The Investing Cult Fueling MicroStrategy's Ascent: 'Have Fun Staying Poor' -- WSJ

Dow Jones12-22 18:30

By Gunjan Banerji, Rachel Louise Ensign and Jasmine Li

Aiden Perez remixed a house music track with audio from an interview with MicroStrategy co-founder Michael Saylor after the stock began its furious ascent last month.

"People that use fiat currency...we call them poor," Saylor repeats on the track.

Perez, a 24-year-old software developer in Southern California, is an ardent believer in bitcoin who has dabbled in shares of MicroStrategy, the unprofitable tech company that Saylor morphed into a bitcoin-buying machine.

MicroStrategy's fans hold a feverish allegiance to the company that transcends the attention everyday investors pay to humdrum investments in their portfolios. Some spend their days trading memes of Saylor in groups like "Irresponsibly Long $MSTR" on X or listening to fellow traders chat about the stock on podcasts and YouTube streams.

MicroStrategy is no ordinary trade. The stock is a leveraged play on bitcoin -- the company ditched its original business model to borrow billions and buy bitcoin. Shares have more than quintupled this year, including a 60% advance since Election Day. The rally has pushed its market value to $89 billion, more than twice the value of the bitcoin it holds.

The dollar value of MicroStrategy shares changing hands at one point in November topped every other U.S. stock and exchange-traded fund, except Nvidia. Trading in bullish options tied to the stock has exploded, and the shares are set to join the Nasdaq-100 on Monday.

Perez sent the track he remixed around to his colleagues, all fellow fans of MicroStrategy. The day after he posted it to SoundCloud, where it has more than 200 plays, the stock gained 25%. He and his colleagues obsessively checked the share price throughout the day.

"Some people couldn't focus on their work," said Perez, who puts a large chunk of each paycheck into bitcoin. He recently sold 20 shares of MicroStrategy and used the proceeds to buy more bitcoin. "If you sell, you're an investor. If you don't, you're in the cult," he said.

Critics say MicroStrategy's run-up is emblematic of a market mania that is bound to end poorly.

Saylor and MicroStrategy suffered bruising losses in 2022 when bitcoin plunged in the wake of the collapse of crypto exchange FTX. Even bitcoin bulls like Andrew Left, a prominent short seller, and Mike Novogratz, the billionaire CEO of crypto-trading firm Galaxy Digital, have expressed unease about the risks investors face by betting on MicroStrategy.

For now, Saylor's bold bet has padded the wallets of many everyday investors who are confident in his ability to take the bitcoin whale to even greater heights.

"He's the bitcoin Bruce Wayne," said Clayton Lunce, 44, who says he recently left his job after a run in MicroStrategy shares and bitcoin boosted his portfolio. "He doesn't just speak for the rich, he speaks to the guy like me."

Saylor has embraced that persona. He posted a photo of himself in a gladiator costume on X in October. More recently, he spoke of " the perils of diversification," eschewing traditional investment advice to spread bets among different asset classes to minimize risk and losses.

Saylor belongs to a new class of market influencers who have been on the rise since at least 2020, helping transform the fortunes of companies big and small, while turning the traditional rules of investing upside down.

Tesla's base helped catapult the electric-vehicle maker's valuation above $1 trillion, defying the bearish predictions of money managers. Many of the company's rabid fans follow its leader, Elon Musk, into other investments including SpaceX and dogecoin while clamoring for him to receive monster pay packages.

Palantir Technologies' avid fans call Alex Karp, its eccentric leader, "Daddy Karp." Followers refer to themselves as Palantarians. Shares have more than quadrupled this year.

A tumultuous stretch for the economy -- and markets -- after the Covid-19 pandemic swept the country may have contributed to the rise of the new kings of Wall Street.

"During times of uncertainty, you see the popularity of cults," said Peter Atwater, a lecturer at William and Mary, a university in Williamsburg, Va. "Figures who demonstrate a sense of absolute clear control and direction that people just naturally fall behind."

Social media is a fixture of these investing groups, which have mushroomed into a hub of nearly nonstop chatter. In MSTR Den, a chat room on the gaming platform Discord, more than 4,000 members chat about MicroStrategy.

Lunce is one of about 23,000 members in the "Irresponsibly Long $MSTR" group on X.

"I've been told you find your tribe there," he said. "I can't talk about MicroStrategy to anybody. I can't talk about bitcoin without anyone saying it's a Ponzi."

Members of the online community often mock "1x mNAV bears." The term refers to people who think MicroStrategy should be trading at its net asset value, or the value of its bitcoin holdings. Some members direct the acronym HFSP -- short for "have fun staying poor" -- toward MicroStrategy skeptics.

Jeff Walton and Ryan McGinnis host a podcast called Quant Bros. In recorded Zoom calls, the "bros" lay out their thesis for investing in MicroStrategy while screen-sharing color-coded spreadsheets.

In a recent episode celebrating MicroStrategy's Nasdaq-100 entry, Walton opens by pouring himself a glass of Bruichladdich Octomore Scotch that retails for almost $300 a bottle and responding to a livestream of commenters.

McGinnis quit his job as a data scientist in June 2023 to manage his personal portfolio, which consists mostly of MicroStrategy shares. He says he has made great friends, including his co-host Walton, through the investment.

"I would like to draw a humble comparison between Warren Buffett and Charlie Munger and myself and Jeff," McGinnis said.

Some professional money managers have criticized the mammoth shift in markets that has led to pockets of extreme speculation.

Cliff Asness, the billionaire co-founder of AQR Capital Management, lambasted the increasingly powerful herd mentality among many investors in a 24-page academic paper in November. He said markets have grown less efficient than they have been in the past, placing much of the blame on social media.

"Has there ever been a better vehicle for turning a wise, independent crowd into a coordinated clueless, even dangerous, mob than social media?" Asness wrote.

Write to Gunjan Banerji at gunjan.banerji@wsj.com, Rachel Louise Ensign at Rachel.Ensign@wsj.com and Jasmine Li at jasmine.li@wsj.com

 

(END) Dow Jones Newswires

December 22, 2024 05:30 ET (10:30 GMT)

Copyright (c) 2024 Dow Jones & Company, Inc.

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