– Has only one position
– Uses leverage, there’s no limit and it’s growing
– Is run by a “fund manager” with a chequered history – settling with the regulator back in 2000 because he inaccurately reported profits instead of losses …
– Priced at 200% premium to Nav (down from 300%)
Are you keen?
Every sensible investor would surely hang up
But I’m not talking about a “fund”
I’m talking about, MicroStrategy
In a clip last week, their CEO, Michael Saylor said
“We’re making $500m a day, we might be the most profitable company on the planet”
Making?
Now it’s one thing for companies to talk about “making” money in the present tense if they generate annuity income but to use the word, “making” when annualising unrealised gains on a couple of recent deals is surely stretching it
How did he calculate “making” $500m a day?
“If you want to understand the economics of this, we generate a spread, the Bitcoin spread, which is a function of the equity premium, the convert premium, and the bitcoin premium”
Two weeks ago we did a $4.6bn of an ATM. We ran about a 70% spread. That means we ran a $3bn BTC gain in 5 days. That’s $12.5 per share BUT over 10 years, that’s $36bn
This week we did a convertible bond, $3bn at an 80% BTC spread. That’s a $2.4bn gain, about $10 a share BUT over 10 years that’s $125 a share”
Nothing like taking a $3bn “gain” and annualising it into a $36bn gain over 10 years … using a new fancy formula called a “Bitcoin spread”
But eager to “convert” others over to his formulae and spreadsheets, Saylor said,
“If Microsoft stopped dividending out their cash flow and stopped buying back their stock and converted to a Bitcoin buy and you crank in, like a conservative, 21% assumption, half their cash flow in bitcoin, you make a $1trn over 10 years. You put all your cash into bitcoin, you make $2trn -$4trn for shareholders.
If Berkshire did that and put $325bn into Bitcoin, they’re generating $60bn a year of investment income.”
Is 21% returns p/a over 10 years “conservative”?
Not on my spreadsheets
Anyway, Microsoft wasn’t convinced
And they code spreadsheets
I also don’t fancy his chances at Berkshire because, after the GFC, Warren Buffett said in his Annual Letter to Shareholders
“Investors should be skeptical of history-based models. Constructed by a nerdy-sounding priesthood using esoteric terms such as beta, gamma, sigma and the like, these models tend to look impressive. Too often, though, investors forget to examine the assumptions BEHIND the models. Beware of geeks bearing formulas”
We agree
And steer well clear of CEOs who stretch the truth like this and then believe it with leverage
And pity the holders of the Nasdaq 100 because they’re about to start owning this $86bn leveraged “fund”
Which is down 14% in the past 5 days,
I suspect Saylor won’t be annualising that
hashtag#numbersnotnarrative
hashtag#valueinvesting
hashtag#investing
Imagine I’m a sales guy and I call to tell you about our hedge fund which:
I