Michael Saylor on Context Livestream

welcome everybody i'm guyadami i'm here with context 365. i'm so excited a few weeks ago i reached out to one of the most sought after individuals not on the united states i think but globally in terms of what he's done over the last year i reached out to michael sarah and i said michael would you be interested in doing this and he said absolutely he did not hesitate folks literally got back to me within minutes uh so it's a real honor to have a mr sailor is a technologist entrepreneur business executive philanthropist and best-selling author he currently serves as the chairman of the board of directors and ceo of microstrategy since co-founded the company at age of 24 mr seller has built microstrategy into a global leader in business intelligence mobile software and cloud-based services in 2012 he authored the mobile wave how mobile intelligence will change everything which earned a spot on the new york times best sellers list mr sailor attended the massachusetts institute of technology mit to me receiving at sb in aeronautics and astronautics and an sb in science technology in society he's a total stud i'm considering him to be you know one of my new friends michael welcome to this and thanks again for joining us thanks for having me guy happy new year no it's great and listen you know there's so many things to talk about but one of the first things i obviously want to talk about you know is this privacy activists and free market libertarians have been a long round for a long time there have been many many technologies prior to the bitcoin technology yet here we are today um is this the last iteration um or is there more to come is this going to continue to evolve yeah i i think that bitcoin isn't the first crypto asset network people tried to do with hash cash and e-gold and a bunch of other techniques it's the first one that worked and it's the first one to make it to 100 billion in market cap and then to make it to 200 and then 500 than a trillion i think at this point it has emerged as the global open source monetary protocol and at a trillion dollars of monetary energy in it that means it's the fastest digital network to a trillion dollars in value in the history of the world i i don't really think that there's uh any chance that a trillion dollar digital network gets displaced at this point i think it's going to be around if not for a hundred years uh in some way shape or form this protocol is going to go on for many many generations and because it's the first example of a successful technology that could serve as a digital monetary network no question and you know you've come to this realization obviously you know you've been in the news for the last six months but i think you really wrapped your head around this and mista and correct me if i'm wrong i mean this is something i think you might have not struggled with but maybe questioned for a while but i think you fully embraced it probably february of 2020 if my math is right is is that correct march you know beware the ides of march i'm reminded of that i i think that um that you know modern portfolio theory got broken in march of 2020 and the conventional thinking before march was 60 stocks 40 bonds and uh and if you're a corporate treasury you hold your money in uh and short dated treasury instruments earning two three four percent yield and then the cost of capital is like five percent or six percent all that got up ended in march the cost of capital became about 24 the treasury yields went to zero bonds went to infinity right you know you had 50 basis points in the 10-year and you could you could have you know you had like 100 basis points in the 30-year sky high price discovery disappeared and now all of a sudden all of my conventional views of the world get shattered and and i have simultaneously a problem which i as i'm staring at hundreds of millions of dollars of cash which is which is not going to beat the 24 cost of capital and so i just got to extrapolate out how many years will we run with a 15 20 25 cost of capital and if i think it's more than six months i got to do something and so march was a wake-up call i got to do something well it's interesting and this leads me to one of the first questions we have from our audience one of our sponsors and i've heard you answer this question but i'm sure a lot of people have it uh what was the board's initial reaction when you came to them with this idea obviously it's something you need to discuss i've heard you say a number of times you gave all your board members homework basically so i'm interested in some of those conversations i think the first reaction yeah but by the way if i brought this idea to the board in february they would have been like you're out of your mind and by the way i wouldn't have brought it to the board in february if you had brought it to me guy in february i would have said you're out of your mind what is this bitcoin thing i don't get it but uh you know after the collective experiences we had in march april and may by the time you get to may everybody knows there's a problem everybody knows the cost of capital is shooting through the roof the indication is the k-shape recovery that we see and and so now everybody's open-minded to the problem they're like okay well what is this bitcoin thing so i first had to give them homework here's three hours worth of videos to watch here's 10 documents to read then i had to go through an educational exercise and meet with each of them individually then we met as a group then we discussed then we agreed we had a problem we agreed it might be a solution and we agreed that it was still somewhat of a of a dangerous place to go so ultimately after we after we got educated and we came to consensus our conclusion is well let's just split the difference let's basically buy 250 million worth of bitcoin and let's buy 250 million worth of our own stock back but let's not buy our stock back immediately or buy it back over a year let's basically buy a 250 million dollar insurance policy we're going to do a 250 million dollar dutch tender auction over 20 days contemporaneous with the bitcoin purchase so that we could communicate with complete transparency and with a lot of advanced notice to all of our shareholders that we're about to embark on a new path and they obviously embrace that and that's the one end of the spectrum and i think and you can correct me if i'm wrong but i think as we sit here today i think microstrategy now has 91 064 or so