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Would You Pay $800 for an Asset Worth $432?

Under most circumstances, an investor offered an asset worth $432 would refuse to pay $800 for it. Such a premium is difficult to justify, especially for an asset with a transparent, easily determinable value. Yet when mania is mixed with other compounding factors, logic can be tossed out the window.

The Bitcoin Investment Trust (GBTC) is such an example. Speculators have let greed get in way of good old-fashioned facts. The absurd market price highlights the importance of paying attention to the net asset value (NAV) of an exchange-traded fund, a trust or a closed-end fund. It also reflects what can happen when obstacles to arbitrage may exist.chart

First, a bit of background. The Bitcoin Investment Trust trades like an exchange-traded fund. Shares are a beneficial interest in a grantor’s trust whose sole investment is the cryptocurrency bitcoin. Each share of the trust is equivalent to 0.093 bitcoins. Add in the annual sponsor’s (meaning management) fee of 2% and it’s easy to determine the price that shares of the trust should be trading at. (Various financial websites will automatically do the calculation for you.) As of last Friday’s close, the net asset value of each share of the trust was $432.33. The market price, meaning what investors were paying to own a share, was $800. Continue Reading »


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(Return data as July 31, 2017)

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Highlights from this month’s AAII Journal


AAII Sentiment Survey

Pessimism among individual investors about the short-term direction of stock prices pulled back from its five-month high. More about this week’s results.
This week’s results:
  • Bullish: 29.3%, up 4.3 points
  • Neutral: 35%, down 0.1 points
  • Bearish: 35.7%, down 4.2 points

Historical averages:

  • Bullish: 38.5%
  • Neutral: 31.0%
  • Bearish: 30.5%

Take the Sentiment Survey.


AAII Asset Allocation Survey

Cash allocations rebounded last month after having set a 17-year low in August. More about the latest results.

August AAII Asset Allocation Survey results:
  • Stocks and stock funds: 66.8%, down 1.1 percentage points
  • Bonds and bond funds: 17.3%, down 0.4 percentage points
  • Cash: 16.0%, up 1.5 percentage points

August AAII Asset Allocation Details:

  • Stocks: 28.2%, down 5.5 percentage points
  • Stock funds: 38.5%, up 4.5 percentage points
  • Bonds: 3.5%, down 0.4 percentage points
  • Bond funds: 13.8%, unchanged

Take the Asset Allocation Survey.


The Week Ahead

I will be speaking to our St. Louis Chapter on Tuesday about the new stock strategy I’ve been working on. I’ll discuss the strategy at our Investor Conference in November as well.
Only one member of the S&P 500 is scheduled to report earnings: Oracle Corporation (ORCL) on Thursday.The week’s first economic report will be the July Job Openings and Labor Turnover Survey (JOLTS) report, released on Tuesday. Wednesday will feature the August Producer Price Index (PPI). The August Consumer Price Index (CPI) will be released on Thursday. Ending the week, August retail sales, the September Empire State Manufacturing Survey, August industrial production and capacity utilization, July business inventories and the University of Michigan’s preliminary September consumer sentiment survey will be released on Friday.

The Treasury Department will auction $24 billion of three-year notes on Monday, $20 billion of 10-year notes on Tuesday and $12 billion of 30-year bonds on Wednesday.


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