#308: The Best and Worst Business Pivots

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0:34They are one of the best performing areas of the market across all markets. So would you like us to take a guess at Saab's returns over the past five years? I'm going to say it's been a two-bagger. It's been a nine-bagger, nine and a half. Holy schmoly. Yeah. Just casual nine-bagger in five years.

0:58How are we doing, folks? and welcome to another episode of stock club the podcast where we find and discuss talks that anyone can buy many of which we believe will grow on to grow your wealth emmett how are we getting on

1:09Emmet:hey mike how you doing i'm all good i'm all good another day another podcast just indeed what's this number 305 308 i believe 308 podcasts wow i know we've done podcasts about our podcast like the last episode of friends in a season where they kind of do a wrap up of all the previous we all give ourselves a big pat on the back yeah yeah and our favorite does anyone actually anyone of them actually jump to mind when you think of favorites favorites um i did well i always like the interviews because they stick out a bit slackers and we've interviewed because it's not me and that's not you right yeah maybe it's not him it's not the other guy um so the interviews always stick out in my mind um for that and even like two weeks ago we had taken on again talking about the irish investing landscape i think we have some great irish investors on we obviously have some wall street legends as well david gardner definitely sticks out from last year so there's they they really are the most memorable for me mostly because you know we're doing this every week that they all kind of meld into one so i actually i i loved when annemarie went off on one about an industry in which she had a deep specialist knowledge like when she did the figma piece just before or right after their ipo or discussing and describing the inner workings of hollywood i think you and i have both looked at her going where does she get this stuff like ann marie is one of these deep wells of knowledge that just seems to go on and on and on she's so well read and so many different things a lot of her um uh diatribes were just something i thoroughly enjoyed but i agree which i really enjoyed the interview with brett winton chief strategy officer of arc david gardner absolutely no question or doubt um and even chris mayer 100 baggers so there's so so many but anyway look we're on 308 let's make it a good one mike yeah all right where are we going today you you suggested this i did based on your very expensive very cheap shoe habit this is true well all birds which our listeners have heard me mention over the years and i'm sure many of our listeners have observed make sneakers or runners as we call them in ireland and leisure footwear um they made a surprising well actually a shocking announcement on wednesday of last week saying that it was pivoting okay from shoes to artificial intelligence And I am not kidding if you didn't see the news.

3:49Emmet:So the company, which according to the release will be called Newbird AI, announced a deal to raise$50 million in funding, which is expected to close very soon. And I quote from the PR release, the company will initially seek to acquire high performance, low latency AI compute hardware and provide access under long term lease agreements, meeting customer demand that spot markets and hyperscalers are unable to reliably service the company said in the announcement. and the move as you and i swap text messages or slack or whatever it was it literally the shares exploded they went from a minuscule market cap um like they closed just for for people's reference it closed with a market cap of 21 million dollars on tuesday which roughly speaking is the total amount of money you'd need to cough up to buy the entire company although other dynamics would come to play if you did such thing but the business was valued at 21 million uh at tuesday evening's close and it is right now about 100 million but in the moment shares jumped from two bucks and change to 22 bucks and change nearly a 10 bagger so the san francisco maker of wool trainers was once valued at more than four billion dollars and it was sold yeah which was also nonsense which was also not everything everything about this story is like a parallel universe so um so it was sold the sneaker business for 39 million dollars to the american exchange group and the plan is for a shell listing um and again i quote if i may to pivot its business to ai compute infrastructure with long-term vision to become a fully integrated gpu as a service and ai native cloud solutions provider in connection with the pivot the company anticipates changing to newberg yeah i said that already so mike i proposed to you in our little chat roo yesterday to celebrate this utterly unpredictable change in strategy yeah i mean is it a change in strategy or is it just a company buying a cheap uh public listing well The same management team are running the new gig.