bitcoins at an average price of just north of 24 000. so that's the one end that i want to talk about but the other end of the spectrum is for the family offices for our our viewers here how do you start like how did you start i mean there was obviously a path to get you to that march date how did you start okay well you know um the clock went off in march we spent about three months of education and consensus building and you know and and uh the company ended up uh making these announcements late july and acting in august just in terms of time now um if you're you know you can learn anything on the internet by the way how you start you start going to youtube and you start you start looking at videos if you want a curated set of videos go to hope.com because i posted a curated set of bitcoin resources third-party videos analysis other companies views shareholder letters my own views etc so i think you got to do your homework you can't really get into this until you understand the underlying crypto theory what is the what's the theory of a crypto asset network the underlying macroeconomics the technical drivers and then everything else people that uh that don't understand it you know at best they say it's an uncorrelated speculative asset but once you understand it you realize it's the solution to your problem and it takes uh 12 hours for the for a person from going from cold to kind of warm if they have an open mind and if they have the commitment to do so it's interesting you say that it's so and i i have a view on this not that mine matters but should price factor into this at all when you have not a five minute time frame like so many of us do but when you have a five-year 10-year outlook should you even consider what the price is before we came on we were sort of having a conversation about you know the price of bitcoin but should i even uh come into the the conversation or should that change your way of thinking i think my my view here is you ought to look out ten years you ought to look at motions or movement in one year increments so your term is one to ten years and and the focus ought to be on trillion dollar asset classes not smaller things so for example if you if you look at uh the 10-year compound annual growth rate of bitcoin it's 201 percent on average every year for 10 years if you look at the and there's a trillion dollars in it now if you look at gold there's 10 trillion in gold the compounded annual growth rate for 10 years is 1.88 if you look at uh s p 500 index um well there's about uh 32 trillion dollars of assets there the compounded annual growth rate in 10 years starting today 11.6 percent big tech nasdaq that's 18 trillion you got 17 percent compounded in your growth and if you look at the long bond like 20 to 30 year dated treasuries you would have got four percent in them over 10 years so if you look at that and you step back you say okay well i get the trend i i don't really think it makes sense to actually make a macroeconomic or portfolio move unless you're unless you're looking out short term is four years long term is ten years if you're going to look at one day one hour one week one month you know you can break you can look at a hundred thousand assets every single day and you can generate millions of times as much information it's all noise it's like i take a microscope and i like zoom into your forehead and if i get close enough i'll find a blemish i mean no doubt i'm exercising i'm trying to find something to give me anxiety i will find it if i just look close enough frequently enough wasn't the whole system set up right now not your system but so you know in terms of what i do almost on a daily basis and just if you look at twitter and look at the news cycle isn't the entire thing set up to create the anxiety that you just brought up it's entertainment right we have we have this challenge there are people that make their living providing information there's networks like twitter that keep you with a dopamine hit there are analysts and they analyze soybeans versus corn versus futures versus swaps derivatives this that and the other thing and they have to have something to talk about every day every week every month we publish a newsletter okay well that encourages people to generate uh noise but it's not signal here's signal if you go look at the blue dollar rate which is the black market rate of the dollar versus the argentine peso from 2003 to 2021 it's gone from three three pesos to the dollar to 150 pesos to the dollar and it's just slot the dollar is strengthening against the peso every year that's the trend if you look at all the currencies for fun i look at the last 10 years of every currency in the world the bottom line is a lot of them are collapsing most of them are weakening a few are trading sideways and then a bunch are are capital controlled totally collapsing but no one wants to talk about it that's the story now if i come back to you and i say guy you live in argentina as 2003. i think the currency is going to keep weakening you know what should you do and the answer is it doesn't matter what you do you could analyze every company in argentina and every bond in argentina and every piece of real estate in argentina and every swap and every derivative this and that transaction nothing matters the only strategy that makes sense is you convert all your pesos to dollars you forward finance your cash flows to a loan in dollars you you finance all your fixed assets in the dollars you sell equity which you convert into dollars and you put the dollars into a bank and you get it out of the country and if you do that you'll be fine and if you don't do that a million other strategies all don't work because fundamentally all of your investments are correlated to a currency which is losing 15 of its economic value every year and that dwarfs the execution of the ceo it dwarfs any other strategy that a money manager could apply and therefore nothing that happened in argentina for 15 years matters other than convert your money or convert your investment to a strong asset and put it outside the reach of a government that would forcibly convert it back into pesos and devaluate well that's interesting you say that because it leads me to you know i love reading you on twitter watching you on twitter whatever the terminology is but you have some great sort of anecdotal things and one of the things i read recently stocks valued on expected cash flows only hold value if those cash flows grow faster than the rate of monetary