Here Are the Wildest and Weirdest Stock Market Prices We've Ever Seen

Experienced investors often find it amusing when the general market overvalues assets, sometimes paying two dollars for something worth only one. Occasionally, they even join in on the excitement, betting that prices might rise further in the short term. However, such pricing anomalies often signal a broader market bubble.

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A recent example of this phenomenon is MicroStrategy, a company whose stock price suggests its Bitcoin holdings are valued at more than twice the current price of Bitcoin. This overvaluation is even more apparent when looking at a closed-end investment fund called Destiny Tech100, which has been trading at 11 times its net asset value (NAV), down from a staggering 21 times earlier this year. The fund, which owns shares in Elon Musk’s SpaceX and other privately held tech companies, has attracted investors eager to gain exposure to these names, despite their limited options for direct investment.

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This kind of pricing anomaly is not a new occurrence in the stock market. The market has always had instances where asset prices diverge from their intrinsic value, fueled by speculative behavior and investor enthusiasm. These mispricings violate the principle known as the law of one price, which holds that identical goods should be priced the same. While such anomalies can signal speculative euphoria, the timing of a bubble's onset or its potential growth is difficult to predict.

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Owen Lamont, a portfolio manager at Acadian Asset Management, and a former Yale finance professor, explains that while weird market events can happen without forming a full-blown bubble, bubbles are often marked by unusual pricing behavior. When retail investors get overly optimistic, they often overpay for assets, and the risk of overvaluation becomes evident when a substitute asset, which is ignored by investors, can be identified. However, investors looking to exploit these inefficiencies by short-selling overvalued assets or buying undervalued ones can face significant risk in the short term, as these anomalies can persist or even intensify.

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The challenge of capitalizing on such inefficiencies arises when there’s no practical way to engage in arbitrage. For example, SpaceX, owned by Elon Musk, is not publicly traded, so investors cannot directly purchase shares of the company. Similarly, the pricing disparity between AMC Entertainment’s common shares and its new preferred shares (APE) during the pandemic is another example of a pricing anomaly.

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Despite the shares being economically identical, they were priced differently. The APE shares were trading much lower than AMC common shares, allowing for an arbitrage opportunity. However, such trades require a strong stomach, as the prices eventually converged, and the APE shares were converted into AMC common shares in August 2023.

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Historically, the stock market has witnessed numerous similar pricing discrepancies. One such instance took place in 1923, when Benjamin Graham, the father of value investing, executed a successful pair trade by shorting General Motors (GM) while simultaneously buying DuPont stock. At the time, DuPont’s stock price was undervalued relative to GM, despite DuPont holding a large stake in GM. Graham’s trade proved profitable, as DuPont’s value eventually caught up to its rightful worth.

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Another example occurred in 1929, during the prelude to the Great Depression. A surge in the issuance of closed-end funds led to a bizarre situation where some funds were trading at astronomical premiums to their NAV. The Capital Administration Co. fund, for instance, had a premium of 1,235%, showing how irrational exuberance can lead to extreme overvaluation. These closed-end funds were indicative of a broader market bubble, and like many other speculative assets, they eventually corrected.

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The late 1980s saw another episode of price misalignment in the form of single-country funds. These funds, such as the Germany Fund and the Spain Fund, were trading at significant premiums to their NAV, despite the underlying securities being easily accessible to foreign investors.

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This pricing anomaly was partly fueled by the collapse of the Berlin Wall and the peak of the Japanese asset-price bubble. The Spain Fund, for example, rose by 45% in a single day in 1989, driven by heavy buying from Japanese investors. Eventually, these premiums to NAV faded as market sentiment shifted, but the opportunity to capitalize on the divergence in prices was available for a time.

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One of the most notable mispricings in recent history involved Palm and its parent company 3Com in the late 1990s. Palm, a maker of handheld personal devices, had a successful IPO in 2000, and its stock price soared.

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However, at the time, 3Com owned 94% of Palm, yet its stock price fell significantly on Palm’s debut. The market valued 3Com at $23 billion less than the value of its Palm stake, a clear example of mispricing. Over time, this discrepancy was corrected, and both stocks eventually fell back to earth as the tech bubble burst.

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These examples show that pricing anomalies in the stock market are not a new occurrence. While some investors may try to take advantage of these inefficiencies, they must be cautious, as the mispricings can persist or become even more extreme.

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The key takeaway is that while the law of one price may hold in theory, in practice, market dynamics can create significant deviations that sometimes last longer than expected. The risk lies in timing when to act on these anomalies, as bubbles can continue to inflate before they eventually burst.

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