The 24 Risks of Equities with Michael Saylor

foreign

[Music]

welcome back to the Bitcoin layer I'm

Nick Bhatia and today we bring back

Michael Saylor Michael thank you so much

for joining us again

yeah awesome to be here Nick

so Michael we brought you back to talk

about the stock market versus Bitcoin

last time you gave us an amazing set of

metaphors to compare Bitcoin and

Commercial Real Estate the advantages

that Bitcoin has over this other type of

store of value commercial real estate

today we want to talk about the stock

market so many people equate Bitcoin

with the stock market because they both

are trading as risk assets in the

markets today but we know that that's

only one aspect of this relationship so

today I wanted to start by asking you

about the potential comparison of

Bitcoin to stocks what are the benefits

of owning stocks before we get into

Bitcoin why do people own equity

well um

I think there's two questions there like

how does Bitcoin compare to stocks and

then uh why do people own Equity uh why

don't I start with the first question uh

what's the difference between uh Bitcoin

and owning a stock

um I I think that um first of all

Bitcoin is a commodity that is uh scarce

where the primary use case is money or

that is a long-term store of value

so the reason you want to hold Bitcoin

is is you want to own a product on an

open network for a long period of time

and its use case is to be money and so

the you know the value and use is store

of value

now um when you're holding a stock

you're holding a share of equity in a

company in essence you're you're owning

a corporation is property

um if your goal is to own that as a

store of value over a long period of

time then of course that is competitive

uh to bitcoin financially speaking some

people own companies for other purposes

um and we could talk about those but but

I think it's instructive for an investor

that's thinking about whether they want

to allocate to bitcoin or whether they

want to allocate

to equity

to consider the difference

so I think the place you got to start is

if you are a company you're an economic

creature

and everything in the economy everything

in the world wants to kill you and you

need you need to have that understanding

whereas Bitcoin is like a like a

monetary virus or an energy virus

a corporation is a creature and so if

you want to understand the risks that

corporations face

it's instructive just to start by

reading the 10K it's a publicly traded

companies

so I would say a very practical

education would be to purchase to get to

10ks of 10 or 100 different companies

and just start to read all the risk

factors

because these are actually pretty well

written uh corporations spend a huge

amount of money on lawyers and the

lawyers are Highly Educated extremely

thoughtful extremely articulate

um and very risk adverse and they will

write pages and pages and pages of risk

factors

this is the answer to the Investor's

question if I invest a dollar in this

company what could go wrong

and they give you they give you an

answer and I have um

I have they really give you a parade of

horribles

I've spent many many years of my life

since 1998 I've been a public company

officer so I've been studying a public

company prospectuses and and general

business risk probably since two years

before we came public

so that goes back away

[Music]