expansion and you just see what's going on here in the united states um i mean i think that that quote right there i think really sort of centered your line of thinking as to how microstrategy should move forward and oh by the way many other companies i want to talk about but you know can you speak to that quote monetary expansion there seems to be no end in sight i think the the most pernicious uh most per pernicious mental model that people have is the idea that inflation equals cpi and that either that number matters and the number that really matters is cost of capital which is the same as the rate of monetary expansion which is closer to the broad money supply or m2 money expansion or another surrogate could be the s p 500 index or the average rate at which a market basket of every stock moves when you look at those numbers you get an inflation rate in asset inflation which is 24 to 35 percent now what now if you have an inflation rate of zero percent a company that's generating cash flow for the next decade can be discounted back and has value when the inflation rate or the cost capital goes to eight percent maybe it can have value as long as you leverage it up but when the cost of capital gets to 24 your you know your utility has to grow its cash flows 24 because the value of cash in a decade is nothing because it won't buy anything and so what does that mean the the problem is the currency is becoming toxic to hold when the cost of capital goes to 24 percent and and what i'm getting at with that quote is value stocks won't hold value they're not a store of value in a situation where the money supply is expanding 15 or 20 percent value stocks only work in a very in a very low uh cost to capital environment and so right now people can't hold value in bonds because bonds are going to yield a two percent coupon against the 20 cost of capital they can't hold value in gold because capital is running away from it i mean gold is a disaster it's like up two percent a year for a decade they can't hold money in value stocks because the value stocks can't grow faster than a 20 or a 15 hurdle rate by definition they're all low growth so that means that everybody gets stampeded into super high growth stocks like tesla or meme stocks or spax that are speculative because fundamentally the monetary policy is dictating what investable assets can hold value five years out or ten years out once you understand that the inflation rate that matters to you is asset inflation not cpi it completely changes your view toward portfolio theory and how you discount every single asset and what and what you do with your money and your time there's no question about i mean we're on the same page with this one you know to the extent you ever watch fast money or read the things that are i am no fan of central bank specifically our federal reserve i'm not here to rail against them but i want to use another michael saylor uh uh tweet in finance everything that is agreeable is unsound and everything that is sound is disagreeable and it's so funny i i saw that recently just sort of doing my homework and that's exactly right i mean there seems to be this belief that there's some sound policies coming out of central banks specifically our federal reserve and i think it's anything but i i'm i'm certain that when you look at what's going on globally central banks and their policies you have to be saying yourself in a world where everybody's looking to devalue their currency nobody wins except exactly what you've done over the last year is there some accuracy in that statement from me yeah there is i mean i think fundamentally in in a sound money environment um then then um you have a very complicated job picking assets because the piece of commercial real estate if you have zero monetary inflation maybe you want to own real estate maybe you want to own a value stock maybe you want to take the risk on a high growth stock maybe you want to own a bond maybe you want to try some venture capital maybe but as the money when the money supply or the monetary inflation rate got to eight percent you kind of had to be leveraged if you're a value stock you couldn't be unleveraged and you and otherwise you buy companies that are growing 20 like amazon and apple and it becomes much less choice in the world where the where the cost capital doubles again or triples price discovery disappears from more and more asset classes so perversely it actually makes the portfolio allocation decision simpler it's like i know i can't buy negative yielding sovereign debt um junk bond indexes are at four to five percent and the risk of the job the bond failing is four percent so i'm looking at zero yield and on junk debt no upside uh only downside i can't sit in cash um and so i can't sit in long dated long long commercial real estate because they all have a cpi cap in the lease renewal provision i know they all do so you're buying a long bond so now i go off to stocks and and again the value stocks that unless someone has leveraged them up and the problem is they all got levered over the past decade and so the only way uh to actually get a decent yield is super high leverage on low growth or super risky high growth and uh and that's what drives everybody into these new ideas that's actually fueling the crypto fire people are moving they're moving to evaluate um new ideas the specs wouldn't exist without the fact that people have to you have to buy optionality like i'd rather buy something with optionality you could look at a spec and you could say well spax in a way have exploded in the same way that a convertible bond looks more interesting than a junk bond or a corporate bond because at least with a convertible bond i have an equity linkage to it i have to have equity linkage or optionality with risk with uncertainty in all of these things for them to make sense and i i think the monetary policy drives the capital into those new asset classes it's interesting so you know again off your twitter but i've actually i knew this quote prior from shopping hour um all truth passed through three stages first it's ridiculed second it's violently opposed and third it's accepted as self-evident so i don't think we're at the self-evident part in terms of crypto and bitcoin but we're probably somewhere between one and two are we in this sort of uh three stages of truth you know um when uh bitcoin was bitcoin is a crypto asset network basically the idea is let's form a bank in cyberspace with 21 million units let's all buy the units and