Have you seen what Microstrategy is doing?

[jacoavlu]

Michael Saylor is founder and CEO, one of the longest tenured software execs in the country. MIT grad with a unique mind.

Microstrategy (MSTR) does mostly “business intelligence” software. I don’t really know what that is. They generate $30M+ in free cash flow a year and have little to no debt. Saylor owns enough voting stock I think he can mostly do what he wants

so he announced earlier in the year that he was looking at alternatives for the company’s cash reserves describing their USD cash pile as a melting ice cube. Subsequently made tender offer to buy out shareholders that didn’t like the direction then company was looking to go

theyve gone on to buy over 40,000 bitcoin and the stock pretty much went parabolic as bitcoin has gone on a tear

then in a real boss move Saylor announced a private offering of $400M in convertible notes, basically an offer to institutional investors to lend them money, with an option to convert to equity, which was completed and optioned up to $650M. At an interest rate of 0.75%.

so, leveraging up to presumably buy more bitcoin

if nothing else it’s pretty fascinating.

Saylor is wealthy and it’s fair to say this isn’t really risk for him. But he’s sure putting his money where is mouth is and so far it’s paid off for him and shareholders that stuck with him

[Peds]

interesting.
and another one joins the craze.

[xraygoggles]

Yep, been following it, but not touching it with a ten foot pole. High risk, high reward.

[Brains428]

He makes an interesting argument for opportunity cost in one of the podcasts I heard with him. Basically, at what point do you really know if something is too expensive, and if you're always waiting for a dip, will you just miss out.

He believes in the case that BTC will get to bajillion. He states gold is losing to inflation, and real estate has too much drag.

Insane? I don't know. Time will tell.

[CordMcNally]

Right or wrong, I always respect somebody who puts their money where their mouth is.

[Max Power]

...theyve gone on to buy over 40,000 bitcoin and the stock pretty much went parabolic as bitcoin has gone on a tear

then in a real boss move Saylor announced a private offering of $400M in convertible notes, basically an offer to institutional investors to lend them money, with an option to convert to equity, which was completed and optioned up to $650M. At an interest rate of 0.75%.

so, leveraging up to presumably buy more bitcoin...

The senior notes are nothing but the corporate equivalent of an everyman taking out a HELOC and then re-financing his auto payment... then starting to max out his credit cards for daily expenses, just to start a business or chase an idea. I would hardly call that a "real boss move."

It may work, it may not. If it doesn't, they default on the notes and declare bankruptcy. It definitely "burns the ships."

A lot of real corporations - even a few DOW companies - did the same in move - to varied extents - due to their balance sheets crumbling in 2009 or this year to stay afloat (GM, GE, were notables among them), to try not to miss their dividend, and to borrow at reasonable interest rates. Some can level the ship, most others continue down the road to trouble. The difference is that those real companies still have factories and real estate and skilled thinkers/workers and backorders for their wares/services once supply chain and labor difficulties smooth out. Since this is USA, we can also print money to bail them out to keep jobs afloat. This guy, on the other hand, just has a bunch of computer-made "money" which he bought on credit now.

...He states gold is losing to inflation...

Hmm, it hasn't in 3000+ years. It doesn't move with inflation day-to-day but always approximates it over any reasonable span. Gold's value is up around its all-time high today and will significantly rise again soon after Biden brings the dump trucks full of stimulus from the laser printers.

Gold doesn't ever gain/lose value... it just sits there. It is the benchmark. Everything else we call money greedually loses due to overprinting (so gold "goes up" relative to currency). As human currencies inflate and crash and crash and inflate and crash, gold always just gets re-valued in the "new one." Gold is probably 1476-0-0 versus currencies by now.

[jacoavlu]

The senior notes are nothing but the corporate equivalent of an everyman taking out a HELOC and then re-financing his auto payment... then starting to max out his credit cards for daily expenses, just to start a business or chase an idea. I would hardly call that a "real boss move."

It may work, it may not. If it doesn't, they default on the notes and declare bankruptcy. It definitely "burns the ships."