um

and uh if I were to catalog them into a

variety of classifications I would start

here I would say the first risk of any

investor in inequity is governance risk

your uh you're risking your money based

upon proper corporate governance

exercise by the board of directors and

by the management team so the officers

and the directors

if um if the board is uh is bad or goes

bad or if the directors go bad they can

embezzle funds from the company they can

they can drive the company off a cliff

they can create a civil war within the

company

um if they can't work out their issues

with each other

or if they can't navigate all of the all

of the challenges that uh approach the

company in the future then the entire

thing breaks down so uh so governance

risk is a challenge and and governance

risk illustrates the the general

underlying challenge of corporations in

general which is the people are the weak

link corporations rely upon human beings

and Human Action is ultimately the

source of most of the liabilities in

companies and what you find is the More

Human Action uh that is required to run

the operation the more risk there is and

many of the greatest corporations and

the most successful equities are the

ones that manage to execute on a

business strategy with the least amount

of human behavior if if the business is

so simple that it doesn't need people

and and there are no decisions to be

made and it runs on autopilot those are

generally good businesses and the more

people involved and the more decisions

need to be made the more risky it is

so you know the first risk factor is is

governance risk the second risk factor

is operational risk every business has

to do something whether it's serve food

or manufacture catch up or ship products

from point A to point B or fly airplanes

or run a factory

the fact that it does something is

operational and if you don't if you

don't operate the restaurant or the

steel Refinery or the aircraft properly

then the shareholders suffer and it

takes normally great degrees of talent

sometimes courage uh sometimes

commitment

in order to and or to operate uh that

business

um and uh and in the event of um

of uh strange volatilities in the

environment the operation gets harder

but operation is never easy if you've

ever been if you've ever been in a steel

Refinery or an oil an oil uh drill rig

uh you would know or if you ever tried

to fly an airplane yourself even under

the best of circumstance it's not easy

to operate

so that's the second risk the third risk

is strategic risk uh in my experience

most uh most of the software companies

that we competed against they failed

because the board and the CEO made a bad

acquisition so the company will decide

strategically need to enter a new

business we're threatened by something

and they will change the operation and

maybe the strategy is I'm going to

acquire another company so I pay 10

billion dollars for a company that's

really only worth one billion dollars uh

and I blow up nine billion dollars of

shareholder capital in one deal that's a

just a strategic faux pas the operation

can be fine but in in one decision the

board and the CEO destroy billions and

tens of billions of dollars to

shareholder capital and oftentimes when

you make those dilutive Acquisitions

where you buy something which just blows

up in your face then it's hard to

recover from that

um

99 of mid-size software companies fail

go out of business because of dilutive

Acquisitions in my career every single

one of my competitors went out of

business because it did a string of

dilutive Acquisitions which were

ill-advised where they bought that they

were a weak company and they bought

other weak and dying companies in an

effort to Stave off their own corporate

demise and they just accelerated their

own corporate demise why they undermined

their product

even strong companies make these

mistakes like Microsoft bought portions

of Nokia and took multi-billion dollar

write-offs sap took a 10 billion dollar

write-off

um

it's uh it's always happening uh in one

shape or former another

that's the third risk the fourth risk is

Financial Risk a company has a lot of

money moving around they have to put it

in Banks

um

in in my career at microstrategy we had

money in a Brazilian bank the bank was

embezzled by the CEO we lost the money

we had money in uh in an Argentine Bank

uh the Argentine government Froze all

the assets devalued them we lost the

money

um if you actually trust your money to a

counterparty and they steal it from you

you're in trouble so so uh there's

credit risk there's counterparty risk

there's banking risk you always have it

everywhere and if you trust the wrong

Financial counterparty they'll bankrupt

you and uh we just saw in the crypto

industry we saw lots of companies go out

of business in some cases because they

trusted another counterparty or they had

their assets in another bank

um the fifth risk is competitive risk

maybe I'm the best in the world at

something like I produce Nokia was the

greatest mobile phone company and they

got wiped out

uh somebody else produces a product

quick that's better than mine that's

cheaper than mine

uh they might be an in-kind competitor

I'm a restaurant someone else has a

better restaurant they wipe me out uh

I've manufacture steel someone

manufacture steel cheaper they wipe me

out I'm an airline someone else has

cheaper flights they wipe me out

um you cannot avoid uh competitive risk

over the long term

but there's another kind of risk which