6:18Emmet:So sure do they know more about shoes than AI? Like I don't want that management team. There was a terrific article in, I think it was Fortune Magazine about two years ago about Allbirds. It was a center spread, big article, thoroughly enjoyed it. If you Google it, folks should read it because what it displayed was they had co-CEOs. They were Kiwis, New Zealand guys. and they both had a different strategy they were trying to coexist two different strategies where one guy was like yeah we do performance uh sneakers for you know endurance runners and long distance runners and the other guy was like no no we do these kind of tree everyday what they call the tree runners which are like sneakers for wearing around the streets and they're not designed for long for long runs in fact i can tell you from experience they were actually designed for your big toe to pop out the top.

7:10I was going to say, that's my only memory of all words, is you complaining. You complaining that you put a hole through them and then buying more pairs of them.

7:18Emmet:And biologically, my feet are fine. I don't have a disobedient or dysfunctional big toe. Anyway, I suggested to you that we would have a pivot episode. I said I'd pick a few from memory, unaided by AI or the internet or research on the internet. um and you would pick a few uh i'm gonna try and pick some that did well post pivot i think we said and you were gonna try and pick a couple that didn't so well do so well i really hope that's what we agreed was it mike more or less yeah i've kind of picked two companies that have shown pivots um plenty of pivots some bad some good within the same company so i did a big long story for both but they fit that a bit yeah so i think it's only fair to give the formal definition of a pivot okay now the first thing i already gave a friend's reference but what a pivot is not is trying to get a couch or sofa around a bend in a stairwell so that's what it's not but in the business sense a pivot is a deliberate change in strategy or direction usually based on new information while keeping the core goal of building a successful business intact and it typically happens when the original plan isn't working out as expected and the company adjusts something fundamental such as the product the customer the business market uh or the business model i mean to say or the market focus and evidently all birds is changing all four it's changing the product the customer the business model and the market focus which made it all the more newsworthy and shocking but a pivot is when a business in simple terms decides to stop doing what they're known for and do something else so um there are loads and loads and loads of examples over the years and some very um plain to see examples like netflix was a dvd by mail rental business up until around 2007 and then said no no we're going to distribute via platform streaming platform amazon uh bookshop online bookshop and we all know yes you will buy your books there but along with kitchen utensils uh lights for your christmas tree you name it they're the everything store and they're also cloud computing um one that i particularly like is shopify before we all knew it for what what it is today it was a snowboarding equipment store and then 06 said why don't we do e-commerce um a twitter slack is a good one where slack started off as this kind of very unpopular game but the developers had built an internal chat system that they loved and that became the entire company wow which is a little like twitter because they were a podcasting platform and then they became this the story i read the story of twitter there was a book written about twitter and how jack dorsey went in to switch off the servers and only to notice that the peer-to-peer communication system messaging system had literally grown uh exponentially properly mathematically exponentially and he looked at it and thankfully he was smart enough to say i think there's business and so on but they're all they're all interesting businesses but a lot of them are you know the pivot started very early on yeah i mean whereas as like you see true business pivots where we are doing X for 40 or 50 years and then we're building shoes for 40, 50 years and then we decide to go off and do AI and it's a complete turnaround and like it is it's probably the riskiest strategy you see businesses undertake.

11:01Emmet:Yeah, for sure. When it works, it can be completely transformative and when it doesn't, it's basically the end of everything like you'll usually see is that with successful pivots leadership will see where the puck is going and act on that yes but they see what their customers are doing really and whether that's within their own business so like you know something like slack where they see that the internal chat is good but the game no one likes let's go in heavy into this internal chat instead But there's also the kind of, basically our business is up S Creek and we need to do something. And there's a desperation.

11:40For sure. For sure.

11:41Emmet:It's a radical change. There's almost no reference to the thing you used to do. And I think you could blur the lines between radical innovation and go, well, we used to do all this stuff. And that's why I kind of think about Netflix and Amazon in a sense. Yeah, that's true. The pivot is as much as an expansion. Like they're still somewhat delivering on their core premise. That's right. From the start of the business to now. Whereas some businesses take a complete right turn and they are nowhere near the business they started off as. So you're right. And on that point, I take back, you're right.

12:17Emmet:Netflix and Amazon were two lame examples because frankly, you can still do what they started out doing. But I think Shopify going from snowboards to the average. and the thing you said about slack they are pivots they are properly pivots so that's fair enough yeah so who do you who do you have to kick off with well i'm gonna start with one uh that i i've a product i've enjoyed i suppose in my life and it's a nokia or nokia the business and it's a brand that's pretty much unused by anyone under the age of 30 and has been used by pretty much everyone over the age of 50. I'm going to hazard that as a guess.

