Contrarian patent investors see opportunity where others see risk

The emergence of contrarian patent investors – bargain hunters hoping to cash in on decidedly soft market for  licensing and sales – are an indication that the bottom of the bear market for patents may be at hand.

A number of operating companies and some NPEs have been quietly acquiring patent families and portfolios at bargain rates. They include financial institutions, such as banks, traditional tech players, a few NPEs, and “unicorns” looking to shore up their valuation with intangible assets.

Betting aodd-one-outgainst the prevailing sentiment by seeking to identify under-priced assets does not come easily for professional investors or businesses. A strong stomach and sufficient cash is essential.

Contrarians who invest in traditional asset classes like stocks, bonds and money market instruments, can be rewarded for their good timing and persistence. Those who delve into commodities and real estate, too.

But while patents are assets to some businesses – “intangible” investors at heart – they are not a traditional asset class. Uncertainty surrounds patent validity in many classes, and patent value is often context-driven. Additionally, patent litigation is more unpredictable since the Patent Trial and Appeal Board was established.

Acquiring patents is more like buying a futures contract than investing in securities, which historically, at least, tend to bounce back over time. Patents also lack price transparency and market liquidity, which are essential for most investors’ comfort level, and are subject to judicial and political winds.

So, what do secondary market buyers know that others don’t?

Bargain Basement

In “Au contraire?,The Intangible Investor column in the July IAM magazine, I consider patents as an asset class, and those brave investors with the courage (and cash) to recognize opportunity where others see adversity. IAM subscribers can read it here

“Current low IP company share prices are a road to finding a bottom in an emerging market,” says Mark Argento, head of capital markets and a senior research analyst at Lake Street Capital Partners. “It is a part of the process of patents becoming more widely understood and accepted as assets. While the shakeout is unpleasant for some, it is part of an evolutionary process from which at least some will benefit.”

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*****

Benjamin Graham wrote in The Intelligent Investor, a highly regarded book about value investing: “The investor’s chief problem – and even his worst enemy – is likely to be himself.”

To be a true contrarian, an investor needs to do what others are not doing, even when it may seem unwise to do so. It takes guts to go against a market and one’s own instincts.

*****

“Patents as an Asset Class” will be the subject of a debate I am moderating at IPBC Global in Barcelona on June 7. Stop by to hear the pros and cons of patents as assets. The IPBC session has the makings of a very lively exchange. Audience participation is encouraged. Drinks will be served directly after.

Image source: valueinvestasia.com; novelinvestor.com 

About Bruce Berman

Independent IP observer, adviser and author.

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