is like not in kind competition but I'll

call it technology risk I'm the world's

leading manufacturer of um of horse

horse buggies and then Henry Ford comes

along with Carr and nobody wants horse

buggies anymore or I'm a horse breeder

or I'm a buggy wet manufacturer or I I

produce electric light bulbs that are

incandescent and then people want

fluorescent and then they and then I

have fluorescent light bulbs and they

want LED light bulbs and so over time

new types of technology I I'm the

world's leader in typewriters and the

people on mainframes or or computers or

word processors and I'm Wang and I'm the

leader in word processors and I got

wiped out by the PC

so there are always technology cycles

and and here is a it's a it's a cruel

risk because

um the world is full of examples of

companies that got wiped out by a better

technology

Xerox you know Kodak

but the world is also full of companies

that got wiped out because they saw the

new technology coming and so they made

an acquisition or they invested obscene

amounts of money to compete and they

still

failed even though they thought they

were going to compete and so this

technology risk drives that strategic

risk element up people justify bad

strategies based upon technology threats

so ultimately and of course the reason

that they make the 10 billion dollar

strategic mistake is they thought they

were fending off the like

Time Warner decided to merge with AOL

and one of the most catastrophically you

know failed mergers in history because

Time Warner said yeah you know we need

to get into like video streaming and the

internet and the internet represents a

risk to the media business so the

solution was to buy AOL for 150 billion

dollars now AOL said oh we're at risk

from you know Google and and the like

and so we have to sell ourselves so you

have one uh one frightened struggling

company merging with another frightened

struggling company and the result when

it does settled was something like 150

billion to 200 billion dollars of

shareholder Capital got wiped out

but they and and was that a governance

failure or was that a strategic failure

or was that a technology failure all

those risk factors drove people to like

it light a hundred billion dollars on

fire

they all thought they're doing the right

thing but of course this is Human Action

the fact the risk factor is there's

someone that has the ability to issue a

hundred and fifty billion dollars worth

of stock

in order to solve a problem as We Know

by looking at the world oftentimes when

you have someone with enough power uh to

make 150 billion dollar decision it's

coin flip they might make the right one

but they might make 150 billion dollar

mistake

and you know the difference between that

and Bitcoin is in Bitcoin nobody has the

power to issue 150 billion dollars of

new Bitcoin if they did then you have a

hundred reasons why we ought to do it

every month that some yeah someone comes

up with it people are very creative at

coming up with reasons to do things and

they have an interest in it so so uh

people basically become uh you know you

could call them hypochondriacs they

imagine that the world will end if they

don't save the whale save the seal stop

the carbon stop nuclear power if we

don't get to the moon if we don't get to

Mars if we don't not get there if we

don't start the war if we don't stop the

war if we don't

change everybody stop nylon if we don't

stop oil drilling in the Gulf of Mexico

everybody imagines things if we stand

too close together if we don't close the

schools if we let people get on

airplanes without getting scanned in

metal detectors if we don't if we don't

if we don't there's always a risk and

every risk justifies a hundred billion

dollar or a trillion dollar decision and

generally they're all mistakes

but if you can make the decision then

you probably make the mistake

so technology risk is uh you know is

facing your firm over a hundred years

you're going to find whatever you're

producing

gets attacked right if you know what

lasted 100 years John D rockefeller's

oil companies they produced a barrel of

oil what was the threat well it's

threatened by electricity electric cars

did it work well first it tried then you

know we had electric cars in 1920 but

they failed but then 100 years later

they didn't fail uh nuclear power was a

threat natural gases threat liquid

liquefied natural gas is a threat you

know oil from another country is a

threat everything's a threat you know

maybe we shut down nuclear power plants

it's not a threat you know maybe coal is

a threat maybe maybe we won't need as

much energy anymore solar is a threat

maybe wind is a threat maybe Hydro is a

threat everything is a threat or it

isn't a threat right and you have to

live through 100 Years of that and that

means you got to have a board of

directors deciding whether to spend all

the shareholders money to fight threat

and of course A lot of times the answer

is I have to have the resolve to not

react to the threat because 9 out of 10

or 99 out of 100 of the threats don't

form but then occasionally the threat

does form

so then you got seven political risk

and uh political risk can come from the

mayor of your town the mayor decides

that um that they don't want to have

your kind of business within City Limits

and so they Zone it out actually it can

start at the neighborhood zoning board

they can Zone you out then the neighbor

and then the mayor can Zone you out then

the governor can change the regulations