12:58Emmet:In fact, Nokia is one of the most remarkable examples of corporate reinvention that comes off the top of my mind. They just pivoted and pivoted again and again. It was founded in Finland way back in 1865 as a paper mill. They weren't selling mobile phones in 1865. They certainly were not, nor were they even thinking about it. They were thinking about thicker paper, thinner paper, flatter paper, more rollable, scrunchable, and lightable paper. But that was their thing, paper. Whatever innovations paper brought in the mid-1800s, that was probably Nokia. They're like, maybe if we make it softer, we could leave it in the bathroom for people.

13:40Emmet:And they're like, what are you talking about? That's not a market. So anyway, they expanded into rubber gloves and cables, which i'm going to call pivot one because while i'm sure they could repurpose some of their plant their manufacturing really when you think of the processes for paper and cables they're very very different and uh so i'm just going to say that was pivot one and you got to imagine it happened something like 100 years after they started the paper thing um and then they moved into electronics and telecoms in the mid 20th century which was their second pivot but its defining pivot came in the early 1990s when it exited most of its legacy businesses to focus entirely on mobile phones and network equipment so that kind of thing we just said mike about saying goodbye to the thing you used to do we don't make sneakers anymore we make ai chipsets well that's that was their moment They went, we're going to do phones.

14:43Emmet:And that decision turned it into, apart from the dominant global handset maker, and apart from the maker of iconic devices, if you lived in that period, like the 3310, which was synonymous with the early mobile phone industry, it also put the brand. And there isn't anyone my age who doesn't, having burnt in the back of their eyeballs, the Nokia typography or the brand or the logo. And I think that everyone of an age will recall that handsets was a mobile handset. It was a duopoly. It was a Scandinavian duopoly. You could either go with Ericsson, which was from Sweden, or a Nokia phone from Finland.

15:26Emmet:But anyone with an early mobile phone had one or the other. And of course, Nokia then became a case study on how quickly leadership can be lost. How to miss the boat 101. Oh, yeah. Again, it's businesses that are around from 1865 inevitably had to keep reinventing. I'm sure there's, I've said it on the podcast before, one of my favorite brands in the world is the oldest continuously surviving company in history, which is Zildjian. who make symbols as in the things you hit when you play drums have a son who's a drummer we have a lot of zildjian products in the house love their brand they've done what they've done they've made symbols uh in turkey since time began right so like there's very few examples of companies that just had a product that was timeless and the symbols on the drum kit they don't change much but virtually everything else does even the nature of paper products so nokia reinvented pivoted successfully one two three maybe four times but then all of a sudden a certain mr jobs stood out from the shadows and said hey and now we're going to do this thing called the ipod and hey it can make a phone call we're going to call it the iphone and it failed to adapt to the smartphone shift.

