The Greatest "Greater Fool" Story of 2014

Cynk Technology was a money sink and nothing else.

Jul 11, 2014 at 10:15AM

U.S stocks were roughly unchanged on Friday morning, with the benchmark S&P 500 and the narrower Dow Jones Industrial Average (DJINDICES:^DJI) down 0.03% and 0.08%, respectively, at 10:15 a.m. EDT. Yesterday, legendary investor Carl Icahn told Reuters that "it is time to be cautious about the U.S. stock markets. ... I am being very selective about the companies I purchase." Back in September, he also said "the [stock] market is giving you a false picture. ... I don't think a lot of companies are doing that well," but that didn't stop the market from rising over 15% since then. Nevertheless, short-term price action is not evidence of much (yes, nine months is short-term in the stock market), and when one of the world's most successful investors voices his concern regarding stocks, it's probably unwise to dismiss him out of hand.

Speaking of things that are unwise: What value would you assign a company that has a single employee, no revenue, and no cash on its books? Even as late as yesterday's close, Cynk Technology (NASDAQOTH:CYNK) had a market value in excess of $4 billion. This morning, Finra halted trading in the shares, which had risen more than 200 times in value since June 16. Here's what the shares are (and always were) worth: zero. How does this sort of tomfoolery happen?

Cynk Chart

In less than an hour of rudimentary due diligence, I uncovered red flags that were so glaring that Cynk Technology looks like a parody of a penny stock fraud. When Cynk filed its first stock prospectus more than two years ago, it billed itself as a "development stage company" that was set to launch Introbuzz, a social network that would charge members for introductions to other members. As far as the company's valuation at the offering goes, Cynk was up front:

The offering price of the common stock bears no relationship to any objective criterion of value and has been arbitrarily determined. The price does not bear any relationship to Introbuzz assets, book value, historical earnings, or net worth.

The prospectus also warned that the company's then-sole officer and director, Kenneth Carter, was only spending 10 hours per week on company affairs, and added that:

He does not have any public company experience and is involved in other business activities. The company needs could exceed the amount of time or level of experience he may have. This could result in his inability to properly manage company affairs, resulting in our remaining a start-up company with revenues or profits.

Which is exactly what happened. In the company's most recent earnings report for the quarter ended Sept. 30, 2013, Cynk was still referring to itself as a development-stage company. It warned:

The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease operations. These factors raise substantial doubt about its ability to continue as a going concern.

When I read stories such as this one, I don't know whether to laugh or cry. If you're a stockpicker, I suppose it may be comforting to know that you are competing against people who would sink their money into the likes of Cynk Technology without even glancing at the prospectus. Shares are fractional interests in a business, and when there is no business behind the shares (or even a glimmer of a business: the Introbuzz website is inactive), they are worthless. It's just that simple.

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Alex Dumortier, CFA has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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