like right now New York State you know

is suing paxos over their stable coin

okay that's a New York action it's not

even a federal action so the state can

take action against you or an or your

own country where your domicile can take

action against you uh or a foreign

country another nation state can take

action against you Banning you from

their business or their citizens so you

never know where those political risk

will come from but political risks work

because a corporation has Nexus and it

has uh has legal standing which means uh

which means there's a CEO

that's going to actually have to fly

around the world so you know you think

that you're immune but say you operate

on

an online poker site

and then uh you are domiciled in Monaco

or you live in uh UAE well so the CEO of

the online poker site you know is flying

from Monaco to the Bahamas on vacation

and the airplane stops in DC to change

planes and that he gets arrested in DC

because he's crossing the U.S

jurisdiction and he gets arrested

because he's a person moving through you

know United States airspace and while it

might be legal to operate poker sites in

cyberspace or outside the U.S it's not

legal in the U.S and so

there you have political risk right and

and it happens

um companies have uh

um have a locational Nexus and so that

takes us the risk factor eight uh

facilities risk if you have a place

right uh if you have a factory if you

have a restaurant if you have um if you

have a ship and it's in a place in the

world then you have a risk to it uh and

the risk is you you have to cross into

some geopolitical jurisdiction where it

may be either illegal to do that or it

may be regulated like you can do that

but you have to collect a huge amount of

information on your customers and since

you don't have that information then

then that's illegal or uh you have a

boat and it has 10 bottles of wine on it

but you didn't pay customs duties on the

bottom bottle of wine and you move

through our you know 12 miles offshore

and now that's illegal you just became

an illegal cargo Smuggler because you

didn't get these stamps on that crate

and so the facilities risk is you know

in our industry we saw it with the

Crackdown of Bitcoin miners in China you

have a minor in China the Chinese

government decides they don't want you

to mine Bitcoin in China okay there's

your facilities risk hard to move the

facilities so corporations oftentimes

have facilities of one sort of the other

um

the um

if you if you if you bottle ketchup or

if you bottle uh carbonated beverage and

if you want have one Factory then your

facilities risk is very calm it's very

concentrated so when the state or the

city or the nation shuts you down you've

lost everything

the way that Bitcoin for example

mitigates this is that Bitcoin is

decentralized so in fact Bitcoin has

thousands of facilities

in 100 jurisdictions and you could shut

down all of them in any jurisdiction and

it would have zero effect on the value

and the efficacy of the asset itself in

fact you could shut down 99 of the

facilities in 99 of the jurisdictions

and Bitcoin is just as valuable as it

was Bitcoin with three extra hash of

hash rate is still the most secure

crypto asset in the world and so

Bitcoin is an example where you can

diminish the facility by 99 but it

doesn't diminish the value proposition

but now imagine shutting down 99 of the

Four Seasons uh hotels or 99 of the

Coca-Cola refineries or 99 of the

anything steel refineries well you know

you've got one percent of your steel

left and one percent of your

manufacturing left means the equity has

no value

so so

um the facilities risk is

is tangible for a corporation that

produces things

but it really isn't tangible for

something like Bitcoin because it's so

anti-fragile and decentralized

not effective now we take uh number nine

on my Hit Parade is regulatory risk uh

and here this refers to the fact that

the Regulators can create rules for what

you do and they can change the rules

like for example is it legal for me to

sell a box of cereal

okay is it legal for me to operate a

clinic that gives blood transfusions or

gives you physicals

well the truth is uh it's all subject to

regulation it would be illegal for you

to have a nurse license in West Virginia

working in a clinic in Virginia

unless I changed you know line item on

page 147. now the problem is there are

millions of pages of regulations so

there are millions of pages of

regulations they're changing via every

County city state country and cross

domicile and for every use case all the

time and it's hard to comply with them

it's even harder to know you're

complying with them and even if you

thought you were complying with them

it's always possible for one of your

disgruntled employees or competitors to

arrange for it to look like you're not

complying with them and uh and and you

know so this becomes a challenge

challenge like for example

I operate a bar you operate a bar I

don't like you and so I just arranged

for a bunch of underage people to come

into your bar and order a drink and then

I call you know the Bureau of Alcohol

Tobacco enforcement and I have them hang

out at your bar and they notice that

you're breaking a rule

okay it's like just like you know drug

cartels notoriously when they call and

they you know and they give hints to you

know to law enforcement they're ratting

out their competitor

so actually what you end up in a

regulatory environment is is one

competitor wraps out another competitor