16:50Emmet:It sold its handset business to Microsoft in 2014 and effectively forced another reset. However, however, all was not lost. It reinvented itself again as a telecom infrastructure player, which I guess is the second cousin twice removed of handsets. They understood routers and scooters and they'd done cables and they'd done handsets so they had an implicit company knowledge of telecoms unlike all birds i might add as far as i'm concerned um and they decided right 5g is the future enterprise networks we're going to build out super r &d facilities with battle labs and as it happens and with and one of those coincidence did you ever see those coincidences where you talk about something unusual and then all of a sudden that day you see information related to that thing that you never think or talk about well yesterday when i was just doing a little reading on nokia what popped up on my apple watch as tethered to my iphone was nokia shares hit all 10 year high so yesterday nokia shares hit a 10 year high which in plain speak means they have a market capitalization now 57 billion dollars they're about 10 bucks 50 a share but there's still a far cry from their pre.com bubble price of 55 bucks in march 2000 i remember it well i was a shareholder so it was once upon a time even fivefold bigger than it is now but it is at its 10 year high now which i think is a proxy for saying that the last pivot um was a success and i before i hand over to you i think it's worth mentioning while we're on the subject that samsung began trading um selling groceries and noodles in 1938 so they have to the other big handset manufacturer they need a little bit of kudos for pivoting along the way but samsung was once a noodle seller there you go sorry it's just i was expecting the handover and then you just last sentence on that note i hand you over to my colleague and esteemed friend michael o'manny like so that there were two good ones like samsung they went from noodles to whatever they do now nice fancy phones and ipads and then or whatever they call them pads and then uh nokia just kind of kept reinventing baby okay over to you mike what have you got uh i'm going in the same direction anyways up to the nordics uh to sweden with sap um so yeah the sab is probably it's an example of a negative pivot and then a positive return pivot if that makes sense um so swedish car people will know it as a swedish car company and so this is the story two pivots most of you will know sab the cars like you remember they had those kind of fancy looking sedans yeah i had one i had a saab i had a saab 93 i'd say yeah yeah um it was a lovely car which you probably know as well that they don't make cars anymore um right yeah yeah so the company is of nearly 100 years old uh so i think it was started in 1936 1937 and it was building fighter jets for the swedish military when it started out and i do you remember at this it only came to me when i was uh doing the research here do you remember the old car ads actually had they were always on a runway and they would have a fighter jet beside it and all that right yeah i thought that was porsche no it's sab um so that might be a bit niche but anyways after world war ii the demand for fighter jets as you can imagine wasn't too hot so sab made its first pivot into building cars instead cars became very popular like they were built by aerospace engineers so they were pretty handy they would have been aerodynamic and all the rest of it and it gained somewhat of a cult following um it was kind of seen as a quirky alternative to the luxury cars like bmw and mercedes or whatever then in 1989 gm came in bought up half of the car company and split it away from the aerospace company and they they made a big push into turning it into a luxury brand um but then as this always happens they kind of took away its essence in the sense of you know this was a car made by aerospace engineers and now they're sticking in like chassis and other parts from the other subsidiaries that gm owns and it never really took off it never broke into that luxury market and then saab saab automobile would go bankrupt in 2011 i think gm divested from in 2008 and tried to stay alive for a while but it was gone But meanwhile, Saab AB, so Saab, the aerospace company, is sitting in the background ticking along.

21:50It manufactures one of the world's most advanced fighter jets, surveillance systems. It also has submarines and other naval tech as well. And if you haven't paid attention, since COVID, European defense stocks are up there with AI in terms of performance. They are one of the best performing areas of the market across all markets. So would you like us to take a guess at Saab's returns over the past five years? From a compounded annual growth rate? Just in total. If you invested 10 quid in Saab, what, this day five years ago?

22:31Emmet:I'm going to say it's been a two-bagger. It's been a nine-bagger, nine and a half. Holy schmoly. Yeah. just casual nine bagger in five years is Scania part of it is Scania a sister company Scania is truck's known yeah but I think it's owned by Saab I think it's their brand their logo is the same but it's an eagle with a crown on his head looking in one direction and the Saab's logo was the same lad looking in the other direction Saab Scania AB was a Swedish vehicle manufacturer So it was split up again. So it used to be, yeah, you were right. But not anymore. So a 10 bagger, you got to give them kudos for that.

23:16Emmet:That's a nice investment. 100%. And it shows as well that like the power of the pivot and then the power of the pivot back. So this was a company built on its cars for the vast majority of its lifetime, really, you know, like as an obviously GM came in, but it's still own 50 % of this car business that eventually started failing. And now the business is in better shape than it's ever been. It's got a record backlog, record profitability, and it just looks kind of untouchable. And it's funny as well that this came up from my own, well, I own shares in Investor AB, the Swedish Berkshire Hathaway equivalent.

