🔎From Bootstrapping to Bitcoin Yield to Popularity Yield
How the pumpers of the 2020s are learning from the pumpers of the 1960s. It looks different in every era. But in the end it's always the same.
TLDR Summary
If I ask you to name the worst decade for the US stock market after World War II, you’d probably tell me it’s the 2000s. After all, there were two monster crashes, in each of which the S&P 500 fell more than 50%, and it took a good 12 years for the index to surpass the 2000 top for good.
There are good reasons though to consider the 1970s equally bad or even worse. It took the S&P 500 14 years to surpass its 1968 top for good. An when it finally did in 1982, it was still 60% (!) below 1968 in real terms because inflation was brutal during that period. To recapture their loss of purchasing power, investors had to wait another 12 years until 1994. That’s when the country’s major stock market index had finally caught up with its consumer price index. Zero real price performance for 26 years. Feels unimaginable today, doesn’t it?
Fundamentals didn’t justify such a poor performance, at least not for so long. S&P 500 earnings tripled between 1968 and 1982 (+8% annually). Similar growth was observed in the decades before and after. The problem was the stock market had gotten ahead of itself on valuation. A massive multiple contraction killed the returns for investors.
Just like today, the bull market of the 1960s had its must-own darlings. Companies that were sporting much higher P/E ratios than the rest of the stock market. As the bull market matured, these popular companies started squeezing returns through shrewd financial engineering. Their favorite method was bootstrapping, which artificially generated EPS growth and allowed for value creation from thin air. Bootstrappers exploited the preferences of investors who considered assets more valuable in their hands than in the hands of others.
Michael Saylor started using the exact same principle when he transformed MicroStrategy into a Bitcoin Treasury company in 2020. He created the famous Bitcoin Yield. As long as MicroStrategy’s mNAV was greater than one, it could create value by simply buying more coins. Bitcoin was worth more in the hands of Michael Saylor than in the hands of anyone else. The value proposition of a Bitcoin Treasury company.
Now, Elon Musk is taking this to another level by tying asset values to his personal brand. You can’t come to a fundamentally driven valuation conclusion on SpaceX. Either you believe in Elon’s godlike ability to create shareholder value or you believe he is a con. Whatever your opinion on Elon is also your opinion on SpaceX. Right now, the consensus opinion on his entrepreneurial abilities is sheer infinite. He uses that to raise ungodly amounts of capital to buy less ambitiously valued assets, knowing that their values will simply rise from being blessed with getting Elon glitter sprinkled on top.