and that's part of regulatory risk and

uh and then maybe I just you know lean

on a little bit to actually cause you to

break the rule what if I even you know

plant an employee you know in your

facility you know to cut Corners right

nobody ever nobody ever shuts down a

billion dollar Factory for breaking a

rule and says oh it was this employee

that did it right the corporation is

liable for the behavior of a hundred

thousand employees

um so uh regulations are hard

um 10. and that takes me to employee

risk right you have a lot of employees

right employees have foibles maybe the

employee you know shows up to work drunk

you know or or uh or maybe they show up

high and then they say something they

shouldn't have said okay I get in an

elevator I'm drunk and I'm I'm high and

I'm your employee okay and now you're

liable so you you have examples where

there's like the billion dollar Tesla

lawsuit where Tesla is getting sued

because of something one of their

employees said in an elevator to some

other employee and so you run a company

actually when you're a shareholder and

the company has a million employees you

could say this is great I have a million

employees working for me but if you

thought about it you realize this is uh

this is interesting I have a million

employees and I am I am legally liable

civilly liable or criminally liable for

everything and anything any of them

might do at any time

one of your employees in a foreign

jurisdiction can break the foreign

Practices Act

and then you as a shareholder are

civilly liable you might not be

criminally liable but you're actually

going to lose all your money

right when they get shut down because

someone that worked for the company did

something inappropriate

so

uh important

I have I had employees so you know the

employees want to go on a business trip

uh the company pays for them to rent a

car so they take the car out and they go

out you know drinking and then they

drive the car into a wall and they wreck

the rental car you're liable

the company is liable right it's company

rental car there are company employees

they're in a company business trip

so whatever your employees do right and

the pursuit of company business you're

you're uh almost always civilly liable

and yeah you're always you're

financially liable when they wreck the

car you're civilly liable if they hit a

station wagon with a family in it and

the family you know suffers and then

they sue you and you might be somewhat

criminally liable if they actually you

know attempt to influence a foreign

official or they break some kind of

bright line that is has criminal

liability uh which bubbles up to the

company

so um more employees more risk if you

had a company without employees that

would be better right because if there

are no employees they for example in

Bitcoin since there is no employee of

Bitcoin there's no one to take the the

company rental car and drive it off a

cliff or or take an innocent civilian

you know uh in the car and drive it off

cliff

so uh having no facilities and having

you know technically if you own Bitcoin

you don't own any facilities you don't

have any employees there is no board of

directors right

so and uh and and ironically

the technology risk isn't really that

much of a risk because the the product

of Bitcoin is to serve as Global money

forever so if what you wanted to hold

was 121 millionth of all the economic

energy in the human race for the next

million years

that idea is not going to change for a

million years I'm still wanting to hold

121 millionth of all the energy in the

human race for a forever

whereas the the ID behind the iPhone

changes every year and the idea behind

you know it was Coca-Cola then it was

Diet Coke then it was new coked and it's

Coke Zero then it's Coke Cherry Vanilla

Coke then it's you know Coke cream show

to Coke then it's you know whatever coat

they keep changing the idea right and

and uh that's the difference between

having a complicated product or service

idea and just having a monetary idea

um you know after employees uh we've got

vendor risk

you know the classic the classic chart

is you know Michael Porter had this

chart it's like well you've got your

customer risk you've got your competitor

risk you've got you're not in not in

kind competitor risk and you got your

vendor risk you know and he articulated

those four competitive forces now the

truth is the four was the four

politically correct forces there's a lot

more forces that are that are diluting

the shareholders in those four but

clearly one of them is vendors I run a

Bitcoin mining rig and then my

electricity provider doubles the cost of

electricity oops

you know I run a restaurant and then my

potato you know provider doubles the

cost of potatoes

I run a steel Refinery and ore doubles

in price you know I use electricity or I

use oil and the cost of oil doubled you

know in my plastic

so

generally

um when you look at companies

in terms of who's senior in the capital

structure

you know the way you think of it is

common stock Equity holders are junior

they take the first losses then the

preferred Equity holders are senior to

them because they keep their value after

the common stock loses all its value

then the uh then the the junior

creditors that hold Junior unsecured

debt are kind of senior to the preferred

shareholders and then the and then the

um you know sometimes secured creditors

or senior creditors or senior to them

and then there are certain asset-backed