23:53And Saab is a big part of that portfolio. And it's been the best performing aspect of that portfolio over the last five years because of this boom in European defense stocks. so i thought that was interesting it's an interesting story and it definitely fits the

24:06Emmet:pivot narrative certainly does but it isn't one that didn't go i thought you were doing ones that didn't go well that's a bloody great one which is the thing so it went terribly the car the car pivot went terribly oh yeah yeah and then it came back yes but they definitely did a lazarus like nokia very much and my second one is a bit of more of a nuance went badly as well because okay save it save it but go on what's your next pivot well you know actually off topic slightly you and I were on a call with John Tyrrell yesterday who loves Manchester United he loves Manchester United more than Guinness which basically is a lot of love folks believe me it transcends everything really and when when he came on we were having a team meeting and Mike and I were on first because we're good like that we keep we respect everyone else's time and we arrive when we should and uh the other started to arrive onto the call and i said hey john um can you name a company that pivoted we're going to do a podcast tomorrow on pivots can you name one that pivot he said i am and you i said why and he said well he said they pivoted from football to money and i thought that was great like they imagine pivoting from football to money so he's still a bit annoyed that man you have pivoted from soccer to to cash i thought okay you're not coming on the podcast that's not a good one it was then his next guess would have been guinness but anyway yeah you mentioned guinness like i think there's gonna be some pivots in the future for these alcohol companies oh yeah oh yeah that's true if the rate of how young people are drinking now persists we're gonna see some major pivots in that uh in that area yeah like constellation Constellation brands, the maker of Corona beer, are the biggest owner of weed and gummy bears and CBD.

25:57Emmet:Yeah, that kind of stuff. All that stuff. Yeah, but is that, like this is it, is that a pivot or just an incremental innovation? You're still into products you consume for relaxation, I guess. Vices. Yeah, vices, scapism, whatever label you want to give it. You know, Instagram used to be a check-in app. Did you know that? i heard this it used to be like four square or something where you kind of book restaurants and leave reviews and was that it i think oh bourbon i'm not entirely sure but before instagram became what we know it for today a photo showing up um it was it was a check-in four square kind of yeah you kind of show people where you were so that was kind of a pivot yeah but that reminds me a bit of slack where they realized they have one strong aspect of a business and just dove heavily into that and left everything else behind so come here only fans right did only fans yeah because it launched in 2016 as a prescription a subscription platform for creators like fitness coaches and musicians and influencers and all we all know how that went the dirty devils and that is like so was that a pivot or was that just leaning into your strengths it's a good question i suppose that's almost like a um a pivot forced upon you like yes how can you turn following the money following the money completely um and so yeah i i guess it definitely falls into that bracket yeah it's uh we need a professor of business on the show to tell us was that a pivot or was that just a gentle innovation or following the the line on your balance sheet that made most sense like they probably had a balance sheet chefs no revenue uh cheerleaders guitar lessons guitar lessons and then people running around after each other giggling 550 million per week and you're like, well, there you go.

28:00So anyway, good luck to them. The founder died recently as well. Very young man died.

28:05Emmet:Oh, really? Yeah. I thought the founder of OnlyFans was a woman. No, maybe co-founder. I'm not sure. Yeah, indeed. Well, there's loads of businesses that somehow pivoted their way out of doom. Maybe that's going to be Albert's story. Like Encyclopedia Britannica is incredibly still alive thanks to a pivot. I'm not going to talk about it much, but I couldn't believe yesterday I was looking at businesses that had pivoted and pivoted did. I can't say the word of all the blooming podcasts. I can't say the word we're talking about. So the next one I'm going to talk about as an unusual one, I think is a little known civil engineering and construction company called Hyundai or Hyundai if you're American or South Korean makers of cars.