let's make it impossible for a ceo or a company or a government to dilute the number of units so let's put it outside of the control of humanity so bitcoin is that bank in cyberspace the value of a bitcoin is kind of equal to the book value of of the money invested in the network adjusted up for inflation divided by 21 million that's the way to think about bitcoin well um when it was a billion it was an experiment when it's 50 billion it was scary as heck we didn't know it was going to be banned copied cloned or whatever when it got to 200 billion in march of last year it became pretty clear that it wasn't going away and that's the point at which i got involved because i said to myself i never seen a 200 billion dollar digital network that ever got displaced like once you get to that point you've got escape velocity today bitcoin is a trillion dollar bank and cyberspace and it's got more than 100 million depositors it's got thousands and thousands of companies plugged into it it is the fastest digital network to grow to a trillion dollars in market value in the history of the world it took uh it took amazon 24 years google 22 years apple 42 years microsoft 44 years bitcoin 12 years okay so bitcoin is a monetary network facebook is a social network it's not getting displaced when a trillion dollars worth of capital adopts that as their monetary network it is clearly past that first stage of ridicule craziness it's now gotten to the point where it's providing a role as as a store of value in a world that probably needs to store 100 to 200 trillion dollars of value so in my mind there's there's no doubt the next stop is it flips gold because gold is 10 trillion of dead money that we just wanted to park in a vault as a store of value and bitcoins better than that and it's it's clearly it's being uh promoted in the past few weeks look kathy wood just said you know the old 60 40 portfolio doesn't make sense how about 60 equity 20 bonds 20 bitcoin whoa that just happened a week ago you know now you have morgan stanley jp morgan city group you know all talking about bitcoin in the past few weeks it's clearly moving i i believe it's moving into the year one of institutional mainstream adoption like february 8th when tesla came out and announced they bought 1.5 billion dollars of bitcoin that was the starting of the gun of mainstream march march of last year was the first year zero zero year like if you're crazy and you want to take a risk you buy bitcoin and you had one year to be very early this is year one of this is a reasonable solution you just saw the ceo of new york life joined the board of nidaeg they have 700 billion he's the sitting ceo currently of new york life 700 billion dollars of assets under management the insurance industry has seven trillion dollars on their balance sheet nydig announced that insurance companies have a billion dollars of bitcoin exposure three months ago crickets okay so what happens over the next 36 months well this is really the evolution but until bitcoin gets to 20 30 billion i don't think we're getting into the the more mature area of the curve i think it's going to sprint to the 20 trillion dollar level because that would just be 2x gold so this is a tough question to answer and it's from the audience i'm i'm going to rephrase it a little bit um should a small company and put its cash towards bitcoin or should they invest and focus on technical resources on building technology on blockchain technologies so should you know should it be a straight bitcoin play it should sort of be a derivative of bitcoin look i think i think it's a no-brainer for any company to put half your treasury into bitcoin i joke tongue-in-cheek you only have you don't have to put all your cash into bitcoin only the money you want to keep like like that's what i think i think ha converting your treasury to bitcoin is a no-brainer because bitcoin is appreciating it 200 a year on average for a decade it's up 600 percent this year and uh and the money that you're holding is losing 15 of its purchasing power or more a year so that's a no-brainer when if you buy a hundred million of bitcoin you just purchased a hundred million dollar dominant digital monetary network growing 200 percent a year that's what you just did and you bought the monopoly now the network that's a hundred times bigger than the next light kind network whereas if you go into the i think that so your first strategy is you put your balance sheet into bitcoin as much as you dare right and your second strategy is you try to tie your p l your products and your services into bitcoin look if you're on television talk about bitcoin put it on the screen if you're an analyst analyze bitcoin versus gold and every other asset class if you're if you have a mutual fund company you should offer mutual funds based on bitcoin if your insurance company you should offer bitcoin backed life insurance if you're a mobile payment company like square paypal you should build bitcoin into your mobile payments but i would not recommend that anybody take uh take liquid capital and go into business competing against square or paypal i would not recommend that you go into business competing against fidelity or pimco i would not recommend you compete against cnbc you should use your s your your strategic assets that you have accumulated over 30 years and align them to the new reality of bitcoin but you should if you have liquid capital you know you got 10 million dollars in capital just buy the bitcoin because it's the most competitive ecosystem ever there's a you know when i talk to entrepreneurs that are investing in bitcoin you know they're like i just raised 50 million dollars and i'm gonna do bitcoin whatever something hard wallet or something i said well have you invested half of that in bitcoin they're like well wait a minute i need to keep that in u.s dollars in order to compete i'm like you're crazy you know the us dollar is losing its value there is a future where your company fails and bitcoin succeeds yeah in fact it's 99 likely that any company competing in a competitive market fails but the market succeeds so if you want to de-risk your company you know i would say invest your treasury in bitcoin and you'll succeed whether or not you become the world's greatest mobile payment network on bitcoin or the world's greatest bitcoin miner in fact i tell the miners i said buy bitcoin before you mine bitcoin and that's what marathon did and they made they made 150 million dollars off of the bitcoin they bought