UK, the special purpose acquisition company AIQ raised £3.6 million ($6.4 million) by issuing 50 million shares at 8 pence each on the London Stock Exchange, giving it a market capitalisation of £4 million. Just two days later AIQ was trading at 125p. In this case there was no announcement at all.

Australia is not immune to the migration of sentiment from enthusiasm to irrational exuberance. Companies with very little profit, and in some cases very little revenue, have been trading at market valuations approaching $1 billion.

It is true that new technology can and does change the world but, as history has demonstrated repeatedly, not every company succeeds – in fact, not many do. Indeed, it is the case that sometimes only the consumer benefits and the industry struggles without ever making high returns. With these three listed “concepts” you can decide whether, first, they are going to change the world and beat all competition and, second, whether they are still cheap. We think they’re too speculative and “early stage” to value even remotely appropriately.