Quote from: dan_a on February 07, 2014, 06:39:06 PM

Hi,
I'm trying to understand this properly, but I can't quite get my head around it.

If I have 1 MINE and 1 SELL, then common sense tells me that I'm not going to make money.
But, every day the MINE will pay dividends, and every difficulty change the SELL may (and probably will based on the past) pay dividends.

Am I right in thinking that the way I'm losing money by holding both is that the price of EXCH goes down every difficulty change and therefore the market value of MINE and SELL follows it down?

Thanks!

Your common sense is right

- MINE and SELL will be paid out all of the fund's capital over time. Your job is to determine how much you think that MINE will receive and how much SELL will receive.

MINE gets daily dividends based on the current Difficulty. SELL gets dividends if the Difficulty increases overall. The value of EXCH is just the Period Start Net Asset Value per Unit plus 1% (fee). You've already paid that 1% fee when you bought EXCH, plus possibly a little premium depending on when you bought it during the period.

So, you've already paid a little bit of a premium (like everyone does) when buying EXCH - you can't lose any money now simply by holding your Pair.

If you hold MINE and SELL until the end-game, you'll receive right around the current NAV/U (plus a little more due to sales of new EXCH).

If Difficulty continues to increase, the values of all of the three securities will decrease for the following reasons:

1) EXCH will decrease because, as the Diff increases, the capital required to pay 200 Days of MINE Dividends at the current rate will decrease
2) MINE will (should) decrease because, as the Diff increases, a theoretical 5GH/s miner will pay out less as time goes on
3) SELL will decrease because the excess capital no longer needed for MINE's dividends is paid to SELL and the value of SELL, therefore, decreases. This can be hard to understand, but basically if I'm going to (for example) pay out .16 in dividends to SELL over its lifetime, and then I pay out .03 in dividends, you wouldn't expect SELL to still be worth .16, right? You'd expect it to be worth .13.

In this same vein, the market value of SELL decreases as dividends are paid out to it because the maximum theoretical dividends that could be paid out to it have decreased.

Overall, I suggest that you determine what you think the Diff will do - continue to rise? Start to fall (if so, when?)? Plateau (when?). These are the important questions. After you have this answer, run some models using mining calculators (or your own spreadsheet) and figure out what you think a fair price for MINE is.

Once you have that, subtract that value from the current NAV/U - now you've got your fair price for SELL. Which one you're going to sell/keep depends on what the market looks like at the moment. But, there's no penalty to holding onto SELL and MINE until you've found a good entry into the market.

Hope this helps.