before they mined the first 150 million in bitcoin and so it's a smart idea to put your balance sheet into bitcoin before your p l individually well it's interesting because you it required you specifically to look at portfolios your company differently and then you know i'm sure you looked at your balance sheet of micro strategies for years as an asset and then you said wait a second i'm converting a balance sheet that was a liability into an asset and that requires you have to rewire your brand a little bit now i ask you this you know we talk about apple almost on a daily basis and four times a year when they report earnings one of the first things we'll say is oh and by the way they have you know 275 billion dollars worth of cash on their balance sheet you probably hear that and wince and i'm not asking if you've had a conversation but when you see a balance sheet like that by definition in michael saylor's world that's a huge liability yeah yeah first of all you got a hundred billion dollars on your balance sheet your cost capital this year depending on whether you use the m2 money supply or the s p is between 25 and 35 which means that you burned 25 billion in shareholder value just to stare at it right that's weight for four years you burn a hundred billion dollars of shareholder value to stare at it so cash laden balance sheets are a liability in an environment where the money supply is expanding at 15 20 25 you have to plug in what you expect that cost of capital b but clearly they're a liability so let me give you a a model to think of my company had 500 million in in revenue we generated 75 million in cash flow and we had 500 million in cash on our balance sheet and that 500 million in treasury was yielding effectively zero well if if the money supply the cost of capital is zero you can tread water when the money supply went to when the cost of capital got to be 20 percent uh and i saw this in june i said well if i work hard and i do a hundred thousand things right for a year i'm going to generate 75 million in cash flow but i'm going to burn 100 million in in shareholder value and so in essence all of the work of everybody in the company is irrelevant because of the monetary wind blowing in my face so it's it's kind of like you're in a rowboat and you're rowing uh five miles an hour against a five mile or two mile wind and you're rolling across the atlantic the wind starts blowing 20 miles an hour on your face you're getting blown back 15 miles an hour you're never going to cross the atlantic you're going to starve to death so what do you do well you take your 500 million in capital and you convert it into a 500 million dollar bitcoin sale okay and then you turn your boat around and you sail with the wind not against the wind and now if you have 500 million dollars of bitcoin against the 20 cost of capital you know you're gonna get generate a hundred million dollars in investment income plus 75 million in operating income or cash flow and so you just doubled the value accretion of the company well when we got to the point where that crypto sale became a billion dollar sale and we knew we were going to generate a 200 million dollar investment income by doing nothing just getting blown with the win and that and now you're a company that's going to generate 250 million dollars of accretion a year against 500 million in revenue what happened next we borrowed 650 million we forward finance the next 650 million dollars worth of cash flow bought bitcoin doubled it and we ended up with a three billion dollar crypto sale and if that gets blown at 20 you know then you're looking at 600 million dollars in investment income and what do you do next well we got blown a bit further we raised another billion at zero percent interest we're basically borrowing money at zero percent interest a billion dollars for six years and we're buying an asset which is appreciating in value 200 percent a year the arbitrage is 200 percent you're yeah it's pretty obvious so what happens next well bitcoin is going up because it's the strongest asset out of 400 trillion dollars of weaker assets that are all bleeding 15 of their monetary energy a year we now have and guy i can't make this up this is like unbelievable last year we had 500 million dollars as a liability yielding zero and it was hopeless it was literally hopeless nothing we could do is going to actually create shareholder value the stock traded down to 90 bucks a share it was maybe trading at 100. we were being valued at one times revenue plus cash that was the situation today we have more than five billion dollars in assets in bitcoin five billion dollars and if if the money supply gets expanded by 20 or by 15 you're looking at generating a billion dollars of investment return a year just waiting and so you got to say instead of you got to get out of your row boat where you this is main street versus wall street v k shape recovery on main street is 2 000 people doing 100 000 things perfectly working as hard as they can against a monetary wind blowing in their face against tech monopolies microsoft apple google amazon you know with all their hands tied behind their back that's main street wall street is i have five billion dollars and if and if the fed continues with the loose money policy then we'll make a billion dollars and we'll do it with one quarter of a person and so what the bottom line is if you're a company you have to have a balance sheet with high quality assets that are going to appreciate at a at a value rate faster than the rate of monetary expansion otherwise you're simply being beat to death by the monetary policy it's interesting yet you know and very few analysts will will talk about apple and i don't want to go down the apple rabbit hole but just only because of the the shared number of you know dollars on their balance sheet and they'll say that's an asset yet you know if you were to look at it in 2021 terminology in your world michael saylor's world it's a huge liability that's only going to continue to sort of decay regardless of what they do unless they go down this path and which leads me to you know your global conference that you just had where i think i mean i don't know what the term has broke the internet but i think i think things sort of went down you had so many people joining uh the conference what type of questions did you feel like you know i'm sure people asked how long will it take us to embrace this strategy to get you know our board of directors around it were those the types