State of Play: Bitcoin and CryptocurrenciesThe Prof G Show with Scott Galloway
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- 17 Dec 2020
Michael Saylor, the co-founder and CEO of MicroStrategy, joins Scott to give us the 411 on Bitcoin and the cryptocurrency space. Michael explains why he’s been making big bets on Bitcoin and investing his company’s treasury into the cryptocurrency. He also shares his advice on navigating our world of superabundance. Follow Michael on Twitter, @michael_saylor.
Scott opens with his thoughts on Tesla joining the S&P 500 on December 21st and Disney’s mammoth content announcements.
This Week’s Office Hours: why WhatsApp is Facebook’s most valuable asset, investing in the cannabis industry, and the second-order effects of remote work. Have a question for Scott? Email a voice recording to email@example.com.
Algebra of Happiness: a call to arms.
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Episode 40, The Atomic Number of zirconium, I don't understand rare gems, they find diamonds in my luggage and TSA thinks they're theirs, they find my edibles and all of a sudden they're mine. The 40 yard dash is an important metric in American football scouting. True story. I tried out for football in college. My notes back were small but slow. Let's make this podcast big yet fast and near diamond. Like, go, go, go.
Welcome to the fortieth episode of the Prop G Show. On today's episode, we speak with Michael Saylor, the co-founder and CEO of MicroStrategy.
He's made a big bet, as in a monstrous bet on Bitcoin and the crypto space since the start of the pandemic. And we're going to discuss the state of play and why his company continues to invest millions of dollars into Bitcoin. He's been somewhat of an evangelist for the asset, the currency, whatever you want to call it.
And I asked Michael to come on and give us sort of the four one one, give us the Delio, if you will, on the crypto currency that is Bitcoin is also this big systems thinker that seems to have insight into the future. OK, what's happening? Let's be honest. This is the vaccine and the Seven Dwarves, meaning that there's really only one thing happening or one thing that is probably we're talking about or discussing. And we should take a moment of pause to praise this historic moment for humanity as the US became the sixth country to throw out the Pfizer and biotech vaccine.
And if it's bio and tech biotech anyways, this is exciting.
And all 50 states have begun to administer the vaccine. The first dose was given to an ICU nurse in Queens. So we need to keep in mind here the logistical challenges as UPS and FedEx have to safely deliver, attempt to deliver the first three million doses of the vaccine to six hundred and thirty six distribution locations nationwide. Aside from that, this is an opportunity for us to demonstrate our citizenship as we need at least 70 percent of the population to get not one but two doses of this vaccine to put an end to covid 19.
In other news, there really isn't any other news we'll talk about at the end of big tech as we know it is coming. The FTC in 48 states attorneys general have sued Facebook for its abuse of power and anti-competitive behaviour. Better late than never. We have more on that during office hours. So stay tuned. We also have a full overview. More color, more details, more texture coming up on the property. YouTube show our property, YouTube show on.
Guessed it. You guessed it. YouTube. We've linked to where you can subscribe in the episode description. You're welcome. What a thrill. So with that, let's move on to stocks and other exciting business developments. We're taking a temperature check on Tesla. The company is expected to begin trading on the S&P 500 on the 21st of December, less than a week away, and recently announced a five billion dollar capital raise for the second time in three months.
Why wouldn't they? When the stock is up seven fold year to date and its market capitalization sits at, get this, six hundred billion dollars, it bears repeating that this firm is now worth more than I don't know. Let's call it General Motors, Chrysler, Daimler, Toyota, Volkswagen, Airbus and Boeing. And it produces about 400000 vehicles a year versus twenty four million vehicles for those automobile firms. Actually, it's probably more like 30 to 40 million for those other automobile firms.
And I don't know, a couple thousand or a couple hundred big boy jets, much like we've been talking about how Airbnb is the ultimate brand. Tesla is also one of the greatest brands ever built with no advertising because of Elon Musk's ability to drive the narrative. We see that they don't need advertising. And by the way, by the way, I still I was on a call last night with a bunch of political consultants that were talking about starting a media firm.
I don't know why I'm avoiding it. The Lincoln Project, these are incredibly impressive people. And their tendency is to start something around media, an ad agency or a communications firm. And I'm like, come on, guys, you don't need to be the tallest midget. That shit is over. The sun has passed midday on the air brand, Amazon, Tesla, Apple, they all shed the value or gain the value of IPG, WPP, Omnicom and Puglisi in a trading day.
That is, anyone who starts talking a lot about brand, look at them and say, OK, I see a dead man or woman walk and you're going to be out of a job in about twenty four months. Yeah, Brand is a construct for which we use it as a guiding light for our strategy. Which course associations are we going to reinforce? And it seems like the only core association recently in the in the investment world is are we a disruptor, yes or no?
That's kind of the only question that seems to matter. Anyway, Tesla is joining the S&P 500 and why is that a big deal? For one thing, fund managers who run S&P 500 funds will need to add Tesla to their portfolios. According to Barron's, there is five point four trillion dollars in index funds that track the S&P. Five hundred in these funds will need to purchase an estimated EIGHTY-ONE billion of Tesla shares. My guess is they've already done that.
This also means one company will be leaving the index so their shares will need to be sold.
How should Wall Street value the stock? Who the fuck knows? Don't listen to me. I thought this thing was going to get cut in half. I don't know, about 80, 90 percent of ago, about 700 percent gains ago. I could not be. There are a lot of places I am very wrong. This is one of them. Let's not forget that. Elon Musk. Tweeted back in May that in his opinion, the stock price was too high.
OK, that's a new strategy. That's a new strategy. Bloomberg reported that Goldman Sachs has a price target of seven hundred and eighty dollars a share, while JP Morgan is at ninety dollars. OK, what the fuck does that mean? Once that Goldman Sachs 780. JPMorgan, is it 90? All right, OK, enough about Tesla and it's over. Or undervaluation the mouse. Let's talk about the mouse who wrote Unleashed the mouse a few months ago, who is basically dictating Disney, an AT&T strategy from his little guest house and his mic.