28:58Emmet:It used to be into civil engineering. It was founded Hyundai was fine and by the way folks we say Hyundai in Ireland and I totally appreciate in the US it's Hyundai so fill it fill it in there. So Hyundai was found in 1947 to help rebuild South Korea after the war and then it expanded into shipbuilding and heavy industry and eventually automobiles in the late 1960s so its pivot uh was definitely less distinct than all birds um i was literally about to say it's rare that you see a car company start not as a specific car company but i literally just talked about five minutes ago that was one too engineering expertise you're totally right but they did move from bricks and mortar into cars and strictly speaking they entered into manufacturing of motors in the 1970s with a partnership with ford that was really intended to make them as a contractor as opposed to the actual car maker um so they built their own engineering capability and eventually developed fully indigenous vehicles and over 50 years transformed from a construction firm dropping blocks mortar pipes and electricity into one of the world's top five car manufacturers and now it is as we all know one of the most credible players on electric vehicles and they've launched ionic brand and invested heavily in autonomous driving uh through its stake in emotional and it's worth mentioning that forever hyundai cars were seen as these kind of cheap functional low quality like when i was a kid i don't recall the hyundai brand on the roads i was a complete brand nerd relatively relatively new introduction to the irish markets i'd say it's only in the last 10 20 years but i feel like now they've completely taken over the roads i feel like every car is oh yeah yeah they have oh my goodness the dominance like again when i was a kid in the early 80s toyota corolla was the the car the rigger everyone had a Toyota Corolla and now it seems Hyundai's are are the equivalent of the Corolla describing my hopefully my mother is watching this because she used to drive a Toyota Corolla and now she drives a Hyundai so there you go so I mean and and both and not to say one is superior to the other they both were unbelievably iconic now Corolla is a specific model and we're given the whole everything in the Hyundai portfolio we're glazing the whole lot but they are actually great cars but i think the real pivot for hyundai came in the late 1990s and early 2000s after the asian financial crisis uh nearly broke the business and hyundai made a deliberate move up market and they invested really heavily in design and engineering and quality they realized that uh rust buckets just were not a way to build an enduring brand and now and they even have this famous 10-year warranty which i'm pretty sure is still in place which was part of the marketing and also a signal to the world to say that they had really good engineering and products and over time a time perception uh really shifted from this kind of cheap rusty bucket to a reliable stylish uh enviable vehicle and and um they are now genuinely as competitive as the japanese and even some european a lot of european brands and i think more recently hyundai has pivoted again and this time not a full pivot you can be all i was gonna say how do you how do you place the electric pivot into this conversation because i think it definitely is one but i'm not sure because like ford yeah ford failed to do that or this is true to do that and hyundai is clearly doing it successfully yeah it's like saying a tv manufacturer went from cathode ray tubes to flat screens and that was not a pivot so i guess to kind of say uh it's a pivot into evs and hydrogen fuel cells and robotics yeah it's all in your wheelhouse though they have a shareholding in boston dynamics have you ever seen any of those they're the the dogs that scare everyone once a year on the end that's right i haven't seen them in a while i mean about eight or nine or ten years ago when boston dynamics robots were first seen on youtube and the internet it was like something from 50 years in the future haven't seen so much from it lately but still uh hyundai have i have a stake in boston dynamics and also in some urban air mobility brands and maybe your mother's car is an ionic is it no it's a kona okay well the ionic was definitely designed to reposition Hyundai as a tech and mobility company.

33:47Emmet:So I'm putting forward Hyundai as a business that properly pivoted. We can say iterations in recent decades are less relevant to find out. Going from a civil engineering firm to selling cars definitely counts as a pivot for sure. Oh yeah, yeah. It went from hard hats to crash helmets. So there you go. Hyundai is the pivot you never knew about folks, I think. I presume you didn't know about that. Right, Mike, what have you got? No, I just want to touch on Hyundai or you mentioned that is kind of the car company kind of formed from a partnership with ford in the 70s or whatever and i was looking at the market caps there hyundai is twice the size of ford wow right now so so is my wall street by the way ford is a minimum um okay i'm finishing with a true pivot and i'm gonna have to do a lot of convincing to make you believe that it's not a good one but bear with me okay um if you care enough about stocks and you're listening that you're listening to this podcast then you will know about micro strategy been called i did change his name to strategy now took out the micro maybe it was getting a bit self-conscious i'm not sure but um you probably heard about me moaning this podcast about this company but in terms of pivots and within this context it really is a shining light so michael saylor the ceo he really drew his line in the sand when it came to turning his business from this sleepy enterprise software company into the single biggest corporate Bitcoin holder on the planet.

35:20It's got over 720 ,000 Bitcoin on its balance sheet, which is about 4 % of the entire world's supply of Bitcoin at the minute. And almost, I think more than two and a half percent of every Bitcoin that will ever exist, because they have the limit on the 21 million. So yeah, first off, look, if you're listening to this, if you've got your phone handy or you're on your laptop or whatever, just take a quick look at MicroStrategy's all-time stock chart. So it goes back to 1998 when it first went public at about 10 bucks a share. That's then two years later, at the peak of the dot-com bubble, it was sitting at around 300 bucks a share.

