How Bitcoin Can Save Any Company According To Michael Saylor

Michael J. Saylor

I like

Shaan Puri

The analogy, or the kind of awareness, is that we have this giant bowl of ice cream that's melting. That's your cash pile that's melting, and the heat is basically the money printer that is causing asset inflation.

Michael J. Saylor

Ice cube that's melting. We have a **$500,000,000** ice cube, and it's melting **20%** a year. Right? So, it'll be gone in full.

Shaan Puri

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 of quick questions... One is this: I've got a couple of rapid-fire questions for you.

Michael J. Saylor

you

Shaan Puri

Yeah, in 20 years from now, what do you think has generated more value or more income to the company, to MicroStrategy? Is it: 1. The operating income of MicroStrategy, or 2. The investment income of the Bitcoin it holds?

Michael J. Saylor

the investment income for sure

Shaan Puri

okay and then no

Michael J. Saylor

To be very clear, what happened in March of 2020 is that when the cost of capital goes to 25%, it means that every investor and all investment income generated 25% more by doing nothing. Right? And every Main Street company that worked 25% harder got nothing. You literally tilt the playing field so that if you own assets, you're having the best year in 30 years. If you don't own assets, it's impossible to have a good year.

Shaan Puri

Year, right? And so, the second question is, as you acquire more and more Bitcoin, is MicroStrategy's bet like, do you just position the company at this? Like, it's a Bitcoin ETF. It's like, "Buy this, buy this," Bitcoin buying and holding companies.

Michael J. Saylor

Not a Bitcoin ETF. Everybody's sloppy with those words. An ETF is a company that invests in securities and tries to keep its assets under management equal to the amount of shares of the ETF that it sold. It's a financial company. An ETP is a similar type of company that invests in commodities. If you create this Bitcoin entity 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 buying or selling Bitcoin to equalize assets under management. We're an operating company that owns property. Bitcoin is property. In that way, you should think of it as a company that, like, I bought a million acres of land in Texas, or I bought a million gallons of... fill in the blank, a million bushels of soybean. You can buy any kind of property, right? And you're holding it on your balance sheet as a company. Right? That's what we are. Now, what's your question?

Shaan Puri

You are talking about, let's say, the cost of capital being 25%, right? Since March, that's what the S&P 500 has done. But the stock market goes up and down. In years where the market dips and goes up, the average over time, the geometric mean, is whatever, 7 or 8%, something like that. So some would argue, "Okay, yes, this year assets are inflated by that much. That doesn't mean next year it's going to remain at 25% a year." And so you have to make some prediction, right? Are you basically forecasting it at 25%, 15%, 10%, or 8%? And does the decision change at a certain number there?

Michael J. Saylor

so so gen first of all for the decade from 2010 to 2020 it was generally about 8% 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 m two money supply fed you'll get a chart and you'll see the chart by the way the chart's not all over the place the chart is very consistent 7% 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 if you if you're going to make a decision as an investor and this is any investor what this this has to do this applies to all $400,000,000,000,000 worth of investors and 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 8 years and so that's the if you wanna figure out the signal or or the single most important thing in the world for everyone but for everyone 7,800,000,000 people for a 100,000,000 companies for everyone with money on earth or 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 8 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 I think that 15% is 15% for the next 8 years is reasonable if you're a pessimist you could say 20 if you're an optimist you could say 10 but the money supply is expanding because the federal reserve and the eu central bank are buying a $1,000,000,000,000 worth of bonds every year each and it's also expanding because the the government of the eu and the us are running a multitrillion dollar deficit and it is also expanding because of $1,000,000,000,000 + stimulus and there's no reason to think that's gonna change in the next 4 years and I don't think in the next 8 years I think I think that at the.

Michael J. Saylor

That the democrats took control of the senate and the house you saw that you have if you could've you could've forecasted 12% inflation if it was a it was a split government but I think that in a in a in a 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 an excess of 15% on your money every year for the next 4 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 gonna hold value as a stock it means that if your bond is paying you an interest rate of less than 15% you're destroying value in the bond if your rent yield is less than 15% your commercial real estate's destroying value and if you're holding cash you're losing 15% of it a year that's that's the negative real yield so once you actually 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 3% 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 10% every company that's got a growth rate of less than 15% 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 wanna fix any company sweep all the cash flows into bitcoin convert the treasury into bitcoin borrow against your future cash flows in 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 and execution issue money printing dilution 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 monitoring network which is open an open protocol and the combination of this the the apex asset on the open monetary system makes it the the most disruptive technology in the world

Sam Parr

When you were first starting MicroStrategy, 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...

Michael J. Saylor

now we can do whatever we want

Sam Parr

Now you could do whatever you want. Did you notice a shift, like, "Oh my gosh, this business is stable, it's working, it's working pretty well?" Yep, it's quite predictable. At what point did that shift happen? Because what you're talking about now is quite foreign to what...

Michael J. Saylor

I think we solved our problem when we actually embraced Bitcoin. I could say to you, "Oh yeah, well, not when I had $500,000,000 in cash in the bank." 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 up by 25%. Then all the public company investors forsake the company. If the stock market forsakes the company, then mainstream media forsakes the company. Right? Then the employees become dejected because 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. Nobody wants to invest in a company that makes a lot of money growing at 5% a year. I mean, it seems brutal to say that, but it wouldn't be true if the cost of capital was 0. 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." I would pat you on the back and say, "That's good, that's honorable." But if I tell you I'm going to devalue the cash by 25% a year or 20% a year at some...

Michael J. Saylor

You're driven into this cycle where I have to either do a big acquisition to keep my revenues growing I I have to take extreme risk and do dilutive acquisitions or I have to go borrow 1,000,000,000 of dollars to buy the stock back to leverage up the cash flow per share and if I don't do either of those things the investors dump the stock and if 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 the you know at this. The company has $5,000,000,000 more than $5,000,000,000 in assets if the if the cost of capital remains at let let's say it goes up 20% if if we print 20% more money next year I can reasonably expect to generate a $1,000,000,000 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 500,000,000 investment income well all 2,000 people doing a 100,000 things right perfectly for the entire year competing against Microsoft that has more money than god they can generate 75,000,000 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 3 4 years ago if you have a sound money macroeconomic environment where the money supply is expanding at 2 or 3% 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% 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 yeah 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 they're get they get decapitalized and rendered insolvent by by the monetary policy so I I would say that you know if I can get my my stock was a $120 a share what is it right now like I haven't checked in the market but

Shaan Puri

768

Michael J. Saylor

Okay, so 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, and I can inspire the confidence of my customers. I can drive momentum, and then we can do what we want to do. I guess it's similar to if you're a university and you had no endowment versus a university with a $1,000,000,000 endowment or a university with a $100,000,000,000 endowment. If you're a professor, which university do you want to work for? If you're a student, where do you want to go? Do you have a shiny building coming or not? At the end of the day, money is a measure of energy. If you have monetary assets, you have energy. And if you have high energy, you can pursue your vision with integrity.

Sam Parr

And what percentage of your time now are you spending on investing the income versus on the day-to-day of MicroStrategy? Just the business as usual, making the products that make business intelligence products versus investing the income?

Michael J. Saylor

I'm the CEO, but we have a president. The president of the company is Phong Li, and he actually has day-to-day operational responsibility for sales, marketing, and even technology development. So, I'm the chairman and the CEO. I oversee the company strategy, financial strategies, long-term direction, and technology strategy. However, I'm not in the weeds of the day-to-day running of the business. That's really left for the operating executive team.