Two turntables and a microphone.
Are moving the corporate world, we're changing the world of telco and content here at the property show and I'm only half kidding, by the way, bt w. That's right, Bob Iger. That's right. John stand. Yeah, I know you're listening to the dog. I know you're like one of those penguins that can hear the dog. Do you need Grassby? Gladys Knight of Strategy and Shareholder Value Meets Technology Meets Innovation. Voice of the dog. I know you're listening.
I know you out there and it's OK.
We can keep it to ourselves where we're intellectual lovers on the side. I'm your sidepiece and that's OK. That's OK. All right.
Eighty seven million subscribers is nearly half of what Netflix has.
That's what Disney plus has. And the fact that an estimated one third of the streaming services initial subscriber base came from the partnership with Verizon suggests low churn and customers are committed to baby yota and more. This is Disney plus who predicted Disney Plus would be the baller streaming video service before it came back. Who predicted that? I'm not even going to tell you. I'm not even going to tell you it's not. Michael Saylor was a fucking genius around everything else, but I got the call here anyways.
Enough desperation for your affirmation.
If there's one thing you've recently learned on this podcast, it's dispersion. This is my word of twenty, twenty and twenty twenty one. Disney is taking its content and dispersing it into series on Disney, plus moving content from the big screens to your homes and mobile devices.
Ten new Star Wars series. Oh my God. Not eight, not nine. Ten, including the Mandalorian will be new to Disney plus over the next few years.
And on top of that, the company is also spinning kid favorite movies, including Moulana and Cars and the series in twenty twenty three. In twenty twenty four, the company plans to spend up to nine billion on Disney plus content alone. And that same year, twenty twenty four. Disney expects to reach three hundred and fifty million subscribers worldwide across all of its streaming services. Who predicted Disney stock would be up 30 percent on its move to Rundell. I was wrong.
It's up eighty percent it's up goddamn eighty percent. And guess what it goes north of here because it is going to bust a blue line path. The three hundred and fifty million subscribers worldwide across all of its streaming services. What can be learned.
What can be learned. A move to the Rundell. A move to the recurring revenue bundle requires vision. It requires the assets to make it an IQ test, not a consumer value proposition. But more than anything, the baller move it requires is to cross the valley of death to say we're going to pull this shit out of theaters. We're going to say we're going to give up that billion dollars in revenues at the box office or those billions of dollars.
They have made a huge bet here. What does this mean for the streaming wars?
Let's assume there's going to be a consolidation. It's kind of Disney plus Netflix and maybe a kind of maybe maybe a kind of a distant close third HBO max, which is finally getting its shit together and taking the Dragons or taking Game of Thrones and extending doing its own spin off with a show about Dragons. By the way, by the way, our strategy, all strategy comes down to one question.
What can we do that's really fucking hard? What can we do that is really difficult, so difficult that few other firms can follow us? And guess what? Guess what? Well, let's come up with great original scripted television. Well, I don't know. Netflix has a ton of talent and twenty billion dollars to come up with one hundred ideas so they can get to one. The Queen's Gambit. Hello, genius. Oh la la. Spanish word for genius, which I don't know.
That thing is incredible. Oh my gosh. Incredible. Biggest MBS product placement or brand collaboration. Opportunity was for Netflix not to start selling chestnuts but anyways. But I digress. They're doing just fine without that.
But the bottom line is Disney probably can't even compete.
Even Disney can't compete. Even AT&T can't compete with Netflix. But what can they do?
Disney can look at the hundred billion dollars in acquisitions it's made over the last decade, specifically Pixar, specifically Marvel, specifically Star Wars, Lucasfilm. They can look at those franchises and say, we're going to start spinning a bunch of interesting stories. And by the way, the Mandalorian isn't in any way diluting the franchise. It's absolutely supplementing it. But what do we think about strategy? Why is this so baller strategy is all about what you can do that others can.
That's really hard. And Disney Plus recognizes this and is leaning into one hundred billion dollars they've spent on these incredible franchises. What does this mean for the streaming wars? Only time will tell, but you can predict. You can see how the ultimate flywheel here, whether it's baby Yoda toys, experiences at Star Wars, Galaxy Edge or the reprisal of the car car series franchise. What's creative thinking here? What sort of a gangster movie that, if it happens, would be so baller that it might be like predicting?
I don't know, Amazon buys Whole Foods. If Disney were to buy roblox roblox think about this. The company that fifty percent of kids under the age of 16 have touched in the last thirty days. This could be the virtual theme park. One thing that Michael Saylor said in our. Big interview that really kind of blew my mind was investing in the virtual and I wonder if the next version of theme parks and I hate to think this because you hate to think about your kids being in front of screens more.
But anyways, roadblocks could be an incredible acquisition for Disney, but the streaming wars are going to go through a consolidation. We're about to get to the final four, if you will, of the tournament. Sure. Gonzaga, you know, went went the distance, but Hulu is probably going to roll up into Disney. And most of these things just don't probably are going to be able to carve out the space that they need to occupy. So we're going to see consolidation, some re bundling in 2000 and 2001.
I don't know, though.
I just think Disney plus. Oh, my gosh, what incredible momentum. And the other move here is we're going to see not just original scripted TV and movies go behind a wall and be part of the streaming wars. And next kind of salvo or the next really interesting entrant from a content arena into the streaming wars is going to be news and politics.
Fareed Zakaria is the Queen's Gambit in Anderson Cooper. Anderson Cooper is the Mandalorian.
Anyways, that's coming next in 2021, as is consolidation. We shall see. We'll be right back. Stay with us for a conversation about Bitcoin and crypto currencies with MicroStrategy CEO and unique thinker Michael Saylor.
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Welcome back. Here's our conversation with Michael Saylor, the co-founder and CEO of MicroStrategy.
So, Michael, I think a lot of us look at Bitcoin and pretend that we know more than we do. Can you give us sort of the Bitcoin for dummies? Cliff Notes on the origins of Bitcoin and why it has been, for lack of a better term, so disruptive and there's so much excitement around it.
