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Strategy, formerly known as Microstrategy. This is a publicly traded company that once sold software but now serves as the largest publicly traded “digital asset trust” or DAT. It created and defines the category. For those who haven’t been paying close attention, the idea behind these stocks is that the company sets out to accumulate as much of a crypto asset as it can (in the case of Strategy they’re buying Bitcoin) and the shareholders benefit as the underlying asset (BTC) appreciates. Why not just buy the asset itself or a spot price ETF? Because the digital asset treasury is accumulating the asset at a faster pace using the money it raises via taking on debt or secondary stock sales or preferred stock sales or all three at once.

MicroStrategy currently holds roughly 649,870 bitcoin, acquired at a total purchase cost of about $48.37 billion, which works out to an average price of approximately $74,433 per BTC. Based on the fixed 21 million-coin bitcoin supply, the company controls about 3.0%–3.1% of all bitcoin that will ever exist. Saylor’s going to continue to dilute his shareholders in his quest to accumulate even more of it so, the thinking goes, if you are bullish on the Bitcoin asset itself, you buy his stock and take the ride to even faster gains than you would otherwise get with the ETFs. In this way, he has convinced the faithful that dilution is actually good, not bad. It’s helping the cause.

I never could wrap my head around it. I get the theory, I think, but it hasn’t clicked in terms of why it would work. Maybe this is because I don’t have a mental price target of $1 million per Bitcoin or something like that. I don’t know. I sold all my Bitcoin and bought the BlackRock ETF IBIT a while back to replace it and that’s pretty much the extent of my involvement in the asset class. The appeal of Microstrategy as an investment is mystifying to me still.

But, I must confess, for a long while I was wondering what was wrong with me. Was I missing something? Was there some aspect to this I wasn’t getting? My uncertainty stemmed from the performance of the stock, which was stratospheric.

One year ago, Michael Saylor was running around the financial media landscape doing TV shows, web hits, podcast appearances and conference keynotes from coast to coast. In the run-up to the “Crypto President” winning the 2024 election, enthusiasm for Saylor’s strategy exploded. Below, a chart of MSTR from the day in August, 2020 when he converted MSTR to a Bitcoin Treasury up to the end of November last year:

People like me, who were worried we had missed something or misunderstood the story, could only sit back and watch and the share price 30x. Between August 10th, 2020 and last Thanksgiving, MSTR returned 3,050%. An investment of $10,000 would have become worth over $300,000. No other publicly traded company I can find did anything even close to that in the same timeframe. Nvidia, for example, merely 10x’d in the period.

On Wall Street, price is validation, even if price is only temporary. Saylor was validated for the time being. He knew what he was talking about. After all, millions of investors had agreed with him and those who did not had been rendered wrong by what Jeffrey Gundlach often refers to as “the bloodless verdict of the market.” I was dumbfounded.

But, as in all things stock market, this wasn’t the end of the story. Critics, journalists and short-sellers came along and questioned not only the company’s valuation but it’s entire raison d’être. They poked holes in its financing methods, its calculations and the CEO’s public statements. My friend Jim Chanos publicly put on a “pairs trade” going short shares of MSTR while going long the corresponding amount of the underlying - Bitcoin itself. Chanos was betting that the valuation gap between MSTR’s market value and the value of its Bitcoin holdings would converge to 1. One year ago, MSTR was selling at 2.7x its Bitcoin position, meaning investors were paying almost $3 for every $1 dollar worth of BTC the company held. That trade worked and Jim announced he had closed his positions out at a profit two weeks ago.

Today, MSTR sells at a slight discount to its Bitcoin hoard - roughly .93% according to the latest figure I could find. MicroStrategy currently carries about $8.22 billion in total debt and roughly $5.79 billion in preferred stock outstanding (paying an 8% annual coupon), based on the most recent reported figures. The preferred stock carries a liquidation preference - this is the amount preferred shareholders are entitled to receive before common shareholders if the company is ever sold, dissolved, or goes bankrupt. Each preferred share has a stated liquidation value, and in a liquidation event those holders get paid that amount first, ahead of the common stock. Only after the full liquidation preference is satisfied does any remaining value go to common shareholders, which is why preferred stock is considered senior in the capital structure.