lenders that they have the ability to

claim their assets back in the event of

default and and the assets might have

some value so they're a little bit

senior

and then um then you get down to like

um you know more senior in the capital

structure would be like landlords if

they have the ability to evict you from

your facility

that's good but really senior to them

are the are the utility vendors the

person the company that provides you

with your telephone service your

electricity

if you're like a Wall Street broker and

the phone company can turn off your

phone

that's senior to the real estate

landlord and it's definitely senior to

all the creditors and all the equity

holders because you know the phone

company can turn your business off in

five minutes no recourse or no recourse

at all right you're just out of business

and the power company can shut off your

power

and they shut down all your computer

servers and you're just out of business

immediately so electricity and

Telecommunications are are much senior

to everything else and then of course

if you manufacture tires and you need

petrochemicals you know you need rubber

right or if you manage if you're running

a restaurant and you need food when when

the vendor of your food or your raw

materials Cuts you off you're just

completely utterly out of business right

so they can renegotiate those contracts

whenever they want at will and if you

got in a fight if you say oh I have a

10-year contract for my

telecommunications and the contract says

you're not allowed to turn off my

telephone

well um if the telephone company is

Monopoly and they say well just sue us

and they turn you off anyway you're not

going to last 10 years in court your

business goes to zero you have no money

to pay your lawyers you're not gonna be

able to sue them it's kind of like I I

sell you your oxygen

okay so when I sell you your oxygen and

I jack the price by a factor of a

hundred and you refuse to pay it well

you've got about 180 seconds before your

legal appeal runs out so so vendor risk

is tangible and very sophisticated

companies they always think first of all

I need these Ironclad contracts but but

there's only there's always a question

of is the contract durable and

enforceable and will I be dead as a

going concern before the contract you

know is enforced

and if you're going to be dead like for

example if apple is going to cut you off

from the eye store and you you're

running a mobile app and and without the

mobile app being downloadable you'll be

dead in 12 months or 24 months right you

can't afford a five-year litigation with

Apple so so ultimately

the only way to protect yourself in that

case is you have to find three or four

competing vendors and you need to be

able to switch between them uh quickly

now that's I mean that's well and fine

in theory right like I need three

vendors of natural gas but there's only

one pipeline that runs to my facility or

I need three vendors of crude oil or any

three vendors of of electricity but

there's only one or two vendors of

electricity in the city

okay so what happens when there's only

Apple and Google and I want three but

there's only two and they actually have

the same terms well

now I just have an impossible to manage

risk

and that's why say Bitcoin is superior

uh to a company with vendor risk because

because uh Bitcoin actually has lots of

ways to mitigate that risk

um

if you're and you always have to be

considering that right that's why you

would want to have a hundred different

jurisdictions where you can mine Bitcoin

and as long as a Bitcoin miner can run

for five to ten years you know it'll be

five to ten years after your vendor Cuts

you off before you have a problem and in

seven years right not now you go to a

different Bitcoin Hardware manufacturer

if every Bitcoin Hardware manufacturer

goes bad on you you have seven years to

figure out how to engineer your own

semiconductors before you have to think

about the theoretical dwindling of the

hashery

right so how much time do you have to

deal with the vendor breakdown right

um boy your electricity company cut you

off or double the price of course they

will so that's a problem if your

business is creating hash rate

but if your business is holding Bitcoin

it's not a problem because even though

the electricity company may actually

squeeze the Bitcoin miner

all that means is you can Bank you can

bankrupt the Bitcoin miner and then the

electricity company takes over all the

Bitcoin mining Rigs and they operate the

Bitcoin miners as a benefit to bitcoin

holders you see ultimately you know I

could you know I could be uh the Chinese

government and I bankrupt uh 50 exahash

worth of hash rate eventually the

Chinese government will realize they

should just take those Rigs and operate

them themselves because they want the

money but if they don't then uh the hash

the hash power moves to Kazakhstan or

some other part of the world where it

gets operated by another company and if

the if the power company bankrupts that

company then eventually a Kazakh power

company owns it and if they don't want

to operate it well they could just burn

it but if it's worth something why

wouldn't they sell it to some other

Power Company in some other part of the

world that has free Power

so so the vendor risk that exists when

you manufacture a product

that is not money that is not

decentralized it doesn't exist the same

way for Bitcoin

so that takes you to customer risk right

that's a risk factor number 12.