Well, I mean, first of all, the problem is that there's 300 trillion dollars worth of money invested in stocks, bonds, real estate and cash. They're all fiat instruments. And the central bankers are devaluing the currency. So that's the problem faced by seven point eight billion people. It's the problem faced by every investor on the planet. Every investor on the planet in the next three to five years is going to lose half their wealth unless they come up with a solution to the currency devaluation.
So let's put that in one in one corner. Now, what is what is the solution? Well, the solution, in theory is a synthetic safe haven investment grade asset. Call it pharmaceutical grade gold. If I had an asset which was totally, provably scarce, immutable, no one could create any more of an everybody on the planet agreed that they were going to store their money in that asset. Then you would have something better than gold, better than any other Treasury Reserve asset that you could use to protect yourself against asset inflation.
And now what is Bitcoin? It's a crypto asset network. It's decentralized. No company controls it. No government regulates it. It runs on on thousands and thousands of decentralized nodes. And the obvious thing it is, is this an investment grade safe haven, Treasury and Reserve asset? That's the obvious thing. That's what the security BTC is. What is Bitcoin, the network? Well, you wrote the form we both know about Google and Apple and Amazon and Facebook.
They're all big tech networks that dominate their particular sphere of influence. Bitcoin is the world's first monetary network. It's a crypto monitoring network, which means like Facebook gathered all the social energy and channeled it, stored it, and Google gathered all the information, energy and all, and YouTube gathered all the video energy and Apple gathered all the mobile energy and Amazon gathered all the retail energy on a network. Bitcoin is gathering all the monetary energy as it gathers the energy, it stores it across time.
It can store it for one hundred years with no power loss. It's a big monetary battery and you can channel it across space as a settlement network. If I wanted to put a hundred million dollars on a network and give it to my grandchildren in 30 years and I didn't want a CEO to screw it up, a government to steal it, I didn't want to have it seized by anybody. I didn't want to have an inflated away, debased impaired in any way.
Bitcoin is pure monetary energy. It's your best bet. So what is Bitcoin? It is a solution to everybody's problem. How do I store value in the face of currency inflation? And it's also a monetary network that you can plug Square and Apple Pay and PayPal and Amazon and any any tech into. And so that's what makes it so exciting right now. It's a big tech play and it's an investment safe haven asset. At the same time, in a year when everybody in the world understands they have a problem that they were kind of oblivious to last year.
But now it's like in your face with a K shaped recovery and you can't not address it.
Are you really saying and this is my first observation and you're connecting dots for me, that Bitcoin is the first currency because their currency is two parties agree that something is a store of value, but it's a currency that is actually because of its limited supply that we can trust, will be limited, has become an asset that it's actually it's not subject to the same fluctuations or political manipulation that most currencies are, hasn't it? Hasn't it jumped jumped the Rubicon here and become an asset, not a currency?
Yeah, I think it's I think there's a lot of confusion and it's called crypto currencies. And and people talk about it becoming a reserve currency. But I think that's more of a red herring, because what it really is, is a crypto asset. And what people want is they want to take their money, their savings and put it in a bank in cyberspace where they're going to get interest and where no politicians are going to debase it or devalue it.
It used to be right. If we didn't keep printing money, you would put your money in a savings account, get five percent interest, and you would. Like in a few years, you had more money than you started with, but now nobody believes that if they save their money in the bank in five years, they'll have more purchasing power than they started with. And so there's a mad stampede for a store of value that leads people to buy Tesla's stock and Amazon.
And they're looking to big tech because they want that because everybody knows they can't hold cash. And not only is the bank going to pay, you know, interest, but the government is going to double the amount of US dollars and supply in four years. And that means that the same that double the number of dollars are chasing after the same number of assets in goods and services. Ergo, the purchasing power of your money is collapsing. You need to find something that is immutable.
Bitcoin is the first thing in human history where we figured out how to create a crypto asset that nobody can screw with and they can't debase and inflate and make more of. And so it's a good idea. The only question is, would it be hacked? Would it be banned or would it be copied? The reason that people didn't adopt it immediately is they're afraid of hacking, banning and copying. And it took about 10 years to conclude it's not going to be hacked.
No one's hacked it yet. It's not going to be banned. The IRS has normalized at the S.E.C., by the way, Scott says it's property, it's not a security. And that's a very important distinction because it's property land in Texas, not a security, because no CEO, no company can control and manage the supply. It can't be corrupted. And that means it's much more broad based to the average person and it means across borders.
The issue with cloning is people tried to clone it ten thousand times and so Bitcoin cash, Bitcoin, Satoshi Vision, Bitcoin, gold, all those were clones. They all failed the other seven thousand cryptocurrency. They didn't establish themselves as the monster asset. Bitcoin is three hundred and fifty billion dollars in monetary energy today. So it's crossed the event horizon. It's got it. Senator Cynthia Lumis, who believes in it, it's got a Congressional Caucus, Warren Davidson that supports it.
It's got Brian Brooks at the OCC saying banks in custody. It it's got the IRS saying you can check the box. It's property. They've given a normal tax treatment. It's got fidelity. It's got banks in Wyoming that are chartered. And and this year, since March, an avalanche of shoes dropping. You've got Paul Tudor Jones, Stanley Druckenmiller, Bill Miller coming on board. My company was the first publicly traded company to buy it on our balance sheet.
And we just we did that. We bought four hundred twenty five million dollars worth of it. It traded up. Square was the next publicly traded company. Then you had square build it into square cash and square cash for one point seven billion dollars of Bitcoin in the last twelve weeks. And you want a growth number up one hundred percent quarter over quarter, up one thousand one hundred percent year over year if you want. Why would you do that?
Well, because if I have a bank account in my hand, I've got free checking when I plug it into Bitcoin. Bitcoin has been appreciating against the dollar one hundred percent or more every year for the past decade. On average. It's like having a savings account that pays you one hundred percent tax free interest. Why wouldn't you want that? And so what Square did that? That just their business and now PayPal copied them. And so you're probably going to see 10 to 15 billion dollars of Bitcoin sold off of of mobile phone apps between Square and PayPal.
