Transcript
Ricky Mulvey (0:00)
Foreign. It's coming back. You're listening to Motley Fool Money. I'm Ricky Mulvey, joined today by Jim Gillies. We will see how we can bait Jim Gillies into some spicy takes with these stories. Jim, how you doing?
Jim Gillies (0:28)
I am doing just fine, Ricky, and I'm pretty sure you've just, you've scheduled the stories to try to bring out the old man shouting at clouds. So here we go.
Ricky Mulvey (0:38)
We got a lot of clouds to shout out and the first of which is that we got some turbulence. The turbulence is back in the market, especially for those high flying names. I'm going to give you a couple of your favorites. Palantir, it's down about 30% over the past week. Bitcoin holding firm MicroStrategy down about 26% over the past week. Tesla's not doing too well either. And the broad qqq is down 5% over the past week. I mentioned some of those frothy, frothy names that are down and just wanted to see, take your temperature. What do you make of this sell off? Is this just, is this just some froth getting taken off our sweet mocha of the market?
Jim Gillies (1:16)
Yeah, I largely think it is. I mean, but I think there's a good side of idiocy at play here. And let's start with Palantir. Look, this is a company that basically trundled alongside for the first six or seven months of 2024 and then it went stupid. In the back half of the year. Speculators showed up. Not calling them investors, speculators decided that, hey, given the way the political leadership and outcome of the US election looked like it was leaning, this is a company that's going to do spectacularly well because something, something favorable, government conditions, something, something that's an interesting growth strategy, but it didn't really matter. Few folks could even articulate what it is that Palantir actually does. It just went up because people knew stuff and because it was going up. And so at one point it was up 400%. In the second half of 2024, it achieved a valuation level of over 100 times sales. Boy, you had better be growing to the moon and be doing something that the world desperately needs to even try to justify a 100 times sales level. Bluntly, that's idiocy, that's dumb. That is in nothing teaches like fire territory, that is, you're about to learn a lesson. You can learn no other way territory. And that's now started. You're down 30% and you know, look if we go back to the 25 times sales that it was getting last summer, which is still elevated valuation, Ricky, the stock price falls 2/3 from here. This isn't investing, this is speculation. It's based on political theses in theater. It's silly, frankly. MicroStrategy, or I guess they're calling themselves Strategy now. Look, this isn't a real business anymore, okay? There is a real, and I will argue inconsequential software business underlying things here. But the success of the stock prices, I mean maybe the software business is worth 3 billion 4, $4 billion. Kind of what it was before the Bitcoin strategy kind of took play. And look, you can have whatever your opinions you want on Bitcoin as an investment. This is not actually me ranting about Bitcoin at all. It's just simply, look, microstrategy or strategy. Their business is basically now buying and holding Bitcoin, okay? Calls itself the world's first and largest bitcoin treasury company. Fine, fair enough. Is that something we needed? I am struck. I went to their investor relations website this morning. First thing you see is advertisements for new merch. I had the thought this is not a serious company run by serious people. But here's where the rubber hits the road at the end. When they did their Q4 investor presentation, Bitcoin was just shy of $98,000. And at that time you had an enterprise value for MicroStrategy which is market cap plus net debt. You had enterprise value of $96 billion and you had Bitcoin net asset value of $46 billion. So you're basically paying 2x what Bitcoin is worth to essentially own Bitcoin on a look through basis. Look, if you want to own Bitcoin, there's cheaper ways to do it. Go own it directly, go buy it via any number of the ETFs or what have you that have sprung up that are not trading at 2x NAV. Owning Bitcoin via MicroStrategy is to my mind silly. Which seems to be the operative word going on today. And then it's sillier when you realize that they leverage the entire company to Bitcoin, appreciating in price forever. Amen. They have no ability to control the, you know, the price of Bitcoin. It's completely outside of their ken. But yet we're going to leverage the company to it. And then. So right now I think it's fallen. I think MicroStrategy has fallen about over 50% from its November high. And largely, you know, yet Bitcoin at $86,000 today. So it's dropped from the 98 at the time of the Q4 earnings report. What happens if say you know, God forbid, bitcoin falls to $50,000 and don't tell me that can't happen. You know, why does the next 50% move have to be up rather than down? Bluntly, this is a True Believer stock. It's turned into a True Believer stock again. There is a software business here underneath that might be worth something and Bitcoin is worth something because we all agree it's worth something or at least markets agree it's worth something. But to have levered your entire company to Bitcoin only going up seems like it's going to work really well. When bitcoin is going up, wonderful. When it's not, when it goes down, when it gets more, less trust in the process. I think bitcoin will survive longer than MicroStrategy will. And so for me that's where I kind of drop off. And then unfortunately they also added MicroStrategy to the NASDAQ 100 as well. Again, I'm going to call that silly, but at least. Okay, fine. So the QQQ, the NASDAQ is down 5% in the past week at least if you want to participate that way. If you own NASDAQ index funds. I do. Participation index will at least protect you from some of the damage in the event of a meltdown. And look, I'm going to give you this one because I always try to work it in. Canadians at least have an understanding of what can go wrong when an index blows up because we had nortel which was 1/3 of our index and it to zero. Thankfully micro strategy is nowhere near 1/3 of the NASDAQ index. So if it were to go to zero, not saying it's going to, but you know, again things can happen. It should at least minimize the damage to there. But there's a lot of other high growth stocks that are, you know, frankly getting chopped down.
