If Michael Saylor is a genius why don’t you recommend $MSTR?

If Michael Sailor is a genius, which he is, why do I not recommend MSTR, which is the stock of his company called Strategy, used to be called Micro Strategy, or STRC, which is his dividend paying preferred stock, which pays 12% annual dividend. So, if I’m such a big fan of Michael Sailor and his strategy, why do I not recommend it? Well, I’ll walk through why. Uh, but first of all, let me say Michael Sailor is a genius. He’s an absolute genius. He’s way smarter than I am. He’s read way more than I have. And what he has pulled off is absolutely nothing short of just absolutely spectacular. I think ultimately his company strategy will be just ridiculously successful and valuable. The problem is it has a bunch of risks that Bitcoin does not have. And I’m going to walk through the why what those are. Also the uh the way he has set up the company where the company stock MSTR uh acrus all of the value of Bitcoin above 12% annually and the preferred stock STRC which is called stretch uh acrru effectively guaranteed 12% annually is also brilliant. So let’s talk about what he has done. So first of all, strategy has done a bunch of stuff, but through a bunch of very exotic financial engineering and you know other things, they have ended up with $50 billion of Bitcoin on their balance sheet. So they own more Bitcoin than any other company in the world or any other country in the world. They have about four times or at least two times maybe as close to four times as much Bitcoin as the US government for example. So they own a ton of Bitcoin, $50 billion of Bitcoin. So after they acquired that, they figured out that the best strategy in the world for them, which I agree with, is to try to divide everybody who wants exposure to Bitcoin into one of two categories. One, people that want a guaranteed return, a very high guaranteed return, which right now is 12% per year. That’s 1% per month. And all the people who want a return greater than what Bitcoin itself could hypothetically provide. And again, I’ll walk you through why I do not own MSTR. and uh the logic behind that. But essentially the company’s strategy is to say look some people want the maximum upside Bitcoin can provide and they want that with leverage. They’re willing to take risk in order to get that upside and they’re willing to do that with leverage. Leverage meaning borrowed money. There are other people who don’t who believe in Bitcoin but would rather have a guaranteed 12% annual return um rather than the all the ups and downs of Bitcoin. they’re willing to give up the upside above 12% annually in exchange for having uh also giving up the huge volatility that comes with Bitcoin. So they essentially divided everything into two camps and said look if you want maximum upside of Bitcoin that potentially is more upside than Bitcoin itself stand on the left side of the room and buy MSTR stock. If you instead want effectively a bank account that pays 12% interest annually, then stand on the right side of the room and buy STRC. And how do they I’m going to explain how the business model works where they can deliver for both of those. So, first of all, the reason they can pay the 12% annual dividend is because they’re sitting on $50 billion of Bitcoin. So all they have to do is sell a little bit of that Bitcoin every month in order to pay the 12% dividend on the 10 billion of um of preferred stock they have. So they’re the stock of the company is worth something like 40 billion. The preferred stock is like 10 billion. So like the preferred stock represents let’s call it 20% of the company’s value. So, if you want that, if you want a 12% return, you buy STRC and they sell a little bit of the Bitcoin every month and pay you your 12%. Now, the upside you get is that guaranteed 12%. Uh, the downside is that they keep everything from the Bitcoin upside above 12%. So, if Bitcoin doubles in a year, which I think is very possible over the next 12 months or 18 months, it could easily go up 100%. If Bitcoin goes up 100%, you only get 12%. Now, you also don’t have to deal with the volatility of Bitcoin during that time. So, you know, in the course of going up 100% in the next year, it could drop, you know, x number of percent. It could go up and down and up and down and up and down. And there’s a lot of people that don’t want to deal with that. They don’t want that volatility. Uh, and so they just want 12%. As Michael Sailor says, lots of people in the world want a bank account that pays 12% interest. And right now, because you can buy STRC below $100, the actual effective yield, uh, because it pays 12 uh $12 of interest per year, regardless of the price, right now, if you buy it at $80 or $90 per share, I think it was $88 the last time I checked, your effective yield is actually more like a 13 or 14% per year, which is pretty fantastic. But again, you’re giving up all of the upside of Bitcoin. So, for somebody like me, you’re never going to buy something with a 12% upside when you’re going, you know, I’m 46 years old and I’m going for maximum upside long term. So, of course, I’m not going to be interested in something that only pays 12% in a year because I’m looking for 30, 40, 50%. Or in some years, you know, 100% plus gains on Bitcoin. And in down years, you know, you give up some of that gain, but when you net it all out in the long term, you end up, you know, with very, very, very high returns that exceed anything else on the market. So, I’m never going to be interested in the 12%. So, why am I also not interested in MSTR? And the answer is because MSTR comes with a lot of risk that are not inherent in Bitcoin. The first is there’s no self-custody. I can own MSTR stock in a brokerage account like Fidelity or Charles Schwab, but I don’t really own that the way I own Bitcoin on BitKey. It’s not like 100% mine. It’s just a stock I own. Uh, also, Michael Sailor can issue an unlimited amount of MSTR stock. So there’s no guarantee that the st the price of the stock will go up over time because he can always issue more of the stock over time which dilutes the existing amount of stock. Now he also dilutes his own stock when he does that. So certainly there’s an incentive to not do that but there’s no guarantee that he does not you know issue a ton of MSDR stock and therefore uh it’s very dilutive which holds the price of the stock down. Now, in the long term, something should win. The the business model is brilliant. They have $50 billion dollars of Bitcoin, which is a vast tre treasure trove of Bitcoin that represents more than 4% of all the Bitcoin that will ever exist in the world. They have about uh 840ome,000 840,000 Bitcoin and there will only ever be 21 million Bitcoin. So, they own