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I'm excited with for today's episode. I'm only really excited to talk about search funds if I'm being honest, because.
I want to get straight into you your future as an h VAC tech.
Yeah.
I was reading this article as a guide, you know, right.
The appeal to the search fund is that, like, who among us hasn't wanted to own a lucrative HVAC business in New Jersey?
Just run into the swamps of New Jersey and get into waste management. Wait, that's a different thing. It is similar, I'm sorry about Yeah, right right, right, right, right, right right.
Hello, and welcome to the Money Stuff Podcast, your weekly podcast where we talk about stuff related to money. I'm Matt Levien, and I write the Money Stuff column.
For Bloomberg Opinion, and I'm Katie Greifeld, a reporter for Bloomberg News and an anchor for Bloomberg Television.
Wouldn't that be a great story, though, if you're like some twenty eight year old Harvard MBA and you're like, I'm gonna start a search fund, and you scour the earth and you send cold emails to a bunch of people and you end up getting into the waste management business in New Jersey, and you're like, oh great, now I can be my own boss and like run this licrative business. And then like the mob shows up.
Yeah, surprise, Yeah, now you have you have many bosses, and they'll kill you. I'd never heard of search funds before, even as a dedicated money stuff reader. I guess I never absorbed it, but I was so charmed by this piece. This is probably the longest article I've read in a long time, but I wrote it start to finish in Business Insider.
Right, there's a Business Insider story about search funds. I love search funds so much because search funds are like if you get a business degree from a fancy school, the highest calling could be running a duct cleaning business, or I always say pest control. Like pest control to me is the archetypal search fund. I don't know if it's actually that common search fund use, but basically, right, a search fund is like you go to business school, you graduate, you raise a like six or seven figure
fund from investors. The investors, I think are often like your family, but sometimes are professional investors. Because the returns on search ones are really good. And then you go out and search for years to find a boring small business who's somewhat aging owner is looking to get out of the business and sell to some young whipper snapper, and then you buy it and then you run it, and you use the tips and tricks that you learned in your two years of business school to like optimize it,
and you're like a little private equity king pin. Except instead of being like an associated a big private equity fund is just you. And instead of like rolling up a giant business, you like buy one pest control company and then you run the pest control company.
It's so good, it is so charming. And I mean reading this Business Insider article, Okay, so it's told through the lens of this man, Dan Schweber, I believe his name is. And I mean I thought that I deal with a lot of rejection as a journalist. Being a search fund founder, what do you call them? Just a
search fundor a searcher. Being a searcher sounds absolutely grueling in terms of dealing with the word no. By the end of it, he sent thirty six hundred initial emails, three hundred and seventy five introductory calls, just thirty intro meetings and six signed letters of intent and this business that he ended up buying, which is an HVAC company. He emailed the guy twelve times, as you pointed out in your column, And I don't think I've ever made
it to the twelve email. But I don't think I've sent twelve emails to the same person pitching them, which is I don't know. It was inspiring. It was inspiring on so many different levels, Matt.
How persistence pays off by getting you an HVAC.
Company exactly, but just sends a dozen emails. Maybe I can own an HVAC company.
What I love about it is that this was a sort of novel idea at some point, you know, twenty years ago, and it has now really like pervaded the top business schools, so that a lot of people are doing this, which means that if you run an h BAC company, you are constantly, constantly getting cold emails from searchers and so like. Of course you had to email I twelve times because the guy who was like, ah more search funds.
Yeah, it is.
Such an amazing time to be in an unglamorous business because there are so many people with MBAs who want your glamorous business. Right. A lot of them are searchers, but some of them are like private equity funds doing roll ups of like pest control or whatever. Right, Like, there are a lot of buyers to choose from if
you happen to own an HVAC company. And I don't know, it's just so strange to me to think, like, you're a plumber, you like work in plumbing for twenty years, you start your own plumbing company, you like go around doing plumbing, and then like you occasionally check your email and there's like four hundred emails from private equity firms and MBAs. It's just like a strange dynamic.