36:00And then a year after that, the stock went down to three bucks a share. So how's that for, what is that? about two and a half years on the markets that is a serious journey there and then for the next 20 years the funny thing is after that it basically did nothing at all it didn't do badly it didn't do very well it underpoured the market quite a bit didn't blow anything out of the water however it was profitable and it brought in plenty of cash that was what did they do for 20 years what were they making they're selling like business information systems like kind of your analytics

36:30Emmet:software for old timey companies you're you're right even though i asked you yeah that rings a bell as born as it gets basically oh yeah yeah but it did have this pretty enough cash pile sitting there doing nothing so michael saylor didn't really like this and in august 2020 he invested the company's entire cash reserve into bitcoin and what happened next is probably the most important thing because instead of it he just didn't like you know oh we hold a bunch of Bitcoin in our balance sheet. No, it leveraged its status as a public company to then easily raise money either by issuing shares or issuing debt and then buying more Bitcoin.

37:06So this set up a flywheel as Bitcoin went up with the stock becoming a way for investors to gain leveraged exposure to Bitcoin. So not only was Bitcoin going up, but then MicroStrategy was amplifying those returns by its shares growing faster than Bitcoin was. Then as the stock goes up, it becomes easier to raise more capital and the strategy kind of compounds. But the funny thing is, and as well as this, the enterprise software business is still going. It makes about 500 million quid a year in revenue. And the company management have said that it's now, they call it the engine that pays the interest on the debt used to buy Bitcoin.

37:43So not a complete privilege.

37:45Emmet:You've got to love that. The stuff we sell pays the interest on the debt we did for our hustle and our bet on the future of a cryptocurrency. pretty much so from august 2020 to time recording the stock is up about 12 fold at its peak last summer it was up almost 30 fold so on paper maybe one of the most successful pivots ever ever like you know the space of six years you take a sleepy old software company about 5 billion in market cap now you're sitting at 60 billion last year it was up at 100 and something crazy stuff uh one of the most talks about stocks in the market outperforming all of the major tech names not named nvidia and i was trouncing them for a while too um and in my opinion it is just one complete house of cards and i think it its days are numbered i'm not sure when those days will will come but it is just it's got over eight billion dollars in debt if bitcoin's price stays low for a couple of years the company is going to struggle to refinance that debt especially considering it's like nearly underwater on what it paid for its bitcoin so it's it's average um so it's got about 61 and a half billion dollars worth of bitcoin on the balance sheet and it paid an average price of 75 000 75 527 dollars i have here that's only about 500 bucks below the current bitcoin price as it is now i'm amazed i would have thought they would actually that is shocking to me i thought they would have had a pile of Bitcoin the two grand a pop no but they only started buying in August 2020 but as well as that because of the way it worked it was kind of a bit of a hype cycle so the higher Bitcoin would go the easier it was to raise money and so once they raised money they were pumping straight into Bitcoin so they were always buying high as well but remember like I said we're only about the average price is only about 500 bucks below the current Bitcoin price and Bitcoin is up about 20 % in the last two months as well.

39:46So when Bitcoin came down from, I think it peaked at about 125, 126 grand last year, and it fell as low as 60 something, the stock actually outpaced the price of Bitcoin falling. So that kind of leveraged amplifying returns is the same the other direction as well. The company is no longer carrying the premium it once had. So it's basically priced, its market cap is the equivalent to its book value in terms of what it holds in Bitcoin, slightly less even. And then just the fact that they have billions of dollars of debt to service mean that it's caught in this weird Schrodinger's bankruptcy situation where when it has to service that debt, it'll likely need to sell Bitcoin to do it.

