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Inadvertent Cryptocurrency Adventures

Plenty has been said to date about the general psychosis gripping the general public and equity markets as it concerns “cryptocurrencies.” We have noted these developments and have previously registered ourselves as “dubious,” but dubious just showed up at our door looking for a home.

Once upon a time, a company named Eastman Kodak (Ticker: KODK) was embroiled in a turnaround where their core printing business was in secular decline. The cost structure of the company was inefficient and the two new growth initiatives that were starting to take hold were subscale and labored to plug the hole created by the secularly challenged core. Management was aware of the realities and attempting to right the ship with asset sales and a continued downsizing. The transition had been painful and more pain was likely, given the accelerating nature of the decline in printing.

We bought this under the “Graham” theory of investment, a cigar butt for the ages, but one imbued with hidden value masked by the obvious issues at the core. Our first six months were filled with disappointment and a realization that hidden value can stay hidden if the core deteriorates faster than initially thought and cash flow is negative for longer than planned.

Fast forward to the second week of January 2018. A press release hits the newswires claiming that Kodak is launching something called KODAKcoin and will be conducting an ICO. “Who cares” was the first thought and the second was “this is the best they come up with to hasten the restructuring and realize value?”

Seconds later, the algorithmic tidal wave hits. Bids immediately shoot the price up 45% because the words/acronyms “cryptocurrency” and “ICO” are used in the press release. We are stunned. “Who cares” turns into “should we sell everything?” The answer decided upon is to start scaling out and allow those who want to trade on press release verbiage to take a piece of our position. Feeling good and muttering to ourselves about “cryptocurrency algos,” we go back to work.

Four hours after the open, the second wave hits. We experience a slight gamblers euphoria, but it is washed away by a sober realization that our secularly challenged position has just appreciated 125% in a matter of hours, adding close to $150M of market cap from a combination of a press release and a presentation at CES where Kodak unveils “Crypto Scheme 2.0”: they will rent out parts of their albatross of a facility in Rochester to Bitcoin miners in exchange for 50% of the Bitcoins they mine. Scratching our heads, we let the momentum traders take the rest of our position.

Somewhat pleased but nonetheless confused, we pat ourselves on the back for a swift and rapid exit from the mania of today. 17 hours later, we find that pre-market trades of KODK have the stock up another 80%, dispelling our prior theory that day trading cryptocurrencies might be a future line of business.

As we sit here writing, the company has added roughly $300M of market cap on the backs of hopes, dreams, and Bitcoin. We wish the new owners of the stock the best and want to thank them for ignoring all sensibility, logic and restraint.

But we also wish we were at a long, offsite, no cell phone conference that day.

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