Pricing miner securities

[Rodyland]

I was wondering how others go about pricing mining-company securities.

I ask because I just bought some asicminer shares and by my numbers, assuming that what's supposed to and is likely to happen in the near future happens, then they are good value.

But I've looked at a couple of other securities, and the market prices seem outrageous - dividend ROIs closer to 12 months than 6; and even under ridiculously optimistic (impossible) scenarios, ROI 4+ months.

And for my money, 12 months may as well be forever given Avalon and other potential ASIC solutions could deploy tens  if not hundreds of TH in that timeframe.

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[MPOE-PR]

I was wondering how others go about pricing mining-company securities.

I ask because I just bought some asicminer shares and by my numbers, assuming that what's supposed to and is likely to happen in the near future happens, then they are good value.

But I've looked at a couple of other securities, and the market prices seem outrageous - dividend ROIs closer to 12 months than 6; and even under ridiculously optimistic (impossible) scenarios, ROI 4+ months.

And for my money, 12 months may as well be forever given Avalon and other potential ASIC solutions could deploy tens  if not hundreds of TH in that timeframe.

You have a lot of reading to do. Possibly start up and down, then look all around.

[Rodyland]

You have a lot of reading to do. Possibly start up and down, then look all around.

Thanks for the read.  It's obvious we disagree about the valuation of ASICMINER.  But at least from your posts I could glean an insight into how you value a miner.  And while I think ASICMINER isn't "just a miner", the others I've been looking at are, so the principles espoused in your posts apply, and have confirmed my misgivings.

[Bugpowder]

I was wondering how others go about pricing mining-company securities.

I ask because I just bought some asicminer shares and by my numbers, assuming that what's supposed to and is likely to happen in the near future happens, then they are good value.

But I've looked at a couple of other securities, and the market prices seem outrageous - dividend ROIs closer to 12 months than 6; and even under ridiculously optimistic (impossible) scenarios, ROI 4+ months.

And for my money, 12 months may as well be forever given Avalon and other potential ASIC solutions could deploy tens  if not hundreds of TH in that timeframe.

Easy.

Any mining stock that does not currently have ASICs in hand today is a short to zero.

[Rodyland]

Easy.

Any mining stock that does not currently have ASICs in hand today is a short to zero.

I liked that one, and hard to disagree. 

[creativex]

Easy.

Any mining stock that does not currently have ASICs in hand today is a short to zero.

I liked that one, and hard to disagree.  

I disagree, and find it easy to do so. One could mine profitably with Radeon 48xx GPUs at this difficulty & exchange rate.



...but short away fellas.

[Rodyland]

Easy.

Any mining stock that does not currently have ASICs in hand today is a short to zero.

I liked that one, and hard to disagree.  

I disagree, and find it easy to do so. One could mine profitably with Radeon 48xx GPUs at this difficulty & exchange rate.



...but short away fellas.

Just because it's profitable to GPU-mine, doesn't mean that it's a good investment to buy into any GPU-mining fund at any old price.

The other problem is the switching back and forth between btc-profit and fiat-profit.  Any BTC I invest better pay for itself in BTC.  Just because BTC goes to US$10k in the next 5 years which means your overpriced mining fund that returns 1 uBTC per day is still "profitable" doesn't mean you wouldn't have been better off doing something else with your BTC.

One of the funds I looked at was an order of magnitude more expensive based on a GH/sec per share basis compared to ASICMINER.  And even adding in their future delivery of Avalons, they were still 50% more expensive on that metric when compared to ASICMINER and its future delivery of 50TH/sec.

Which is a shame - I was looking for a good way to get exposure to a batch 2 avalon...  I guess I'll keep looking.

[creativex]

Easy.

Any mining stock that does not currently have ASICs in hand today is a short to zero.

I liked that one, and hard to disagree.  

I disagree, and find it easy to do so. One could mine profitably with Radeon 48xx GPUs at this difficulty & exchange rate.



...but short away fellas.

Just because it's profitable to GPU-mine, doesn't mean that it's a good investment to buy into any GPU-mining fund at any old price.

Of course not, but that's not what my comment implied either, it was about shorting. Anyone serious about mining that doesn't have a plan to move to ASICs at this point is behind the curve, but GPU mining is still very much profitable at this time.

The other problem is the switching back and forth between btc-profit and fiat-profit.  Any BTC I invest better pay for itself in BTC.  Just because BTC goes to US$10k in the next 5 years which means your overpriced mining fund that returns 1 uBTC per day is still "profitable" doesn't mean you wouldn't have been better off doing something else with your BTC.

Electric bill = fiat, this is still inescapable. If this theoretical fund returns "1 uBTC per day" and retains it's unit price then it's soundly beaten the performance of a pure BTC investment. This is the compensation for the greater risk of investing BTC rather than just holding them.

One of the funds I looked at was an order of magnitude more expensive based on a GH/sec per share basis compared to ASICMINER.  And even adding in their future delivery of Avalons, they were still 50% more expensive on that metric when compared to ASICMINER and its future delivery of 50TH/sec.

Which is a shame - I was looking for a good way to get exposure to a batch 2 avalon...  I guess I'll keep looking.

Is it possible that the price of the ASIC order or orders were already accounted for in the unit price or that others value them differently than you? Why should someone invest their hard won BTC in hardware and then share the proceeds with others for nothing? Avalons are again unavailable for purchase from the manufacturer, ASICMiner has been stuck at 6.5Th for a couple weeks, BFL isn't shipping. How does one properly value a batch 1 or even batch 2 Avalon order?

[Rodyland]

Of course if a mining fund returns dividends and maintains its unit price then you've won.  Or more importantly, if (future unit price + dividends) > (today's unit price) then you've won compared to doing nothing.

So how does one estimate both the future unit price and the future dividend stream of a mining fund?  You can make some guesses about future difficulty and hardware that is promised to come online to estimate future dividends, but how does one estimate future unit price?

How does one properly value a batch 1 or even batch 2 Avalon order?

Or a batch 3 order for that matter.

Right now the market is even more unpredictable than before, thanks to BFL's April Fool's joke promise to ship within a couple of weeks (although it is looking increasingly likely that they will ship _eventually_).

We live in interesting times, no doubt.