Episode of My First Million with Sam Parr and Shaan Puri.
Transcript
Note: This transcript was auto-generated from YouTube captions. It may contain errors and lacks speaker identification. A full Gemini audio transcript will replace this.
Kind: captions Language: en i like the analogy or the kind of the awareness that hey we have this giant bowl of ice cream that’s melting that’s that’s your cash pile that’s melting and the heat is basically the money printer that is uh causing acid inflation ice cube that’s melting and i save a 500 million dollar ice cube and it’s melting 20 percent a year and it will be gone and finally so you needed to do something with that you didn’t want it to all melt away so you decided to do this now a couple quick questions one is uh this is sort of rapid fire i’ve had a couple rapid fire questions for you in 20 years from now what do you think has generated more value uh or more income to the company to microstrategy is it the operating income of microstrategy or the investment income of the bitcoin it holds the investment income for sure okay and then uh you know to be to be very clear what happened in march of 2020 is when the cost of capital goes to 25 that means that every investor and all investment income every every investor generated 25 more doing nothing right and every main street company that worked 25 harder got nothing right right you literally tilt the playing field so that if you don’t own if you own an assets you’re having the best year of the 30 years and if you don’t own assets it’s impossible to have a good year right and um and so so the second question is um you uh as you acquire as you acquire more and more bitcoin is microstrategy bet like do you just position the company at this point like it’s a bitcoin etf it’s like buy this buy this bitcoin buying it it’s not a bitcoin etf everybody’s you’re sloppy with those words an etf is a company that invests in securities and it tries to keep its assets under management equal to the amount of shares of etf that it sold it’s a financial company an etp is a similar type of company that invests in commodities if you create you know if you create this bitcoin entity that that equalizes assets under management equal to the shares you sell you created a bitcoin etp we’re neither of those things we’re not a finance company we’re not an etf we’re not an etp we’re not eq we’re not buying or selling bitcoin to equalize assets under management we’re an operating company that owns property bitcoin is property and in that way you should think of it as a company that like i i bought a million acres of land in texas or i bought uh a million gallons of of fill in the blank a million bushels of soybean you can buy any kind of property right and and you’re holding it on your balance sheet as a company right that’s what we that’s what we are now what’s your question you are talking about like let’s say the the cost of capital uh being 25 right because since march that’s what the s p 500 has done but the the stock market goes you know it does go up and down in years where you know the market dips and and goes up you know the average or you know over time the geometric mean is whatever seven or eight percent something like that so d some would argue okay yes this year assets inflated by that much that doesn’t mean next year it’s going to remain at 25 a year um and so you have to make some prediction right and so are you are you basically forecasting it at 25 15 10 8 and does the decision change at a certain number there so so gen first of all for the decade from 2010 to thousand and twenty it was generally about eight percent like it was it was pretty consistent and the single biggest driver of cost to capital is the rate at which the broad money supply expands and if you look at if you go google m2 money supply fed you’ll get a chart and you’ll see the ch by the way the chart’s not all over the place the chart is very consistent seven percent slope for a decade it’s not jerking around so it’s not that volatile it was very consistent monetary policy for a decade then that chart goes like this straight up 24 so if you uh if if you’re going to make a decision as an investor and this is any investor what it this this has to do this applies to all 400 trillion dollars worth of investors and it applies to every company on earth they all have the same exact thing they have to calculate which is you have to estimate the rate at which the money supply will expand each year for the next eight years and so that’s the same if you want to figure out the signal or or the single most important thing in the world for everyone but for everyone 7.8 billion people for 100 million companies for everyone with money on earth and everyone that earns a salary on earth this is the big idea of the podcast you have to estimate the rate at which the currency is going to expand and if you believe the currency is going to continue to expand at 15 a year for the next eight years you come to one conclusion if you plug in 10 it’s a different conclusion if it’s 25 it’s a different conclusion so what do i think um i think that um 15 is 15 for the next eight years is reasonable um if you’re a pessimist you could say if you’re an optimist you could say 10. but um the money supply is expanding because the federal reserve and the eu central bank are buying a trillion dollars worth of um bonds every year each and it’s also expanding because uh the the government of the eu and the us are running a multi-trillion dollar deficit and it is also expanding because of trillion dollar plus stimulus and there’s no reason to think that’s going to change in the next four years and i don’t think in the next eight years i think i think that at the point that the democrats took control of the senate and the house you saw that you have um if you could have you could have forecasted 12 percent inflation if it was a it was a split government but i think that in a a non-split government there seems to be remarkable consensus that we should run deficits continue to keep interest rates low and continue to stimulate the economy so what does that mean if you plug in a number 15 it means that the risk-free interest rate or the the risk-free return is 15 it means you have to generate in excess of 15 on your money every year for the next four years in order to stay ahead of the rate of asset inflation a reasonable person would say the assets are going to inflate at that rate that’s that’s pretty much what they do that means that if your company is not growing its cash flows you know at a 20 rate then it’s not going to hold value as a stock it means that if your bond is paying you an interest rate of less than 15 percent you’re destroying value in the bond if your rent yield is less than 15 percent your commercial real estate’s destroying value and if you’re holding cash you’re losing 15 percent of it a year that’s that’s the negative real yield so once you actually uh embrace the idea of asset inflation and asset inflation equals cost of capital equals the rate of the money supply expansion once you have that rate then you realize that there’s a negative real real yield on everything except for bitcoin for the most part the negative real yield on gold is three percent that’s the rate at which we mine it or hypothecate it the negative real yield on sovereign debt is about 12 13 the negative real yield on corporate debt is ten