It's a seller's market. I wish I had a plumbing company to.
Sell, right, And Like, one thing I wondered about is like, if you are a search funder and you buy yourself a plumbing company in a year, do you flip it to another search funder, because like the demand keeps growing.
I do want to talk about that how you exit it as a searcher. But you seemed charmed by particular from getting into the shoes of the man who owned this HVAC company. The article also got into the shoes of the employees who worked there. I think that's another interesting level. Like, Okay, the founder and owner of the
business is getting a bunch of emails. How do the employees react when you tell them this thirty two year old now owns the business and you work for him and he's the CEO, and you know he's some Harvard MBA.
Okay, here's how I think about this. I think in the olden days, people would start businesses and they would be like, you know, high school educated, like you know, they start a business because like they're just scrappy entrepreneurs, and then they would run the business for a while. They'd have employees, and they would have like a kid, and they'd be like, well, of course the kid is
going to take over the family business. But because they're rich now, instead of like the kid just like you know, starting at the family business. After high school, they send the kid to Harvard Business School and the kid gets all these like new fangled business ideas and he comes back at age twenty eight and he's like, I'm going to take over the family business and run it in a modern way, and like, you know that's good, right, Like you have like the scrappy founder, and then you
have the next generations like professional and educated. But the chain has been broken. So now like the founder gets rich and the kids are like, well, I don't want to work at the family h fact business sounds terrible, right, So the kids go off and like become documentary filmmakers. And meanwhile, like, it's really hard to get into Harvard Business School now, So you can't just get into Harvard Business School by being the like shiftless child of an
h back founder. But all the people in Harvard Business School, you know, there's still a demand for Harvard MBAs to run h back companies. So now instead of it like being the kid of the founder, it's just like some random person who happened to get a Harvard MBA and now wants to run the you know, hvac business in Peoria.
So it's disaggregated the like family you know family family air. Yeah, instead of like the son taking over the family business with his fancy Harvard degree, it's like some random person takes over the family business with his fancy Harvard degree. But you know, it's like still kind of the same. It's like the employees still have to work for a thirty two year old who hasn't marked the back. You know,
it's like it all makes a kind of sense. It's just become more like coldly logical and market driven.
Something that I kept thinking about while reading this article for some reason, a meme that keeps popping into my various algorithm is, you know, a cartoon guy hand in his face in the middle of the circle, and it's like,
I meet a girl. Her dad owns like a twenty million dollar a year, like waste management company or pest control or something, but he doesn't want to like hand the keys to his ambitious future son in law, and then we stop talking, which it would be a lot funnier if I could show the meme, but I promise it's funny, but it kind of reminded me of this
sure anyway, I thought also it was interesting. You know, this article described it as a phenomenon happening around like late twenty year old and like graduates in their thirties, and I think it speaks to something about millennial culture, that there is that desire to run into the woods or go to Peoria and run an HVAC company, versus stay in a city and try to climb the corporate ladder.
Like this probably happens with every single generation, but it does feel like it speaks to some sort of disillusionment.
Yeah, I don't know. You think about like what you can do with your MBA, right, Like if you're a sort of corporate type, like you can go work in private equity, and you can start by building models and doing kind of grunt work, and your hope is that in ten or fifteen years you'll be you know, kind of leading big deals and sitting on boards of companies
and kind of running portfolio companies. Or you can just do deals and run companies yourself immediately, with the trade off being that those companies are small pest control companies
in Peoria. But like maybe that's good trade, right, Like maybe you want that trade, right, Like I am sure that in like ten years you'll be reading about people who started as search funders and bought like one HVAC company and then bought another HVAC company and then became like billionaire private equity kingpins by like doing roll ups
of their industries. There's kind of two paths to that outcome, right, There's like the outcome of being a private equity associated and there's the outcome of taking over an HVAC company. And I bet the second path is more we're likely to get you to the billionaire Kington outcome at this point than like being a private equity associate.