So the preferred is not quite debt but it is a de facto liability - a claim on some portion of the economics. This explains the discount - yes, the company owns the Bitcoin it owns, but, no, it does not own it “free and clear” of any other obligations. To the short-sellers, this explained the ludicrousness of the premium it once sold at. They saw the inevitability of the premium closing and the high likelihood of an eventual discount. I have made this point on television and on my podcasts over the last few years - I have never seen a leveraged closed-end fund maintain even a small premium to its net asset value (NAV) in all my time in this business. And MSTR had become, functionally, a leveraged closed-end fund in my opinion.

So yes, I missed out the whole way up and questioned whether or not I was even fit to have an opinion on Microstrategy. I questioned my own sanity. I cursed myself for thinking too much about it rather than surrendering to the wisdom (madness?) of the crowd. I felt lost.

And then a funny thing happened. Time went by. Things changed. We got a dozen ETFs listed that could serve the same purpose MSTR had served for the stock market investor - a way to own Bitcoin exposure in a traditional brokerage account. Additionally, Fidelity and Schwab, Robinhood and Public, all became legitimate venues in which to buy, sell and hold the underlying asset. This was a tremendous unlock. Where once MSTR was the only game in town, now there were many options, none of which required people to pay a premium or remember a seed phrase or transact with Coinbase or get involved with cold storage wallets and the like. Bitcoin became as accessible as running water, everywhere and to everyone. Even in an IRA. That was the beginning of the reckoning for investors in MSTR. One year later and we see the result:

Which brings me to my point. There is a world in which the MSTR price continues higher and the onlookers feel even stupider, later. But that is not this world. In this world, the cure for Fear Of Missing Out is usually just time. It doesn’t cost anything. You just wait. Ignore. Focus on other things. And, in my experience, the cure will work. Sometimes that means you still want to buy in and you get your chance. But more often you no longer want to buy in because the spell is broken. The fever fades away and what once was coveted becomes significantly less desirable. I expect MSTR to continue to trade with the price of Bitcoin, which is fine. I can’t imagine a scenario where it ever gets back to 2x or 3x the value of its Bitcoin because, well, why would it? Allowing time to go by and things to play out turned out to have been the right answer. It often (but not always) is.

I was reminded of this concept looking at shares of one of this summer’s most widely celebrated IPOs. When Figma went public in August, it was the talk of the town. I was on the floor of the New York Stock Exchange when they opened it up to significant fanfare. It led the headlines across all of financial media that day. What made it such a fascinating story was that, prior to going public, Adobe had offered $20 billion to acquire the company privately. This acquisition was rejected by antitrust officials and Adobe backed away. Seeing Figma reach a public market valuation of more than $60 billion was exhilarating given that history. Lots of people wished they had been in on the IPO in that moment.

And then, again, a funny thing happened. Time went by. Not that much time but enough. Here’s Figma since that epic opening day:

Figma’s market cap is $16 billion. You can buy as much as you want today. Nobody else is buying. No one is even talking about it. I haven’t seen a TV segment or a feature story on the company since. Part of my FOMO cure is to set a calendar alert for 6 months from the day a hot deal launches. It doesn’t matter whether it’s Circle or Snowflake or Facebook or insert your favorite highly publicized initial public offering. The market usually (not always) gives you an opportunity later. This is because first-day pops are manufactured and there are shareholder lockup expiries that allow insiders to dump tremendous amounts of stock when they get the green light. At most companies, these sellers have been pent-up and waiting for the opportunity to sell for years. So yes, you will more often than not get your moment. And when it comes, in the absence of a skyrocketing share price, you may no longer have an interest.

People are funny that way. We frequently only want something because others are demonstrating an interest in wanting it. Strategy and Figma are textbook examples of this. There are thousands I could think of if I had more time to write and you had more time to read.

Warren Buffett once famously said the stock market is not a game where the guy with the 160 IQ beats the guy with the 130 IQ every time. He says temperament is much more important than intelligence. Temperament keeps you from acting on impulse. It’s an innate sense that things might look different in the future than they do today. The cure for FOMO doesn’t come in a can or a bottle or a box. Sometimes it pays to just stick around awhile and watch.

The cure is time.

Our friend and returning champion Warren Pies of 3Fourteen Research joined us this week to discuss why, despite recent volatility, a typical year-end melt up could still be on the menu. Warren points to expanding profit margins and a bias toward continued easing of monetary policy by the Federal Reserve. He continues to view large caps as the right place to be given where we are on the cycle. You can watch or listen to the whole thing below.

Thanks for reading, wishing you an awesome weekend!