more than 4% of all the supply of Bitcoin that will ever exist in the world. So, that’s going to be incredibly valuable. But the reason I don’t own MSTR or STRC is it’s not clear where the value is going to acrue. So maybe the way things play out is, you know, he fights tooth and nail with everything he’s got. He pays the 12% interest on the dividends for STRC. Everybody who buys STRC is super happy. They all effectively got a bank account that paid 12% interest and all of that is happy. But in order to do that, he has to dilute the heck out of MSTR. Now, I don’t think it’ll play out that way. I think it’ll play out where both of the products perform incredibly well, but there’s no guarantee that that is the case, and there’s a chance that one of them effectively pays the price for the other. So, in one scenario, STRC does really well, but the MSTR stockholders effectively bear massive amounts of dilution in order to pay all of those dividends. So, STRC wins, MSTR loses. In the reverse scenario, Michael Sailor at some point decides paying all these dividends is not worth it anymore and stops paying them. At which point STRC drops from $90 a share is supposed to trade near 100. Like the entire corporate objective of strategy is to keep STRC trading between 99 and $100 per share, which of course means the only reason you would buy it is for the dividend. You’re never going to get a price above $100 per share for STRC because of the way it’s uh engineered. It’s engineered to have a peg of $100, or I should say a uh I don’t know if it’s a PEG or a strike price or whatever, but it’s designed to not trade above $100, which means you’re not going to get the appreciation above $100 because it’s not going to trade above $100. You’re supposed to just want the 12% interest or 13 or 14% if you buy the stock for less than $100. So, there’s a scenario where STRC wins and MSTR loses. There’s also the reverse scenario which is he decides to stop paying his dividends and all of the value from all of his Bitcoin acrru only to MSTR shareholders including his own stock at which point MSTR wins in a big way and STRC loses. So there’s a way that that one wins and the other loses. There’s also a way that the other wins and the other loses. Um which begs the question, why wouldn’t you buy some of both? Well, if you buy some of both, all you’re doing is replicating the exact performance of Bitcoin. So, um, remember STRC and MSTR, all they do is split the performance of Bitcoin between people who want a virtually guaranteed 12% and people who want all of the upside of Bitcoin plus the other sides above 12%. So, the reason MSTR is supposed to grow faster than Bitcoin is because you’re getting all of the upside of the Bitcoin that the company owns plus all of the upside of the new Bitcoin they buy from people who want that 12% interest. So, every time someone who wants 12% interest buys more Bitcoin or more STRC, they are getting the 12% interest, but the MSTR holders are getting everything above that 12% interest because the dollars from the STRC buyers are being used to buy Bitcoin. So there’s a scenario where one loses and the other wins. There’s another scenario where the reverse happens. The other wins and the other loses. There is also a scenario which is the most likely scenario which is they all win. That MSTR becomes wildly successful and STRC gets paid their dividend. If both of those things happen, then everybody wins. But there is no guarantee it plays out that way. And again, if everybody wins, then why wouldn’t you just buy Bitcoin? where you could say, “Well, why wouldn’t you just buy just MSTR and have performance that exceeds Bitcoin?” And the answer is because it might play out that way, but it also might not. There are too many scenarios where the MSTR shareholders take a bath and not enough scenarios where everybody wins. So, I don’t own MSTR because I don’t think the upside of MSTR warrants the risk. I think the risk of MT MSTR is too high compared to the upside. So let’s say it’s the upside is 50% higher than Bitcoin, but the risk is 60% higher than Bitcoin. Well, if your percent risk higher is higher than your percent upside higher, then that is not something you’d want to do. You only want to take on 50% more risk if you have 50% more return. And right now, my calculation is whatever percent higher MSTR should perform as compared to Bitcoin. the risk that it will not do that or that the company behind it a strategy which is uh MSTR that the strategy will somehow you know have some sort of issue or some sort of scandal or some sort of hack there’s just too many things that could go wrong that push the risk associated with that above the return now if I could not buy Bitcoin if I was legally like literally legally prohibited from owning Bitcoin I would probably buy MSTR because it’s the next best thing. It potentially has higher return and the risk is higher also, but you know, if you can’t buy Bitcoin, that’s probably what I do, but I’m not in that position. I can buy Bitcoin. So, because I can buy Bitcoin, there’s no reason for me to consider buying MSTR and taking on all of that extra risk just to try to get some additional upside. And again, if you buy STRC and MSTR, all you’re doing is basically buying Bitcoin. You’re it’s like somebody walks in the room and half of them stands on one side of the room and wants the 12% dividend. The other half wants all the upside above 12%. Well, you’re just getting the return of Bitcoin. So, why would you buy both of them? Because all you’re doing is replicating Bitcoin itself and you can just buy Bitcoin and keep it in cold storage. So, that’s why I do not recommend either. I think it will all turn out well. I think Michael Sailor is a genius. I think the way that he has set up MSTR and STRC is absolutely brilliant in every way. I love everything he’s doing. It’s good for Bitcoin. He’s a huge asset, but I just don’t think the risk of MSTR warrants the upside. And again, STRC, sure, 12%, but there’s no there’s not 100% guaranteed that that 12% gets paid. Um, there’s just not. And look, if you bought STRC at $100 strike price and you needed to liquidate it right now, well, you’re liquidating it for $88. That’s a, you know, you may have gotten a 12% interest, but you’re also taking a 12% haircut when you actually need to sell the stock. So, it cancels out. Now, I don’t think that will be the case long term, but it is right now. So, my bottom line is the same. Buy Bitcoin, keep it in cold storage on Bit Key. If you have a small amount, keep it on River or Coinbase or wherever you bought it. If you have a large amount, keep it on Bit Key. Um, and just ride with that. That is the guaranteed way to success in my mind, not playing games with uh MSTR or STRC.