of questions you got from some of these ceos that attended the conference you know we were getting those questions a lot before the conference and we were inspired to do the conference because we were getting 20 30 40 phone calls from people that want to know how to do it so we thought in the age of the internet you know you can't have one meeting an hour for the rest of your life it's the stuff just goes too slow so we had the conference and we decided to open source our legal analysis our due diligence our corporate governance documents we put them in the public domain we had our tax advisor deloitte work on this they put a white paper in the public domain we hosted a conference i thought we'd have 2 000 people show up we had 10 000 show up they broke our video server people started streaming on youtube eventually uh the sessions went to 750 000 people on youtube and thousands well i think 8 000 companies showed up just the day of and and it's been uh exploding there the questions are are basic right how do we move through the due diligence what about the accounting what about the legal and i think that uh that people are inspired uh and and what we've done made it possible to shrink that uh that adoption cycle from three months maybe down to three weeks which was our idea um what i would say in general guy is is the most important takeaway for a corporation is if um if the cost of capital is eight percent or six percent and you can get four percent on conventional treasury strategies then you can go ahead and pursue that but conventional treasury strategy is broken the cost of capital is 20 or more conventional treasuries yields zero um you got to find a different strategy securities are a bit problematic for a corporation because of the 40 securities act and you know do i want to hold more than 40 percent of my balance sheet and securities uh it's tricky but but one solution is i buy the s p or i buy nasdaq that and and maybe the other solution is i buy property and the highest quality property is bitcoin so the big idea is convert your balance sheet from a liability into an asset and either do it to avoid destroying all the shareholder value in your cash and in your treasury or do it because the alternative guy is actually more horrifying the alternative is is um maybe i'm growing my company eight percent a year but i know i got to grow at 16 a year to get respect from wall street right so i i borrowed billions of dollars and i buy half my stock back and so i take on billions of dollars of debt i leverage up i get my cash flow per share to grow 16 a year instead of 8 and then i get some respect from wall street i'm now two billion dollars closer to insolvency and what i'm doing is i'm borrowing large sums of money to buy a business that's growing six percent a year and and i'm i'm i'm uh eliminating all the equity the opposite idea and by the way this is kind of what apple is doing i mean apple's a great business it's a it's literally a mono a digital tech monopoly so you you know that's it's not a scary idea for apple but there are plenty of businesses that are not digital tech monopolies that can't issue a product to a billion people over the weekend for a nickel and when those companies pursue that they're basically giving up all their equity and they're taking on huge leverage and they become like a toys r us situation where they're driven toward insolvency because they they can't compete so there's a different strategy right by the way this is the road less travel we had a choice we could give back 500 million dollars to the shareholders and we would have basically twice as much microstrategy and we could try to grow it five percent a year you know and everybody's like if you tell everybody you're gonna grow a company five percent a year they roll their eyes and and they think and their their message to every ceo is you got to take on more risk you got to do something you got to do an acquisition your ceos are driven into massively leveraged positions or dilutive acquisitions in order to please wall street and and wall street's not the evil enemy here the problem is the cost of capital is 20 or 15 percent so you're either going to pursue a strategy of dilutive acquisitions or a strategy of excessive leverage or your third strategy is apple could borrow 25 billion dollars at one percent or three percent interest buy bitcoin that yields 200 interest and it's what what would you say to tim cook you would say tim if you can buy a hundred billion dollar company that's growing a hundred percent a year and it's profitable you should do that right what is bitcoin bitcoin is a hundred billion you know you can buy a hundred billion dollars worth of bitcoin or or 10 or 20 or 30 billion worth of bitcoin it's growing 600 this year but 200 percent a year on average so my message to any company whether it's microsoft or amazon or apple or tesla is why don't you take the asset that you can get a lot of you can go borrow 20 billion dollars worth of capital at three percent interest and why don't you go do an accretive acquisition and an accretive acquisition is something growing 100 or 200 a year by the way what's better for apple to buy disney or for apple to buy bitcoin because if you buy disney you're buying a hundred million moving parts and a lot of complexity and a lot of risk and a lot of competition if you buy bitcoin your treasurer just had to go buy bitcoin there is no competition there is no employee base right there is no the moving parts have all been worked out for a decade they're not changing so it it's a much better balance sheet idea than what's being laid on the table for most cfos or most ceos right now so i'm going to ask this question there's a there's a question here and i think you're going to follow me this great movie jaws there's a scene uh when the mayor they're at the beach and he's talking to brody and he says if you yell barracuda on the on the beach you know people look around not a big deal you yell shark and you have a panic on the fourth of july now here's my question micro strategies in some ways was the barracuda you went down this path and you know people looked at it but it didn't create a panic or a stir if apple were to do exactly what you did at microstrategies would that be the panic on the fourth of july would that would every single bell and whistle go off at every level of government uh and in every boardroom and so with that said does that do you think they're sort of inhibited by do you think they're sort of do