And eventually you're going to see the other players follow them. So it's big tech. It's being driven by technology. It's being driven by the inflationary economy of central banks. And by the way, it's disturbing in the US when the Fed triples the the monetary expansion rate. But if you're in Argentina, Lebanon or Venezuela, you're going to starve to death. I mean, it's not disturbing. It's a matter of life or death if the currency collapses by 90 percent.
What is the catalyst here for Bitcoin as an asset other than just supply and demand? Is it because more it'll be a default currency? More is it? Or let me put it another way. Why is MicroStrategy your shareholders don't need you to buy Bitcoin. They can do it on their own. So you obviously think that Bitcoin must add value to your enterprise?
There's two there's two questions there. Why is MicroStrategy bought it? And let's hold that for a second. I'll explain that. But let's talk about asset valuation, commercial real estate, cash, bonds and stocks are all fiat instruments. So the value of them is based upon the underlying discounted value of the cash flows with maybe a terminal value. But ultimately, you value the bond based upon the discounted value of the cash flows and the cash flows and the currency that the bond pays the coupon.
And hence, if the bonds paying the three percent interest and the currency has been inflated at 15 percent a year, it's not going to hold value unless you get a capital gain in the bond. And the only way you get a capital gain in the bond is the Federal Reserve has to crank down the interest rate so bonds will hold value if the interest rates keep cranking down from five to four to three to two to one percent if they don't go negative.
Scott, then that's the end of the road for bonds, because they've they're obviously not going to yield north of 10 percent coupons. So that takes you to real estate. Real estate's kind of like a bond, except the rents are the coupon. And now the issue is, is the real estate yield north of 10 percent? Not generally not. And so the only way to make real estate work is the interest rates keep coming down. You refinance the real estate leverage up.
And when the interest rates hit the end of the run, this is why so many people are screaming, please take interest rates negative. If interest rates go negative, it's a big win for people that own bonds or real estate. Now, let's go to stocks. Well, if I got a company that's yielding five percent cash flow per share or five percent yield and the money supply is expanding at five percent, I'm kind of holding value. The CFO is probably going to go leverage up, borrow some money, short the dollar, buy their stock back, get the cash flow, yield to eight or nine or 10 percent.
The stock will go up. That's how that's how you get the stock to hold its value in its low growth. If it's a high growth stock like Google, Facebook, Amazon, they're going 20 percent a year, top line and twenty percent cash flow. They can stay ahead of a five or six percent hurdle rate without leverage. But when the hurdle rate goes to 15 percent, 16 percent, it gets hard for everybody. It got three times as hard.
Now, that's that's the problem with fiat assets. So what about a scarce asset? If I knew there was inflation coming, I might go buy a massive ranch in Napa Valley or in Argentina, or I might buy a big beach house or I might buy a Picasso. Those are all scarce. The Federal Reserve can't cut that in half and it's not based on cash flows. But the problem is California can tax your ranch in Napa Valley and they can tax it away from you.
In Florida, I pay two percent tax property tax. So if they keep raising the valuation of your property in 30 years, you lose your property if the government puts in place a wealth tax.
And on California, United States, you can't move your building and maybe you can't get the gold out of the country. You can't. How do you move one hundred million dollars of gold from New York to Tokyo when someone doesn't want you to move it? You put ten million dollars a Bitcoin in the network and you could move it to Switzerland and thirty minutes for three bucks. It's the ultimate empowerment for the individual that wants to take custody of their own life, energy.
And by the way, I'm not necessarily advocating the crypto anarchist approach. Like you don't need to be planning for the zombie apocalypse with bitcoin. You could simply take the view that isn't it better that I invest ten million dollars in Bitcoin knowing that every ten minutes I can audit the entire supply from my own node everywhere in the world? That's totally transparent. B I don't have to trust a bank, or if I lose trust in my custodian, I can move it to another custodian in fifteen minutes or I can take self custody.
That's a big advantage. It keeps everybody honest. And then this is the most tech friendly asset in the world because over Thanksgiving, Scott, over Thanksgiving, if you had Apple stock or Amazon stock, it stopped trading at four p.m. on Wednesday and then it traded from nine thirty a.m. on Friday until one p.m. on Friday. Three and a half hours. If you had Bitcoin, it traded one hundred and thirteen point five hours instead of three and a half hours.
And every country and every language. In just about every currency on Earth, every second of the day, so it's it's a great global asset and that's what makes it the global monitoring network. It's suitable for any country, any person, any currency, any language, any time, any place. And that gives people great comfort. MicroStrategy I just don't want to lose half my shareholder value in my Treasury over thirty six months. So let's get to that question.
Like, why did we buy Bitcoin?
Well, just let me interrupt you there, because you not only you're not only bad Bitcoin, so I'm on the board of a public company that has a half a billion dollars in cash and on a regular basis, we talk about the best way to deploy that cash for shareholders. And we ultimately always end up going in as safe as can be, because if you want to be invisible, to screw up your board, to take your cash and invest it in a in a risky asset, you not only to cash on the balance sheet, you did a bond offering.
You levered up and purchase six hundred and fifty million dollars in Bitcoin, if I understand that correctly.
Tell me how that started, what your board asked you and how you got them over the hump to do this, because that's a I mean, that's either an exceptionally visionary or dangerous decision that's unique.
I think it's I think it's utterly rational. And once you understand our reasoning, I think I think you'll agree.
But everybody's entitled to their thoughts on it. So let's let's start here. I have a company that's basically low growth, generating a lot of cash, stable enterprise software company. When we came into the year, you know, we were generating 20, 30 million in cash flow a year and we had five hundred and fifty million dollars of excess cash. And we had traditionally invested our Treasury in short term bonds, yielding was five percent a decade ago. And then three and then two and then one.