um

customer risk well maybe your customers

stop buying your Coca-Cola or maybe they

stop vaping or buying your cigarettes or

maybe they stop buying the best example

would be you know the customers don't

want to buy a-track cassettes or

eight-track tapes you know or they don't

want to buy DVDs anymore or they don't

want to buy you know horse and Buggies

anymore or buy planes or you know

whatever whatever you thought was a good

business they don't want to buy it

anymore

um

the other risk uh that's sort of

technical risk but I guess the other

part of customer risk which uh you know

classical competitive theorists would

refer to is the risk that your customer

gets too powerful

so maybe I'm in the middle of the market

and I'm a wholesale food dealer and

there's one company which becomes 40

percent of all of my business

right um or um maybe I'm Qualcomm and I

sell

um smartphone chips and Apple

becomes uh 50 of my revenues and then

what happens is my customer starts to

squeeze me they ratchet they ratchet

down the price like since I'm half of

your business I want a deep discount

Walmart used to be that when Walmart

gets to be such a large portion of of

your business they squeeze your prices

down until you're shipping to Walmart at

cost

or below cost

there are a lot of companies that would

actually sell their product at a loss to

the mega retailer in order to build

their brand so they could make money in

another part of the marketplace and uh

and so you can end up with that

situation it's like we don't make any

money off of off of

um the product we sell through uh the

monster distribution Channel like the

Apple channel the Walmart Channel but we

do it because we want to stay in

business

so when your customer is a distributor

they get too powerful they may squeeze

your margins to zero the other problem

is uh you know Amazon's my customer and

they look at what I'm selling maybe I'm

selling batteries through Amazon and

they decide to White Label the batteries

now you've got Amazon batteries well

you've got Amazon t-shirts or you've got

Amazon branded

um you know extension cords

all right Amazon light bulbs and or

Walmart you know all of these big

players Target Walmart Amazon eventually

they do this thing where uh Sears

Roebuck they would create their own

variety of product

because they actually see it's a big

business and they call it control

distribution apple and Microsoft and

Google do the same thing where you know

you have a successful product Spotify

and eventually you get Amazon music and

you get apple music and you know you get

Google YouTube music because the idea of

streaming music was deemed to be a good

thing and so that gets harder because

they brand it but then they build it

into the operating system and now it's

built into the iPhone and built into the

iOS so so your customers eventually end

up squeezing you one way or the other if

they're also corporate entities and

um

if they're just um maybe they're

government providers maybe they're a

government customer so the government's

buying your product maybe at some point

um if they're a friendly government then

they basically pay you a lot of money

and that's good right the company has to

support the politicians who then support

the company and then it becomes very

lucrative like military industrial

complex

um or iron triangle where the government

supports the vendor that's the good case

the bad case is it's a hostile

government and they're a big customer so

they drive the prices to zero or they

pass a law saying you have to sell to

them at cost and they strip your patents

from you so so uh customer risk is

always there

um that takes us to risk 13 right risk

13 is reputational risk

um you have uh you have a CEO okay the

CEO is a brilliant CEO but it turns out

in college the CEO you know wrote a

thesis on why it was cool to smoke weed

okay and today the CEO is you know maybe

running a ketchup Factory in a state

where the governor doesn't like smoking

weed and so the CEO becomes a Target so

the board of directors is great but

somebody on the board of directors goes

to a bad divorce and in the divorce a

lot of embarrassing facts come out and

that becomes embarrassing for the

company because it turns out that the

the director that has the bad divorce

approved the Compensation Plan of the

CEO and now there's a question of

whether they were compromised so so as

long as there are people that govern the

company the people have a history maybe

maybe one of the officers or directors

of the company campaigns for the