A lot of real corporations - even a few DOW companies - did the same in move - to varied extents - due to their balance sheets crumbling in 2009 or this year to stay afloat (GM, GE, were notables among them), to try not to miss their dividend, and to borrow at reasonable interest rates. Some can level the ship, most others continue down the road to trouble. The difference is that those real companies still have factories and real estate and skilled thinkers/workers and backorders for their wares/services once supply chain and labor difficulties smooth out. Since this is USA, we can also print money to bail them out to keep jobs afloat. This guy, on the other hand, just has a bunch of computer-made "money" which he bought on credit now.

Hmm, it hasn't in 3000+ years. It doesn't move with inflation day-to-day but always approximates it over any reasonable span. Gold's value is up around its all-time high today and will significantly rise again soon after Biden brings the dump trucks full of stimulus from the laser printers.

Gold doesn't ever gain/lose value... it just sits there. It is the benchmark. Everything else we call money greedually loses due to overprinting (so gold "goes up" relative to currency). As human currencies inflate and crash and crash and inflate and crash, gold always just gets re-valued in the "new one." Gold is probably 1476-0-0 versus currencies by now.

I don’t really follow your analogy

Microstrategy is a profitable business. They don’t need to borrow to stay afloat. They don’t need a bailout, they weren’t in debt before, they have $800M btc on their balance sheet already.

it’s a rich guy taking advantage of low interest rates, looking around and seeing all the printing much the same way you do, leveraging up on bitcoin basically what he sees as “the new gold”

[Lordosis]

If bitcoin drops from todays price back to 3-5K as it did 2 years ago would companies like this be able to hold that kind of loss? Can they stay solvent longer then BTC can stay low? Will their investors and public opinion let them?

A individual might have the fortitude to hold tight if they did not have to liquidate to pay bills. But if/when BTC becomes a laughing stock again. I do not know if a corporation will be able to take those losses and keep it's investors.

[burritos]

What is a bajillion dollars? Is that more than a quintillion? Cause that's a lot.

[jacoavlu]

If bitcoin drops from todays price back to 3-5K as it did 2 years ago would companies like this be able to hold that kind of loss? Can they stay solvent longer then BTC can stay low? Will their investors and public opinion let them?

A individual might have the fortitude to hold tight if they did not have to liquidate to pay bills. But if/when BTC becomes a laughing stock again. I do not know if a corporation will be able to take those losses and keep it's investors.

If btc goes to 3-5k then they have only $120M-$200M btc on their balance sheet. And presume they're still generating $30M yearly free cash flow from operations. They could possibly service their now $650M debt from business operations alone though they would have to refinance in 5 years if they didn't want to liquidate the btc

it will be interesting to see if they keep buying if btc keeps rising

[EntrepreneurMD]

Right or wrong, I always respect somebody who puts their money where their mouth is.

Thanks!

[Max Power]

...they weren’t in debt before...

That doesn't mean anything. They were operating on a profitable business model involving product(s) and support service for it. They are now in debt, used the debt to make an investment on greater fool theory, and like anyone in debt, they're now at the mercy of their investments/productivity (and maybe interest rates... depending on how they wrote their notes). The race is on.

...it’s a rich guy taking advantage of low interest rates, looking around and seeing all the printing much the same way you do, leveraging up on bitcoin basically what he sees as “the new gold”

Gull wing doors were going to be the new standard for automobiles at one time. "New Coke" was going to replace Coca-Cola at one time also, but New Coke went extinct. DippinDots has been "the ice cream of the future" for decades now.... and teetering on folding for the last decade.

...Bitcoin is the new gold? Suuuuuure. Do you have any idea how many things have been called that at one time or another? Talk is cheap.

[jacoavlu]

That doesn't mean anything. They were operating on a profitable business model involving product(s) and support service for it. They are now in debt, used the debt to make an investment on greater fool theory, and like anyone in debt, they're now at the mercy of their investments/productivity (and maybe interest rates... depending on how they wrote their notes). The race is on.

Gull wing doors were going to be the new standard for automobiles at one time. "New Coke" was going to replace Coca-Cola at one time also, but New Coke went extinct. DippinDots has been "the ice cream of the future" for decades now.... and teetering on folding for the last decade.

...Bitcoin is the new gold? Suuuuuure. Do you have any idea how many things have been called that at one time or another? Talk is cheap.

they purchased their btc with cash reserves that Saylor couldn’t figure out anything better to do with.