And then pretty soon it was yielding nothing. And then we bought our stock back and we would buy we bought hundreds of millions of dollars of our stock back. And we are saving the Treasury for a rainy day. And I thought it's responsible not to take debt and to have a cash balance so that we can make good on our obligations to our customers, our counter parties, our vendors, our employees. And. OK, well, so what happened in March?
The economy shut down. You had a cash recovery and then on one hand, everybody needed our software more than ever because we're selling business intelligence software to banks, governments, big retailers, organizations. They're all they're all using it. So the value proposition is intact. But we realize that everything we've done in terms of marketing and sales and services was going to be much less expensive and our cost structure decreased by 40 million dollars a year or more with no no diminution and the value proposition.
So we went from thinking we're going to generate 20 to 30 million a year and we might need cash for a rainy day to thinking we're going to generate 60 to 90 million in cash a year ad infinitum. We're not going to need the cash for a rainy day. The rainy day came as a pandemic. We know what happened. And we couldn't spend the cash if we wanted to, because I can't I can't book a hotel. I can't fly in an airplane.
I can't have an event. All of the expensive marketing and sales activities went away. And then finally, the cost of capital. Scott went from five percent to 15 percent. Like all my investors started saying to me, we don't value your cash at anything. Nobody can be a professional investor holding their money in cash, yielding 20 basis points. And so their view is, well, give it back to us or do something with it. When the Fed started expanding by a factor of fifteen percent, now I'm losing seventy five million dollars a year in purchasing power to generate fifty to seventy five million dollars a year and accretion in cash, I could work forever to stand still.
And at that point I realized that holding a bunch of cash is like holding a melting ice cube. It's it's it's a liability. It's not an asset anymore because it's minus 15 percent times the amount of cash I'm holding. So what do you do? I have to invest it in something. And so this is actually what causes CEOs to go crazy. What are you going to do? You can buy back the stock or divide it out to the shareholders.
But then you decamped allies, the entire company, and you go from having five hundred million and Treasury endowment to having zero. And if you actually stumble with zero, then you're insolvent and you go bankrupt. And so that's not very appealing. You can also go and buy another company. So a lot of companies, they go and they buy other companies because they want to get top line. Revenue growth or they want to show operating income growth and they're desperate, but why is it that you're treated like a loser if you don't grow your company's cash flow or revenue by 20 percent a year?
And, Scott, that is a direct result of the Federal Reserve expanding the money supply by 10, 15, 20 percent a year. If the Federal Reserve didn't expand the money supply at all, if we had flat currency, then that would mean that the value of the currency would go up every year and everything would get cheaper. And if you were holding your revenues constant, then your company would be doing fine and no one would treat you like you're losing any and you're a failure in business.
So I could basically take every dime I have and bet on a company which is competing against Microsoft, Oracle, SAP and IBM that's growing a couple of percent a year. That has to do one hundred thousand things perfectly in order to continue to do business. And maybe we'll grow five percent. Or I could take my Treasury and put it into a big tech network, which is which is 30 X more dominant than its nearest competitor. That's growing more than one hundred percent a year.
That's been growing more than one hundred percent a year for the last decade. And I'm just strapping on one hundred percent growing juggernaut to enterprise software company. And and it seems like that's a less risky thing to do. Right. And to the key point, Bitcoin's property. And because it's property and not a security, our decision to invest in Bitcoin created massive value for potential investors in the convert market or the public equity market, because we're actually we're going through the due diligence, the custodial, we're managing the security, the custody problem, the acquisition problem, and we're making the decision for them the marketplace.
The key is the market. The people that are buying the stock understand what they're getting. They're getting an enterprise software company with a novel Treasury strategy. Some people would say it's risky. On the other hand, I fully expect to lose half the purchasing power of my cash over thirty six months. So when someone is going to steal half your money in thirty six to forty eight months, you know, at what point do you decide you'll do something different and take a risk on something new?
Because there's a guarantee of losing half if you don't take the risk.
What is so says someone's listening to this podcast and doing OK, I want to put ten thousand bucks into a cryptocurrency. Do you think there's any value to taking a portion of that and putting it into the sort of the tier two cryptocurrency, is it theorems of the world or are you just you think that if you want to play in this asset class, it needs to be bitcoin?
You know, I think the right way to think about the market is there's three tiers, an investment grade Treasury asset, synthetic gold. That's Bitcoin, right? That's one tier because it's twenty five times more dominant than the next lt kind thing. It's it's the ninety five percent gorilla. And you would trade safe haven assets if you are bonds, negative yielding debt, gold indexes and you just want to have safe haven. That's the asset. The next thing is a theory.
It's like a unicorn. It's like over Airbnb. It's big, it's scary. It's coming like gangbusters. There's there's like 50, 60 billion dollars of monetary energy in it. Mm hmm. I don't think you're going to see insurance companies and investment grade corporate treasuries putting hundreds of millions or billions of dollars into that because there's a lot more moving parts. There's a lot more questions. It's much more complicated. And then the third category is a bunch of cryptos that are I would call like venture investments.
They're all doing different things as if privacy. Is it speed? Is it smart contracts? Is it, you know, lots of stuff. Now, there's going to be some winners. There's going be a ninety nine percent failure rate. It's like eight thousand five hundred cryptos. I mean, you think they're all going to succeed. So if you actually have your money segmented as a safe haven Treasury Reserve versus aggressive unicorn versus venture capital, then I think you think about it the right way.
So I want to switch gears. You started MicroStrategy at twenty at the age of twenty four. What professional advice? We have a very young, very male listenership with professional advice. Would you give to your twenty four year old self right now? You're twenty four years old. You're coming out of college or maybe not, and you're thinking, how do I allocate my most precious capital then as my human capital, my time? What advice would you give to your twenty four year old self or to some of our listeners?
Well, I think you have to invest your. Time and your energy on on the technology platforms that are going to dominate over the next decade, you know, at this point I think we're going into the virtual wave and the virtual wave means you can you can zoom anywhere at the speed of light and bend time and space. So what are you going to do with that? And so on one side, you've got to be thinking about how do I how do I take an existing service and virtualize it to make it one hundred thousand times better, faster, cheaper, or you got to think about an existing product that virtualize.