opposition party or or the leading party

in their their uh politically

embarrassing

so the reputation of the company

can be impaired through some activity

you know the head of your business in a

country in South America got in a

scandal and that rubbed off on you

uh so maybe that happens maybe uh maybe

a director officer has a reputation

maybe any employee that's famous

um

the Kanye West episode with Adidas where

you're a spokesperson that's selling a

billion dollars worth of your tennis

shoes gets in an unrelated Scandal

having nothing to do with tennis shoes

but ultimately Adidas loses money the

Adidas shareholders lose money right

that's just an example of reputational

risk it's unavoidable

um

risk 14 would be War risk

okay maybe you get in a war maybe uh

maybe you manufacture in a war zone like

you manufacture in the Ukraine or maybe

you sell into a country which gets into

a war or uh maybe you have to ship your

products through the Black Sea while

there is a war

and uh and during the war right if

you're lucky maybe you're uh you're uh a

war provider and you get rich off the

war but maybe

you know we know the story of say Dupont

Corporation sells explosives during a

war and they get big but how about all

the companies that sell you know how

about recreational cruises in the

Atlantic during World War One

it didn't help them right so you know

everyone that operated a luxury hotel in

the south of France during World War One

and World War II didn't help them so the

war can destroy your business with no

sympathy

you know famous example in the south of

France than one of the most beautiful

hotels in the south of France you know a

guy slaved his entire life uh to create

his own hotel he always dreamed about it

and he built might have been the Hotel

Majestic but I don't remember exactly

but he built the greatest hotel in the

south of France he borrowed up to the

hilt to do it uh it was the jewel you

know of the French Riviera and he

brought it online in the late days of

like 1913 1914. the war breaks out the

entire tourism business gets shut down

and the government seizes the hotel and

turns it into a military Hospital

and for the next four years right it

uses a hospital you can imagine pretty

much half of all the capital will be

destroyed if you turned a luxury hotel

in a hospital you know it gets returned

uh to the shareholders after the war but

of course they've been bankrupt

uh the guy that started was bankrupt he

died destitute that was that oops

you know it's kind of it's just it's a

tragic story but for so many different

reasons but War has a you know and No

One's Gonna actually

no one's going to grieve for the guy

right because it's like you know who are

you you wanted to run a luxury hotel and

we had greater more important things on

our hands people feel sorry about

someone that died in the war rightly so

but but every business that got

economically wiped out in a war is just

collateral damage

and that you know accounts for a lot

like like maybe 98 of the businesses in

Europe you know during World War II

wiped out

uh you know so then we go to 15 our

favorite uh

your operator Corporation you're an

equity holder you have currency risk

can't avoid it right

um

in South America you have uh exposure

currency is the lifeblood of the

corporation you can't do business

without trading in the currency it's the

medium of exchange and so every currency

in South America collapses every 20 to

30 years

and every currency in Africa is

continually uh lapsing right like the

CFA is lapsing at 20 30 40 percent a

year so whatever currency is the native

currency in the in the market where you

operate is a drain on the equity of the

shareholders my company uh my company

has the leading business intelligence

company in Argentina for the past 25

years

but the Argentine currency the peso has

been losing value at 20 30 40 percent a

year just lapsing value from from one

peso to the dollar to 370 pesos to the

dollar

so how do you extract profit from a

Marketplace when you're accumulating the

currency that's collapsing

especially since you were you know

collapsing currencies always come with

capital controls

so um

the most successful currency in the last

hundred years is the US dollar

the US dollar uh you know as I've

established right it collapsed 99.7

percent against uh Miami Beach real

estate over 92 years

99.7 percent

the house that I am in went from a

hundred thousand dollars in value to 46

million dollars in value over 92 years

it works out to seven percent a year for

92 years we are on track for it to be