you think they're reticent to do it based on that premise alone you know when i tweeted at elon musk i said something and i really meant exactly what i said right and most people took a tongue-in-cheek but i was very serious about it i said you want to do your shareholders a hundred billion dollar favor convert your 20 billion dollar balance sheet from cash to bitcoin and then all the you know the s p 500 companies will have to follow you and it will become a trillion dollar favor to your shareholders and what i really meant was you buy 10 billion in bitcoin you're gonna double it you can go borrow 10 billion in convertible debt you're going to double it again you're going to generate 40 billion dollars of investment income on a 40 billion dollar revenue company your stock is going to move north and then everybody's going to realize holy crap this is safe and and here's what you're really doing if you do that uh you're basically pointing out that the the price discovery has disappeared from the bond market and the treasury the treasury strategy of holding bonds should be replaced with a treasury whole strategy of holding bitcoin and so it just takes one mega company with conviction to do it you know um you know and you can at our size when it was 200 billion in market cap and we leaned on it with a billion to two billion we could we could drive a certain amount but now it bill a trillion dollars in market cap you lean on it at about the 10 billion dollar to 20 billion dollar level and you could do that now and that's what would catapult bitcoin to be a five trillion dollar asset and you could say oh this is frightening not really frightening gold is 10 trillion right when when bitcoin is 50 trillion then you will say it's a lot better than gold i mean how much more valuable is google maps than ram mcnally maps and how much more valuable is apple digital photos than kodak right it's it's very reasonable for digital gold to be 10 at 5x to 10x more valuable than gold and i think that guy it's just out there waiting for someone with conviction to do it and but here's the general logic if you're a tesla you know what do you got to do to create 700 billion dollars of market cap you gotta double your operating income double your revenue you know it's not easy to go from 40 billion dollars of electric cars to 80 billion dollars of electric cars in one year or two years is not how's apple gonna do that and so the answer is you fix your balance sheet right you fix your balance sheet as soon as you realize a hundred billion dollars of cash at apple is a liability burning 20 billion in shareholder value a year as soon as you flip that to a hundred billion dollars is an asset generating 40 billion 20 or 40 billion in shareholder value a year what what is apple's profit a year right now i mean you're like the point is don't i double their income like you take operating income and tack on investment income their investment income is nothing their operating income is everything you you cannot and this is this is the paradigm shift right everybody thinks they're living in a hard hard currency environment they think argentina is somewhere else and venezuela and zimbabwe is somewhere else right and and that's not us as soon as you realize that the dollar is is inflating at 15 a year if you crank in any number north of 10 for the next four years and you flip your your mindset the conclusion you come to is you cannot create shareholder value or preserve shareholder value without a financial strategy that includes hard assets or strong financial assets you might like take take apple and let's say that all of their sales are going to be limited to venezuela argentina and zimbabwe and then give me all your good strategy ideas and product ideas and again the answer is your strategy is a losing strategy financially until you get it through your head that you have to flip your balance sheet from a liability to an asset and the second piece of this is you cannot sweep your cash flows as dot you know from a strong currency into a weak currency and hold it and so ultimately it's a very simple straightforward approach apple could certainly do it any company that has 10 billion dollars of firepower can do it i you know and guy i i will end this thought with another tweet it's archimedes 2500 years ago he said if you give me a lever long enough and a fulcrum upon which to place it i can move the world okay the fulcrum is bitcoin a trillion dollar crypto asset that nobody on earth can screw with that's the hard point of of of leverage the lever is literally the 10 billion dollars that apple has on their balance sheet or a billion dollar loan if i apple just borrowed didn't they borrow like 30 billion dollars at a blended cost of capital like two and a half percent or maybe yeah i mean it's interesting it makes you really wonder what yeah yes so so i'm going to say this and i've written about this i say it all the time every fiat currency in the history of mankind since the roman empire has ended disaster and you just mentioned zimbabwe and argentina and michael bury's writing about the similarities between what's going on here today and sort of the weimar republic there are a lot of scary things out there but there'll be people that have watched this for the last 50 minutes and say you never really asked michael a tough question well first of all i'm not a journalist number one but number two we're having a conversation but if you want the tough question um my my question is this what's the existential risk here because i know that you you think about this as well just being the thoughtful person you are what derails the story that we've spent the last 50 minutes talking about you know if you're intellectually honest you have to say a black swan an unknown unknown can never be discounted right only only a fool would discount an unknown unknown um otherwise i i think that uh there isn't uh a an existential there isn't a risk i see in front of me i see a lot of fud i see a lot of a lot of fear uncertainty doubt and noise as the society accommodates this new asset i you know i look at bitcoin i look at it like compressed air or electricity or hygienic water it's a or communications lines they're all they're all new things and and in the decade when you introduce the automobile the airplane the electric power the the hygienic plumbing people push back it's like is it going to you know i'm like is it going to electrocute me is it going to burn my house down it's noisy it's dirty it's you know