Is that that transforms fundamentally or, you know, think about what we just did. We virtualize our balance sheet. I'm going to basically switch from dollars. To Bitcoin, I'm going to take a disruptive major change, I'm going to rethink the way that I see my world, you're going to have to you're going to have to embrace some kind of massive exploding virtual technology. So you have to specialized focus, choose your platform and commit.
And I want you to think I want you I want you to think about this next question, because I've known you for about the better part of two decades now, and you've always struck me. I don't know you well, but I know you. And you've always struck me as a pretty self actualized guy. You were sort of dancing to your own drummer. My sense is you have a clear, fairly clear set of values around the way you want to live your life.
And aren't you don't really care what the you know, what I'll call the standard or society's telling you around how to operate a company, how to be a CEO. What personal advice would you give to a 25 or 30 year old? What has worked for you and what has not worked in terms of your own personal happiness and your own set of values and reward system?
Take care of your health. Right. I mean, what we're seeing what we're seeing clearly is is low sugar, low starch, low alcohol exercise. Right. You know, you start with that platform, right? If if you don't exercise, drink a lot of alcohol, consume a lot of sugar, consume a lot of starch. Right. And then that's a drain on you. So I put that in one bucket, which is take care of your health and you can learn as much as you want to know on YouTube or anything else on that if you care.
But but some people don't put that first. I think that's really important. I'm sensitive and you've talked about this a lot. You're probably the expert on it.
I think that addiction to insane amounts of everything is the scourge of modernity.
I think that there's too much you know, you can you've got infinite porn, infinite videos, infinite Netflix, infinite alcohol, pharmaceutical grade downers, pharmaceutical grade uppers, you know, pharmaceutical grade steroids, anything you might want in this world. We produce too much of it. I can be twenty two years old and get an addiction to, you know, to antianxiety medicine and they'll give it to me for the rest of my life by walking into a doctor and, you know, having the you know, having the maturity to know that just because you can do a thing and you can get a thing doesn't mean you should.
On one side, the beauty of the modern age is I can go on YouTube and I can learn anything about anything and my mind can go anywhere in time and space. And I can educate myself on anything. And it's very beautiful.
That's the beauty. And the and the horror is I can get locked in a loop where all I'm doing is watching the same looping in raging brain numbing thing over and over and over again. And it'll feed me that, too. So I think that, you know, when you're when you're starting your career, the key is to have very strong values. We're just too good at creating stuff. In the modern era, we create too much of everything.
Michael Saylor's, a technologist, entrepreneur, business executive, philanthropist and best author. He currently serves as chairman of the board of directors and CEO of MicroStrategy since cofounding the company at the age of twenty four. Michael has billed MicroStrategy into a global leader in business, intelligence, mobile software and cloud based services. He joins us from his home in Miami. Michael, thanks for your time and Stacey.
Thanks for having me, Scott. Always a pleasure. We'll be right back. If you're a business owner, you don't need us to tell you that running a business is tough. You need us to tell you that, no, I didn't need you to tell me that, but you might be making it harder on yourself than necessary. Don't be so hard on yourself. Don't let quick books and spreadsheets slow you down any more. It's time to upgrade anatsui stop Subang for multiple systems that don't give you the information you need when you need it.
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Welcome back, let's bust into office hours, the part of the show where we answer your questions about the business world, big tech, higher education and whatever else is on your mind.
If you'd like to submit a question, please email the voice recording to office hours at Section four Dotcom. Hello, Scott.
My name is Robin. I'm from Ireland, but living in Dubai for the last 10 years or so, part of your UAE fan club. And my question is about Facebook. So with all this anti-trust pressure that they're facing at the moment, do you think that there's any chance that if they're forced to divest one or more of their assets, that Mark Zuckerberg can I look choosing to get rid of Facebook, the big blew up itself rather than, say, Instagram.
And some estimates say that by next year, Instagram could account for up to 40 percent of the parent company's advertising revenue. This is going to get bigger and bigger every year since they really started generating revenue back in 2015 with some other beefed up revenue generating features like shopping, also getting traction on Instagram. It's maybe not crazy to think that in the next couple of years, Instagram could end up bringing in more cubbage, as you say, than Facebook itself.
And with all these controversies around fake news and content moderation on the Facebook platform, it's starting to seem like it's more trouble than it's worth. So what do you think it could Mark Zuckerberg ever give up his baby for potentially greater shot at a better future revenue?
Rob, from Ireland, living in Dubai. It's good to be young and international. And by the way, most importantly, let's talk about how big the dog is in the UAE. That's right. If you go to chartable dotcom, you'll find out that the property show is the one hundred and thirty fourth most listened to podcast in the UAE.
Who would have thunk it? But that's not what you asked about Rob from Ireland living in Dubai. So which company would Zuckerberg spin?
And to a certain extent, does it even. It doesn't matter. It's an interesting kind of existential question, and that is of jackdaw. So you can be the CEO of two distinct public companies. Why couldn't Mark Zuckerberg all it means is a separate capital structure, although I guess it couldn't coordinate any longer. The notion is the principle of a spin is that once you have separate shareholders and separate corporate governance, that they each pursue their own shareholder value and they stop coordinating and cooperating, if you will.
But it could be kind of weird if they spun one or more of them or divested them.
And the ruling might be they need to sell it, not just spin it. Meaning Sorry, boss, you need to sell two of these. So where would Mark Zuckerberg go if you could only be CEO, one of them? I think Instagram, to your point, is a juggernaut. I think it's probably going to decline a little bit in the short term, just in terms of sheer awareness at the hands of ticktock or even something like ROBLOX. But I'm fascinated by social commerce, specifically Instagram's ability to merchandise incredible products.
And you think, oh my gosh, it's creepy that they they registered that or figured out that I want a new pair of those on cool running shoes. And I actually made my first purchase off of Instagram.
