Fortress Capital is a financial services firm. So we look at stocks that are at the cutting edge of the financial services industry, our sector. For those who have been in the industry for a long time (in our business, that’s about 10 years), we’ve seen huge changes. Most notably, we’ve seen the rise of computer aided trading, and computer only trading (independent of human traders). Computers and their network connections are more important in the markets today than anything else.

Trading was not always an IT operation like it is today. Still, some funds are managed without the use of computers (if you can believe it). Now, latency is more important than anything. Being close to any counterparty is more important than choosing the right counterparty.

First the move to electronic trading, and then the optimization of electronic systems, has greatly changed the dynamic of the market. What will be the next innovation in market structure, that will completely revolutionize the markets? No one knows, but we can guess that it’s going to come from one of several public companies, and one of those companies is Overstock.com (NASDAQ:OSTK).

Our assumption is that over time, blockchain is going to be used everywhere, and that it is only a question of time when everything electronic will be ‘blockchained’ – if only for the reason of security.

Also, we believe that big tech is very overvalued, especially Facebook (NASDAQ:FB). As money flows out of big tech, it will seek another home to invest in ground breaking, next generation technology. And blockchain, is the most ground breaking, cutting-edge, game changer of it all.

Point 1 – There’s more here than meets the eye

Overstock.com is, in our opinion, overlooked. Everyone knows the company, but it isn’t getting the attention that it deserves – just look at the stock price. It traded at a high above 34, and with all these new and exciting blockchain developments, the price has only slightly bounced off its lows. There’s too much goodwill in game changing, paradigm shift technology that’s often overlooked by hardcore traditional stock analysts. That’s because it’s impossible to quantify paradigm shift. What is a real paradigm shift? It’s Microsoft, being in the right place at the right time on the desktop with IBM compatible PCs, it’s Google dominating the growing search market, it’s the automobile. Thomas Kuhn describes this phenomenon in his book “The structure of scientific revolutions” – a must read for any tech investor.

Kuhn challenged the then prevailing view of progress in “normal science.” Normal scientific progress was viewed as “development-by-accumulation” of accepted facts and theories. Kuhn argued for an episodic model in which periods of such conceptual continuity in normal science were interrupted by periods of revolutionary science. The discovery of “anomalies” during revolutions in science leads to new paradigms. New paradigms then ask new questions of old data, move beyond the mere “puzzle-solving” of the previous paradigm, change the rules of the game and the “map” directing new research.

Those who know technology, they know that a small handful of companies are going to greatly reap the rewards of such shifts, directly and indirectly.

Even article coverage on Seeking Alpha, doesn’t do Overstock.com the justice it deserves:

I would buy Medici when it spins off from OSTK, but, as of now, I would avoid the stock because I am uninterested in online retail.

Online retail is online trading. Stocks are called ‘stocks’ because they used to represent ‘stockpiles’ of goods, such as ‘livestock.’ Although trading stocks is different than buying things from the overstock.com website and having it mailed to you, it’s a similar process. You sit at your computer, put money, and click.. click.. click.. – Sale! Trading the markets is more fast paced, and the end result is profit or loss. The end result from buying something from overstock.com is a product delivered to your door. Anyway, at the present time Medici is part of Overstock.com so in order to not miss out on being in during an opportune event, it would be more sensible to buy now while Overstock.com is still cheap. In the event Medici is spun off or there is some other event for the companies, the strategy can be re-evaluated. But Overstock.com has a history of innovation, long before blockchain came into the picture.

Point 2 – Overstock.com doesn’t need to be the only company in the ecosystem to profit huge from paradigm shift

If there’s competition, it only solidifies the idea. It isn’t necessary to have a monopoly on such technology to be a dominant, or even profitable player. But because Overstock.com is first in many areas, it gives them a huge advantage: new players can just plug in. They’ve created a ‘plug n’ play’ environment, similar to what Microsoft (NASDAQ:MSFT) tried to do for Windows. Windows wasn’t about selling operating systems, it was a development environment.

And according to a recent announcement, Overstock.com will be the first company to complete the world’s first public offering using blockchain:

“This is yet another historic event — the creation of a security that will trade and settle entirely on a distributed ledger,” said Patrick M. Byrne, CEO of t0.com. “I’ve said from the beginning that blockchain technology is going to change the world of finance forever, and we’re leading that charge.”

Point 3 – We don’t know what the ‘tipping point’ or ‘trigger event’ will be, or when it will happen.

Markets can change in a heartbeat. Remember the flash crash? Bear Stearns? 911? How has Wall Street changed in 10 years, in 5 years, in 1 year.

T0.com is an overlooked part of Overstock.com only being mentioned by Wired Magazine, a recently published Forex book “Splitting Pennies,” and a number of other tech related media.

Big tech is there, but Overstock.com the first, from Wired:

Nasdaq OMX, the company that oversees the Nasdaq stock exchange, is building a private stock market service based on the blockchain, while online retailer Overstock.com has received SEC approval to offer public stock on the blockchain via a service it calls TØ. For Marley Gray, who oversees Microsoft’s blockchain work, this movement is a way to completely reinvent how financial markets operate. “[Bitcoin] proved that this thing works-that it scales, that it’s secure, ” he says.

It’s surprising that with such groundbreaking technology, Overstock.com is still trading at such a discount. Maybe traditional types just don’t ‘get it’ yet. But they will. Resistance is futile. You will be assimilated.

Disclosure: I am/we are long OSTK.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.