percent every company that’s got a growth rate of less than fifteen percent has got a negative real yield on it so you know once you do that then you can then what you realize is you can’t really have a business strategy as a company unless you find a way to solve the treasury problem so the big idea here is you want to fix any company sweep all the cash flows into bitcoin convert the treasury into bitcoin borrow against your future cash flows and dollars convert that into bitcoin finance all your fixed assets in dollars convert that into bitcoin and issue equity as much as you can now at the highest valuation you can now in dollars and invest in bitcoin right and and you might say why bitcoin well because bitcoin is the apex property it’s the most scarce monetary asset in the universe you can’t make any more of it it’s encrypted money and and what that means is it’s least likely to be impaired by a property tax an execution issue um money printing delusion counterparty risk and corruption so we have we have engineered a superior asset a thermodynamically sound technically superior asset it’s placed on a global digital monetary network which is open an open protocol and the combination of the the the apex asset on the open monetary system makes it the um the most disruptive technology in the world when you were first starting microstrategy you were you were in the weeds you were thinking i have to make a product that solves a problem and i have to make money off of it right now you’ve gone way up the hierarchy of now we can do whatever we want now you can do whatever you want at what point did you notice a shift like oh my gosh like this business is stable it’s working it’s working pretty well uh yep it’s quite predictable at what point did that shift happen because what you’re talking about now is quite important to what i think we look we solved our problem when we actually embraced bitcoin i i i could say to you oh yeah well when i had 500 million in cash in the bank i could and we were focused but the problem with that is that if you have a bunch of cash generating zero interest the cost of capital goes to 25 then all the public company investors forsake the company and if the stock if if the stock market forsakes the company the mainstream media for stakes the company right then the employees become dejected eventually you’re going to have facebook amazon apple or google steal every one of your employees if you can’t drive the stock up right nobody wants to invest in a company that makes a lot of money growing at five percent a year i mean it’s it seems brutal to say that but it wouldn’t be true if the cost capital was zero if we had a sound money policy in this country then you could hold your head up high and say i run this great restaurant and we made a lot of money last year we’re going to make a lot of money this year and our plan is to keep doing what we’ve been doing and everybody pat you on the back and say that’s good that’s honorable but if if i tell you i’m going to devalue the the cash by 25 a year or 20 a year at some point you’re driven into this cycle where i have to either do a big acquisition to keep my revenues growing i have to take extreme risk and do dilutive acquisitions or i have to go borrow billions of dollars to buy the stock back to leverage up the cash flow per share and if i don’t do either those things the investors dump the stock and they dump the stock the employees start feeling like you know why don’t they go work someplace cool and hot and you’re gonna get all your engineers stripped away by facebook or or amazon or something so the truth is when we actually fix the balance sheet we fix the stock and we fix that you know at this point the company has five billion dollars more than five billion dollars in assets if the if the cost of capital remains at let’s say it goes up 20 percent if if we print 20 percent more money next year i can reasonably expect to generate a billion dollars in investment income which would be a you know 20 increase in bitcoin right but the truth is i can reasonably expect better than that if the cost of capital is 10 i can reasonably expect 500 million investment income well all two thousand people doing a hundred thousand things right perfectly for the entire year competing against microsoft that has more money than god they can generate 75 million a year okay so so the truth is the company its future became secure when we actually converted the balance sheet to bitcoin because now we don’t have to struggle let me say it a different way i don’t think any company could be successful without a financial strategy in the year 2021 like i wouldn’t have said it three four years ago if you have a sound money macroeconomic environment where the money supply is expanding at two or three percent a year you can go out and make things and create things and market things and sell things and service things and generate cash with that and then and that makes sense but if the money supply is expanding at 20 percent a year you need to own assets because because what’s happening is no one’s going to invest in any project that doesn’t generate more than the 20 hurdle rate and so what who can generate consistently risk-free 20 returns you have to be a monopoly you have to have a digital monopoly or some kind of monopoly so it becomes exponentially harder to grow and what and so what happens next all these other companies could get squeezed out of the ecosystem right there they get decapitalized and rendered insolvent by by the monetary policy so i i would say that you know if i can get my st my stock was twenty 120 a share what is it right now like uh i haven’t checked in the market 768. okay so if i if i get my stock up then i can actually make my shareholders happy i can change the narrative i can recruit i can retain talent i can get that you know i can inspire the confidence of my customers i can i can drive momentum and then we can do what we want to do i guess it’s it’s similar to if you’re a university and you had no endowment you know and or university there’s a billion dollar endowment or university is a 100 billion dollar endowment you know if you’re a professor which university you want to work for if you’re a student where you want to go you know do you have a shiny building coming or not right at the end of the day right money is a measure of energy and so if you have monetary assets you have energy and if you have high energy you can pursue your vision you know with integrity and what percentage of your time now are you spending on this on investing the income versus on the day-to-day of micro strategy of just the the business as usual making the products that making business intelligence products versus investing the the income um i’m i’m the ceo but we have a president and the president of the company is fong lee and he actually has day-to-day operational responsibility for sales marketing and even technology development at this point so i’m the chairman and the ceo i i oversee the company strategy and i oversee that i oversee financial strategies i oversee long-term direction and i and i oversee technology strategy but i’m not i’m not in the weeds in the day-to-day running the business that’s really left for the operating executive team i feel like i can rule the world i know i could be what i want to i put my law in it like no days off on a road less travel never looking back