The sky is falling. The sky is falling. Replace it with stocks or bitcoin or the economy. It's been the trend for 2017 and not once has a cloud landed on our heads, but there is a Chicken Little in our current mindsets. It's a game of chicken being played by small-cap blockchain and fintech traders.
When a CEO of a tiny, no-name, newly issued company goes on CNBC and flat out tells you he priced his company at $5 per share because he thought that was a fair value, but shares traded at $70, buyers are playing chicken.
When the same CEO tells you his company is not worth $70, but the stock trades higher than $70 the next day, buyers are playing chicken.
When he admits that the blockchain company, his newly issued company just purchased (which caused the price spike), is a company 99% owned by himself and the stock goes higher the next day, buyers are playing chicken. And to his credit, this information was readily available in the SEC filings for LongFin Corp. (LFIN) .
When a company changes its focus from a producer of fruit-related product to a financial technology company and its shares double in value, buyers are playing chicken. SkyPeople International become Future Fintech Group (FTFT) and traders go nuts.
I've not seen any mention that the company received a Nasdaq delisting notice on Dec. 1. The good news is with the stock moving from $1.50 to $4.50 in a matter of days, that's no longer an issue as the market cap has soared to nearly $20 million.
The good news is the company has working capital of $15.2 million and debt of $100 million with $30.8 million being short-term bank loans. Wait. Scratch that. It's time for another game of chicken.
But the thing about the game of chicken is there is usually a winner, which means active, disciplined investors can trade these garbage companies and even make money. Understand, for the most part, if you examine management or finances or any SEC filing, you'll realize you are playing a game of chicken backed by the greater fool theory. Can you find a buyer for your shares?
I'd follow five simple rules:
-- Don't risk more than you can lose (I'm talking 100%, not some arbitrary stop)
-- Take half off if it doubles (so you can play with the house's money)
-- Don't be afraid to take a loss
-- Don't buy a falling knife
-- Don't fall in love
Almost every one of these companies will be gone or exist as something else in the next few years. Like the internet, I do believe there will be some huge winners in the blockchain space, but I don't think any of the recent high flyers will be part of that group.
Playing the game of chicken is not for everyone. Do not enter the space lightly, but don't be talked out of it if it fits your trading profile.
This commentary originally appeared Dec. 20 on Real Money Pro. Click here to learn about this dynamic market information service for active traders and to receive great columns like this Tim Collins, Paul Price and Doug Kass .