I think Instagram is actually arguably worth more than Facebook right now, but the kind of baller move, I think would be to go for him to helm. If I were him, I would probably want to run WhatsApp. I think WhatsApp could go after Zoome. I think WhatsApp could go after teams and Slack. I think WhatsApp is incredible and has basically been used as a dopa data bag to feed the corpus that is Facebook and Instagram.
So I think WhatsApp has tremendous, tremendous upside. But these are good problems. The notion that he would spend one or which one is is going to be strange. It'll come down to if they're found guilty of antitrust violations. What will the remedy be if he's asked just to spin something? He could technically still be the CEO, which I think would be sort of like, well, what's the point? So I hope they force him to sell it to a distinct entity.
But if I were him and got to choose, I would probably I would probably want to do. WhatsApp first, Instagram second and Facebook last, but then again, I'm not like him, I'm not like him. And that's probably the nicest thing I've ever said about myself. Thanks for the question, Rob.
From Ireland, living in Dubai. Question number two.
Hey, Scott, thanks for your good work and your bad dad jokes. I'm a 50 something woman in Boston. Considering investing in the cannabis industry, I'm thinking more around equipment and cultivation products than cannabis itself. But I'd be interested in hearing your thoughts on that.
Thank you. Thanks very much for the call. So while I'm a consumer, the cannabis industry, I haven't touched it because it seems as if one of those industries, it is very hard for me to get my head wrapped around it because the valuations looked insane and then they came back down. I think that first off, the way you're thinking about is the right way. And that is if I were to go or invest in that business, I'd want to invest in the picks and shovels, not in the mine itself.
Investopedia looked at the top marijuana stocks for December 20 20 and found that Harvest, Health and Recreation would be one of the best valued stocks. That's according to Best. It's a Canadian based cannabis company specializing in cultivation, dispensaries and production facilities for medicinal and recreational marijuana, and a reported 86 percent year on year increase in total revenue. I'm not recommending the stock, but Investopedia actually does look at kind of things like valuation and underlying metrics. Grow Generation, a distributor of agricultural products, landed a spot as one of the marijuana stocks that had the greatest total return over the last 12 months.
The company offers plant nutrition, farming, soils, crops, advanced lighting technology, hydroponic and aquaponics equipment. I don't know the difference between a hydroponic and aquaponics. Maybe Aquaman knows and recently acquired. The Grob is the third largest chain of hydroponic garden centers in the U.S. and some in some. I think this is something that if you're like me and you are in your 50s, you dabble in it, you go into the infrastructure. I wouldn't go into retail.
I just think that right now is overvalued. So I like the infrastructure players or the distribution players. And I wouldn't put more than a 10 percent or 15 percent of your net worth into this asset class, because it strikes me as an asset class that will be very volatile. And at our age, we want to be able to sleep at night. We typically, yeah, we'd like to get rich, but more importantly, we don't want to get poor or fast.
It's just not worth the stress. So as you get older, I think you want to be more diversified. But as a whole, I think you're right. Go after the infrastructure side of it, the space. So I don't know it well. I have a difficult time wrapping my head around it. Although the wind in your sails, the wind in your sales are probably the most exciting thing about the sector is that if you were to if you were to glean one take away from the 2020 election, simply put, was the green wave the green way?
Well, the first take away, we said, and a repudiation of Trump. But really, the bigger take away or as big a takeaway is the green wave initiatives, ballots all over the nation, propositions around marijuana changed dramatically. Or there's basically overwhelmingly the nation said that we are going green, if you will. So you have that wind in your sails. Anyway, thanks for the question. Best of luck to you and your marijuana investments. Don't forget to send the care package to your favorite podcast here.
Don't forget, he's big in Dubai and he's big on Dubai. Next question. Hey, Prof.
Ji, my name is Michael. I'm from San Francisco now, working remotely in Lake Tahoe. On the Nevada side. My theory about remote work is that proximity is power. I'm twenty six career driven and I work at a startup while I'm enjoying remote work now, I can't help but think that being back in the office provides a competitive advantage over those who would choose to stay remote. I have a hard time believing that my VP is going to promote Chad, who's working remotely from Loom over the gal who got back into the office.
If you're a twenty six year old who isn't fearful for your health, are you getting back in the office to accelerate your career as a business owner and operator? Do you think that affects your decision making on who gets promoted? All things being equal. Be safe, be well. And thanks as always for taking the question. Your instincts are right on a survey conducted by TWC in June found that executives are more likely to report than employees have become more productive.
Forty four percent while working from home during the pandemic. That's the good news. But the bad news is, is that proximity or relationships are a function of proximity. And guess what? Promotions are a function of relationships. As a matter of fact, I'm reminded of the research that my colleague at NYU, Pankaj Ghemawat, did in the last decade where he found that the further from headquarters, a retail store, is an individual store, the less profitable it was.
Proximity to headquarters, no doubt about it, is an accelerant for your career. You're just more likely to think, OK, who should run our Southeast Asian division?
Well, there's Bob and there's Susie. I see Susie every day. I get to see how smart she is. She's in meetings. I like Susie. We've developed a rapport. Yeah, I want Susie to win versus Bob, who, as you said, is into loom. So there's just no getting around it.
Proximity, if you have the ability, the discipline, the economics, the willingness to live close to work, put on a suit, all the bullshit required from being at HQ every day, you are going to advance your career faster. There's just no getting around it. There's no free lunch. If you want to hang on a tomb or you want to hang out at home with your kids, it's going to cost you one of the unfortunate things here.
One of the second order negative effects is that work from home will have one. It'll increase income inequality because the people who can't afford to live in cities, who get to live in the outskirts of Denver don't realize that if your job can be moved to Denver, it can be moved to Delhi.
And two, it'll have probably it'll probably be a step back for women, because if you look at most relationships, if one person is going to give up their career so they can live in beautiful name, a mountain resort here, typically they decide that it's the woman's career that should be put on hold or that she should work remotely or that she should give up her job to spend more time at home. And I think you're going to see fewer women at HQ.