Their notes were just issued so we will see what they do with their new debt.

don’t conflate a discussion of a story I find interesting, with my opinion. I would find it similarly interesting if Microstrategy had chosen to put their reserves in gold.

[Max Power]

they purchased their btc with cash reserves that Saylor couldn’t figure out anything better to do with.

Their notes were just issued so we will see what they do with their new debt.

don’t conflate a discussion of a story I find interesting, with my opinion. I would find it similarly interesting if Microstrategy had chosen to put their reserves in gold.

You can find whatever you like interesting, but I see no reason to applaud it. This is just a company making a speculative investment... then borrowing to double down on it also. I just don't see how that's ever a solid move (for individuals or corporate). Why didn't he start a Bitcoin investment company that could go bankrupt if he's wrong... instead of likely ruining a good one and driving some folks to leave and/or sell out their shares? All of this from what is likely his midlife crisis?

They didn't take out loans to create assets such as develop a new product, build new stores, market a new product that tested well, hire talented new engineers, build new production factories, expand international, etc. They didn't borrow to ride out a tough economy and make bills and payroll in the meantime. Those would be the (possibly) smart reasons. They borrowed it to gamble that many other people will buy Bitcoin in the future... there is no other way to win now.

Even assuming he is correct, a software guy borrowing money to all-in invest in digital currency speculation is totally out of his element. Even the financial companies do that stuff with caution and stay behind the cutting edge when it is something so silly. It is akin to Facebook doing the VR headsets now or when Gillette tried to do shampoo and small elecronics which crashed and burned... totally out of their realm. It is called "Diworseification," and it's not a new thing...

"AVOID DIWORSEIFICATIONS
Instead of buying back shares or raising dividends, profitable companies often prefer to blow the money on foolish acquisitions. The dedicated diworseifier seeks out merchandise that is (1) overpriced, and (2) completely beyond his or her realm of understanding. This ensures that losses will be maximized.
Every second decade the corporations seem to alternate between rampant diworseification (when billions are spent on exciting acquisitions) and rampant restructuring (when those no-longer-exciting acquisitions are sold off for less than the original purchase price). The same thing happens to people and their sailboats."
- Lynch, One Up On Wall Street

[jacoavlu]

You can find whatever you like interesting, but I see no reason to applaud it. This is just a company making a speculative investment... then borrowing to double down on it also. I just don't see how that's ever a solid move (for individuals or corporate). Why didn't he start a Bitcoin investment company that could go bankrupt if he's wrong... instead of likely ruining a good one and driving some folks to leave and/or sell out their shares? All of this from what is likely his midlife crisis?

They didn't take out loans to create assets such as develop a new product, build new stores, market a new product that tested well, hire talented new engineers, build new production factories, expand international, etc. They didn't borrow to ride out a tough economy and make bills and payroll in the meantime. Those would be the (possibly) smart reasons. They borrowed it to gamble that many other people will buy Bitcoin in the future... there is no other way to win now.

Even assuming he is correct, a software guy borrowing money to all-in invest in digital currency speculation is totally out of his element. Even the financial companies do that stuff with caution and stay behind the cutting edge when it is something so silly. It is akin to Facebook doing the VR headsets now or when Gillette tried to do shampoo and small elecronics which crashed and burned... totally out of their realm. It is called "Diworseification," and it's not a new thing...

"AVOID DIWORSEIFICATIONS
Instead of buying back shares or raising dividends, profitable companies often prefer to blow the money on foolish acquisitions. The dedicated diworseifier seeks out merchandise that is (1) overpriced, and (2) completely beyond his or her realm of understanding. This ensures that losses will be maximized.
Every second decade the corporations seem to alternate between rampant diworseification (when billions are spent on exciting acquisitions) and rampant restructuring (when those no-longer-exciting acquisitions are sold off for less than the original purchase price). The same thing happens to people and their sailboats."
- Lynch, One Up On Wall Street

I’m not sure if you’ve followed the story other than what is my admittedly poor synopsis here. I think you of all people may align with much of Saylor’s thinking, except for the fact he favors btc and not gold. But the thought process is similar

hes not framing this as an investment. They’re looking at btc as their treasury reserve asset. That which they expect to best maintain purchasing power over the very long term. He actually talks about the greater fools theory and he talks a lot about gold. His thoughts on how gold fails over the very long term. Gold miners vs gold investors.