people talk about you know our cars polluting well horses are polluting right the society is going to have to adjust for a decade and there'll be a lot of noise and pushback around that and uh otherwise you know i i think that at a trillion dollars this is an idea whose time has come i i just can't see how anything stopping it i think there's just going to be some colorful sparks on the periphery i know reading about you listening to you interviewing you at cnbc a few weeks ago i know that you you're sincere in your wishes to make the world a better place and i want you to speak to that i want you to speak to sailor.org dot org and the free academy for education that you've set up as well because i think people would find that really interesting michael okay well i mean guy first of all economically i think that the single best way to make the world a better place is 7.8 billion people are working in currencies that are weakening the best one in the world is weakening at 15 to 20 percent a year and the others are weakening faster and so uh an underlying an open monetary network bitcoin that could go to all 7.8 billion people and provide them with a store of value a strong financial asset that they can carry on their mobile phone that's going to do you know more good to the human race than anything i can think of now uh in terms of and that's my vocational interest my avocational interest is i have a charity a non-profit foundation called the sailor academy and and uh and i don't have any errors so when i die all of my assets go into this foundation and and the mission of this uh foundation is make education free for everybody forever and so my general view is if you want to make the world a better place right provide people with infinite free education so they can reach their full potential i don't see any reason why you should have to pay large sums of money to learn calculus i mean isaac newton invented all of it 300 years ago and it's all should be in the open you know public domain i don't think people ought to have to pay any money to be a computer programmer or to learn the english language or to learn to speak or or to think or logic and so i think that we've entered a time frame where you can learn all these things uh the sailor academy at sailor.org saylor.org and they just upload free college courses if you want a computer science degree or a chemistry degree or whatever you can learn it for free online and uh i think uh today we've had about eight hundred thousand students join us we add about a hundred thousand students a quarter uh you know lately that's accelerated i would like it to become millions and millions of students so it's not easy to even give stuff away so if you know of anybody that wants a free college education send them our way we'd be happy to help it's all creative commons open source license you can borrow steal any of it you want um i i think that uh i think thinking uh in a a big frame guy uh if there's 7.8 billion people on the planet and you want to make the world a better place all the really complicated problems we have they require good education like you want people with phds in nuclear physics and biology and chemistry and medicine and those are the people that are going to create faster than light travel or fusion reactors or cure cancer or or create those levitating hover crafts that'll get us from here to there based upon clean renewable energy that doesn't make noise and doesn't leave a carbon footprint i'm not doing that with my undergraduate my high school education and arithmetic so how do we create a billion phds because there's only 10 million right now and it cost about two million dollars conventionally if you have a conventional bricks and mortar university to create a phd we need to make it cost zero and if it was zero and if i said to you can have infinite free education at your own speed from the smartest people on earth forever then i'm not thinking that everybody on the planet wants to get a phd but i'm thinking that we're going to move from 10 million toward the billion and that's good for the human race and so it seems to me like there's a lot of other debates about how to spend your time and your energy i come down on on the side of saying fix the money give everybody a strong store of value so they can hold all of their financial assets in the palm of their hand and not lose it forever and then let's give people infinite education as much as they can consume at no cost and i think that those two things will make humanity better better place for all of us well so i guess i should rethink my my visions of owning a 1967 gto then on the back of that but miss and michael when we first when i reached out to you i said a half hour we've gone an hour i want to be extraordinarily respectful of your time but i i'll say this i've been with cnbc the better part of 16 years i've gotten to speak to a lot of very interesting people you're right at the top of that list you're visionary and and i'm really hopeful that the audience took something from this because i know did so on behalf of context 365 michael saylor thank you so much for joining us guy thanks for having me it was a lot of fun thanks michael and thanks everybody for joining i hope you've enjoyed it we're going to try to do these not to the extent you know of a michael saylor but you know on a weekly basis take a look at us on context 365 on our website this obviously will be recorded i think it will live on the website i want to thank everybody for their time it's been a great hour thanks folks uh you

Channel: Context Live

Views: 210,793

Rating: 4.835536 out of 5

Keywords: Finance, Investing, Alternative Investments, SPAC, Bitcoin, Digital Assets, Crypto, Economy, Markets, Trading, Leadership, Capital, ESG, Hedge Funds, Venture Capital, Private Equity, Allocators, Portfolio Management, Investors, Pensions, Foundations, FinTech, Endowments, Pension Funds, Family Offices, Innovation, Tech, Investments, Financial Markets, Stock Market, Fund of Funds, Raising Capital, Hedge Fund News, Asset Management, Hedge Fund Investors, Alternative Assets, Ethereum, Cryptocurrency, News

Id: avWV6vF7zr4

Length: 59min 11sec (3551 seconds)

Published: Wed Mar 10 2021

Reddit Comments

[u/pukauw]

Awesome, thanks for the heads up.

I tell you what, if anyone ever had doubts in their decision to invest in bitcoin, all they need to do is watch a few minutes of an interview with Saylor to put all those doubts to bed.

[u/LifeInPrimes]

Thank you for sharing this!