The value of shares in IP pure plays goes up and down. And as this blog has recently noted the movements can be pretty spectacular. That’s because prices are ultimately controlled by investors who may not properly understand what they are investing in: the quality of the assets companies own and how much they are really worth; how they do deals around the assets and leverage them in other ways; income timelines; the vagaries of litigation; and so on. Because of this, both good news and bad news - actual or potential – can cause extreme reactions. That makes investing in IP a very risky proposition, but also one that can yield significant benefits – if you know what you are doing.
I say all this as a preamble to introducing you to a piece I came across this morning, written by self-styled “full time investor” Scott Matusow, entitled Speculation In The Patent Litigation Segment: Finding The Next Big Stock Movers. In it he explains why shares in two IP pure plays – Document Security Systems and MGT Capital Investments – are worth keeping an eye on. It’s a well written piece that makes what could be regarded as a few persuasive points. But what is really noticeable is how much he leaves out and what is driving his decision-making process: a lot and the short term respectively.
What is important about IP as an asset class is not what we in the IP world think about it, but what the vast majority of investors and senior executives, who are not members of our little club, come to believe. Right now, there is a serious danger that the settled view will be that what patents present is a short-term opportunity to create one-off returns. I don’t think that bodes well for IP as an investment opportunity having a sustainable future. Always the pessimist, it screams bubble to me. I hope I am wrong, because to my mind, there is a lot more value-creation potential in IP than this. If decision-makers in mainstream business and finance fail to appreciate that we will all end up losing.
IP litigation, Patents, IP business, IP finance, IP valuation
The problem with patents as an "asset class" is that the vast majority are just an opportunity to lose money. Most are worth zero and if renewals are needed a liability. The other problem is that a "good" patent can be worth £1 billion today and zero tomorrow if I manage to find the right prior art.
So the real danger is that those short-term ignorant money makers think it is an "asset class" worth investing in. The real danger is that they do invest for all the wrong reasons.
Back to basics. Patents are about securing a monopoly for innovation. So we want investors to invest in innovation not speculation.Nicholas White, Tangible IP on 30 Oct 2012 @ 19:57