What does that mean? That means fewer women accelerating their careers as fast or fewer women on the same career trajectory as men. And we've made a lot of progress here. Women under the age of 30 who are college educated have largely closed the wage gap with their male counterparts. The problem is, once they have kids, the problem is once, once a woman decides to actually and her partner decide to use the ovaries, the pay plummets to seventy seven cents on the dollar.
And kids, the assholes that they are, the needy jerks they are, want someone to be at home. And typically those responsibilities, let's call a spade a spade, fall disproportionately to the woman. So I wonder if remote work will have this second order effects of one. The people who decide not to be at HQ are going to not advance as quickly. And you're right, if you can figure out a way to be at HQ every day, your career will be on a different trajectory than those that aren't into it.
Seems to me that it will likely it will likely set women back because you're going to see more women working from home as research shows that a disproportionate amount of the additional work required for things like remote learning or buying a house that's further from HQ. It's usually the woman who sacrifices for her career or her proximity to HQ or her old HQ. And as a result, we're going to see, I think, the wage gap widened again. But that is an interesting question.
And by all means, if you can be at HQ, then my brother HQ, that shit out of that bitch you call your company. Thanks for the question.
Algebra of happiness, citizenship, answering the call, so many of our mothers, fathers, our grandfathers, our grandmothers, people we will never meet, people we will never know, have answered the call, who realized that the wonderful society we live in is a function not only of our prosperity, not only a function of shareholder value, not only a function of innovation and people coming up with electric vehicles or photo sharing apps, but people sacrificing. And I believe in our country, we have conflated sacrifice with stimulus, that people see patriotism as some sort of fucked up or have lost the sense of patriotism and are more focused on their individual liberties, rather than registering or understanding that your liberties are a function of people's sacrifice.
And we we seem to be very comfortable enjoying those liberties that other people have sacrificed for but don't seem to want to pay it forward. And the most recent example is all the bullshit I'm hearing around people's reticence to take the vaccine. And if you look at the data, if you look at the science, your chances of an adverse reaction from a vaccine are not less than being eaten by a shark or less than being struck by lightning. They're less than being eaten by a shark as you are struck by lightning.
Vaccines have saved hundreds of millions of lives and there have been some terrible, well publicized instances where they have not work and there's been negative reactions, there are risks in everything. The risk when you get in a fuckin ueber, for God's sake, look at these risks, look at the actual science here, and you're going to see that the risks are nominal. What is the upside? And this is what really, really is so upsetting. People are thinking, well, OK, I'm injecting a foreign substance into my body.
I don't like that. First off, that substance is cleared out of your system in about two weeks. What about the long term effects? I'm worried about the long term effects. Well, guess what? The clinical trials, the majority of adverse effects registered across historic vaccines have manifested themselves or appeared almost right away. And because the clinical trials have now aged, we know that short term adverse effects are not a problem with these FDA approved vaccines. So the majority of the hysteria or any sort of bullshit notion around the danger of these vaccines just is not supported by the data.
And the narrative that is really upsetting is that, well, I'm just going to wait. I'm healthy. If I get it, that's bad. But it's not profoundly bad. I'm just going to wait. Well, you know what? It's not about you. We have a web, a web of death and despair sweeping through the nation over and over. And it is snaring our weak and vulnerable and it is killing them. And when you refuse to take the vaccine or you decide, you know, I'm just going to wait, you risk becoming another threat or specifically a carrier, a a note of infection in that web.
It's not about you. Yeah, 90 percent, 99 percent likelihood you will be just fine if you get the novel coronavirus. But will the person who gets caught in your web be fine?
Let's think about the numbers here. Angela Merkel, who, by the way, by the way, has a PhD in quantum chemistry, said at the outbreak of the novel coronavirus that she thought without a vaccine, 60 percent of the population of Western Europe in the US would ultimately contract covid-19. Let's take 60 percent of three hundred and fifty million people. That's two hundred and ten million people. Let's call it a mortality rate of one percent. That's two point one million people.
Three hundred thousand have died already. That means there's one point eight million people who are going to die if we don't get the herd immunity. In May of 1940, the Germans drove British, Dutch, French and I believe Belgian soldiers to the beaches of Dunkirk. They'd overextended themselves. They drove them to the beach. They were out of munitions, out of supplies. And it was basically going to be a turkey shoot. And for a bunch of reasons, some people say that was a general who was reticent to wake up Hitler for a bunch of reasons.
We were granted or the allies were granted with a couple of days extra time to get off the beach, but they had no way off the beach. But what happened? They sent out a call to Britain and every sail boat, every fishing boat, every trawler, anything that floated that had a motor on it was fired up by British citizens and it headed straight for the beaches of Dunkirk.
They didn't know what was out there. They didn't know if there were a few boats out there. They didn't know if there was going to be Messerschmidt or Stukas raining fire on them. They just answered the call and they got 400000 young men and boys.
And let's be honest, some or boy, some or so young off the beach, they ensured they didn't face a certain death.
We have we have in this country, two million people are most vulnerable on the beach. Get the vaccine. Get our brothers and sisters off the beach. This isn't about you. This is about answering the call. So few of us have had to answer a call around our citizenship in this country. So many of us are actually in a better place than we were pre pandemic. Are you one of those people right now that's made money, that's had a chance to spend more time with loved ones?
It's had a chance to watch more Netflix? Well, guess what? You need to answer the call first. I'm one of those people I am first in line. And this bullshit temptation to say, I'm going to wait, I'm going to wait. Well, guess what? This isn't about you. Let's get our brothers and sisters off the beach. Our producers are Caroline Chagrinned, Andrew Burrough's if you like what you heard, please follow, download and subscribe.
Thanks for listening.
We'll catch you next week for another episode of the show from Section four and the Westwood One podcast network.
Gangster, I've got to find the Spanish word for gangster anyway. Anyway, I have no idea what I was talking about.
I'm totally lost my train of thought. Oh my God, the dementia is here. The dementia is here. Anyways, stay away. Stay away. We want to be diversified. We want to be diversified. Oh, God. Bring me back. Where am I? Oh, I was over here. OK.