Microstrategy Thesis
This might be important again...
LAST EDIT 05/30/24: The current status of my MSTR trade is remaining long 1/2 of initial convertible bond (MSTR 0.75 2025) position originally entered Jan 6th 2023 with a cost basis of ~52.45. The paired equity short (2.5sh per bond) put on in March has been taken off entirely.
As long-time followers of my twitter account will be familiar with, the first thesis I shared on the platform was short Microstrategy in November 2021.
I hosted it on a google doc and kept it updated for the next two years. Part of the reason why I liked hosting it on google docs was because Google lets you display a version history that cannot be changed by the author, so both myself and readers could see how my process unfolded.
Here, for example, you can see how I originally began contemplating going long the senior secured bonds in June 2022:
And then, as I completely exited the original short equity thesis, decided by December 2022 that I would go long the converts instead:
Presenting this process it evolved from short MSTR equity, to short MSTR equity + long MSTR convertible bonds to completely covering the short and being long MSTR converts as well as a couple other asymmetric bets that bitcoin wouldn’t go to zero (namely, ARBKL & ELSALV). The current status of this trade as of May 2024 is that I remain long the converts from a cost basis of (if not called) will
However, now I have this substack! So I am going to take it down off google docs and put it here.
And I’d like to provide this work to my subscribers for two reasons;
It is, in my opinion, a good example of the pathway from idea generation to simplification with significant aspects of market sentiment awareness and position risk management. Most importantly, this was a trade where I did not make a mistake that I had made plenty of times before in short-selling: letting being short blind you to opportunities on the long side. You should always be on the lookout for opportunities on both sides in a company you’re very familiar with, especially if they’re elsewhere in the cap stack and especially if they’re as asymmetric as the converts were (arguably moreso than the equity short at $800). Shorts rarely go to zero, when you cover make sure you re-examine to ensure you’re not missing a long opportunity.
This premium math may become increasingly important as the Bitcoin ETF drives further BTC price action - the value of MSTR is state-dependent.
In a bitcoin bear market, it is a jerry-rigged publicly traded Bitcoin vehicle plus some governance and leverage risk that not only doesn’t deserve a premium but should arguably trade at a discount.
In a bitcoin bull market, it is the financial equivalent of a perpetual motion machine - reflexivity incarnate where higher bitcoin prices drive → a higher premium which → allows more equity and debt issuance by MSTR that in turn results in → more bitcoin on MSTR’s balance sheet, buying pressure which can drive higher bitcoin prices, which drives → a higher premium which… (ad infinitum, or ad “until bitcoin goes down”-itum). The highest premium (by my own estimation which differs from some others) ever achieved was +200%, this is the “fundamental” basis for that kind of disconnect. And it is a fundamentally sound basis, as long as bitcoin goes up. If bitcoin goes down, see 2a.
I’m making this available to all subscribers, free and paid, since it was already free to begin with as I’ve been updating it publicly on twitter. However, any future trades that reference this thesis will be available to paid subscribers only, so consider upgrading your subscription if you haven’t already :).
Until December 25th, all free subscribers who upgrade to paid get 10% off their first year (applies to both monthly and annual subscriptions)
And even if you don’t want to, you can still check out my Microstrategy thesis from November 2021 and the two years worth of updates that went into it:
The next article for paid subscribers will be “24 trades for 2024”, a follow up to my last yearly outlook “23 trades for 2023” which I published on twitter here. I hope you decide to join as we grow a community of passionate investors willing to engage in our paid subscriber chat where we’ll have a robust debate about which of these trade ideas has the most merit!