40:35And then as the world's largest Bitcoin holder, selling that is not going to help matters. It's going to make the Bitcoin crash. And because of the Bitcoin crashing, then that could end up crashing the stock. And it's like this death spiral. So yeah, look, on paper is perhaps one of the most successful pivots we've ever seen. Just the last six years of performance alone, if you take out the last nine months, say, crazy. Like it was up 30 fold in the space of five and a half years. but it is also and i'm repeating this again but i think it's a complete house of cards it's just a trading strategy for people people who want to bet on bitcoin or against bitcoin they can go short along the stock and get kind of amplified leverage returns on that now like there are other strategies like endowments and other institutional investors can hold micro strategy as a public company it's easier to hold an actual bitcoin stuff like that but in terms of like a business or a stock i wouldn't invest in it in my worst enemy's money but it is a very very clear example of a pivot and on paper a successful one although when i do think it's maybe a bit of a ticking time

41:47Emmet:bomb in that sense as well so yeah so i totally agree that's a pure pivot i mean if the thing you used to do or you should be known for doing is only there to service the interest on the debt for the new thing you're doing it definitely is a pivot um i saw kathy wood on stephen bartlett's podcast and i think it was last week and she was saying uh her firm arc invests uh price target for for bitcoin in five years is one and a half million dollars a pop now she's always been a bitcoin bull uh the bull extraordinaire she's a tesla bull as well as am i but um the jury for me is somewhat out on bitcoin um sorry fully out i don't own any bitcoin do you own any bitcoin no well anyway if she's even half right buying bitcoin today isn't the worst idea you could have so strategy might still be a micro strategy might still be just strategy right just strategy now yeah people would know it as micro strategy it's like the facebook meta like yeah exactly so strategy they're still the races um but we have to wait and see how that goes yeah well it's like it's it's pure like anything in crypto it's pure speculation but somehow strategy is a way for um people betting on bitcoin to to get even riskier do you know what i mean like it's like crypto markets weren't risky enough for me i want to get amplified risk um so yeah it's definitely a pivot and it's successful technically but certainly not for me mike i think it's just come back to me that yesterday we said we both pitch a pivot to each other to conclude the show and then distribute ten thousand dollars i don't have one i've kind of all my dry powder is gone do you have one no out of those four stocks i think i don't know if i'd invest in any of them i i'll leave it do you know what i'll do i'll do a following profit well i do a follow it's been a while yeah following a profit before we pivot before profit okay before profit pivots which is soon okay right mike it's following profit where you or i spotlight one or in today's case four of profits current 10 stocks which is our just tell me what to do service it always holds 10 stocks and it rebalances every fourth friday and as usual i need to caveat that we are talking about a company in the knowledge that profit may sell it in a couple of days or weeks we don't actually know there's nothing there's nothing going on backstage in the line of sight of mike or me or any of the analysts um uh with profit when it happens it happens we get the info at the same time as its subscribers The profit portfolio was rebalanced on March 27th.

44:42Emmet:So therefore the next rebalance will be on April 24th, which is, well, three days from now, we're recording on Tuesday. And all I'll say is that the last four purchases, new purchases, so the last time it rebalanced, it sold four and it bought four. And I'm going to tell you what four it bought and how they're doing as of this moment in time, which is 1544 Tuesday 21st of April in Ireland so the first company it bought three and a half weeks ago was Comfort Systems it is currently up 19.51 percent the second was Ross Stores and it is up 6.59 percent since it bought it three and a half weeks ago the third is SPX corporation up 11.76 % and the fourth stock profit bought is called Wesco which we've seen and discussed before and it's up 19.76%.

45:42Emmet:So those four stocks as bought three weeks ago have been on a tear and I'll be keen to see if profit decides to cash in on any of those in three days time. Profit is still, still only$1 ,999. The price is going up soon though. So if you want a deal, email frank at mywallstreet.com. That's M-Y-W-A-L-L-S-T.com. And it's a product we're proud of. It's a product we're gonna hang our hat on. And it's one that I think you would really enjoy if you're not already subscribed. Okay, Mike, that's the Pivot Podcast done. I think there is a podcast called the Pivot Podcast. Sounds familiar, I should say it.

46:29Emmet:I think it's a UI user interface podcast. I have to double check. Anyway, that's our Pivot Podcast done. It's not as good as Stock Club, I'll tell you that much. Right, Emmett, thank you for joining me. And thank you, everyone, for listening in. We will talk to you next week.