Well, I think you have to have some ridiculous amount of just self confidence or real earned ego to think like I'm going to go in and I am going to ceo this small company, like it hasn't been ceoed before.
Yeah, it's here like a little bit more confident, a little bit more risk taking. You're not like just following the expected prestigious path of going to a private equity fram and you're like, I'm going to strike out on
my own and see what happens. Well, you know, it's interesting because like also in ten years, this will be such a like well trodden path, you know, they'll be like incubators for search funds and like it'll be so standardized that it won't be like particularly entrepreneurial and risky anymore. But right now it's still a little entrepreneurial and risky.
So you're saying I should get it now, is what I'm hearing.
I don't know I was gonna say you should have gotten in five years ago. I have no idea what the market is like. I think you shouldn't get in ten years.
But yeah, get really pandemic.
I think this is great. I feel like we've had a number of like career ideas for each other during the course of this podcast. But you like taking you raising money from friends and family to take over an HHAC company. I like it. I didn't know that you had such an intense interest in HPAC.
I'm not specifically h we're using a horse barn, but yes, that's the thing.
I don't know if that works. I think like the whole point of this is that you're taking over like non glamorous family businesses from like aging founders who don't want to do it anymore, not like people's like delightful lifestyle businesses.
But there's there's plenty of people who would think that a barn is un glamorous.
Do any of them own barns?
No, they don't.
It's your problem. You have to buy the barn from someone who runs the barn. I don't know.
I'm reading this have like a renewed I'm reinvigorated, and you know, I thought I wanted to be a podcaster or I did that, It's okay. I wanted to be a novelist, still working on that, but I think that what I really want to be is a searcher. I've always wanted to buy a trissage barn, but now I have a fancy, not yet saturated sort of term to apply to it.
Yeah, I mean that is really like. The thing about the Search Funding is like it's given people a set of concepts to sort of standardize and think about and justify this thing of like I want to buy an existing small business and run it according to my own you know ideas. I think like a while ago, if you're in business school and you're like, I want to run an HVAC company, people would be like, that's a strange thing to want to do with your forward MBA,
Whereas now it's like totally standardized. I was like, oh, of course the Search fund. And similarly, I feel like this is going to be like season two of the podcast is going to be You're going to go to investor meetings. We're going to record them. People are going to be like, of course, here's a million dollars you're going to people. I think send every horse barn in America at.
Least twelve at least twelve. If anyone listening right now.
You own cold email, you'll show up on a horse.
That's true, and they'll know I'm the real deal. They won't.
Yeah, That's like one thing in this h RAG article is like, you know, the guy who owned the h RAG company was like, all these search funders emailed me and I was like, all right, come out and they're like, let me check my schedule. But this guy and the guy who bought the company from him, I was like, I'll be there tomorrow, right, You're going to show your enthusiasm by like showing up on a horse.
That's the other thing I found charming is that it's just like old fashioned sort of you know, I'm going to come up and meet you in person. I'm going to shake your hand and I'm going to look you in the eye. And that has a lot of currency with the people who are selling these un sexy businesses.
Right because these are people who have built businesses over years and they are the owner, but they also like work closely with the employees, and they are not just maximizing shareholder value. And if they were to sell to a private equity firm that laid off all the employees, they'd be sad and like they live in the community, they'd be looked down upon. So if they can sell to someone who gives them a firm handshake and looks them in the eye, and so they'll take care of
your employee. You know, it's a very family business oriented, you know, kind of tool making environment, and you're not just paying the highest price to maximize shareolder value. You're kind of taking over a business that has lies to a community.
Yeah, I do want to talk about how Schweber is going to get this big payout. The business insider says that he's in for so if all of this goes according to plan, he's in for a big payout. Of the search entrepreneurs who eventually sell their business, just under a quarter of them get nothing. Another twenty seven percent get less than four million dollars in equity, twenty eight percent get four million dollars to ten million dollars. The
luckiest eighteen percent get more than ten million dollars. So, you know, after I buy the horse barn, I have to stay there and make it better and grow it. And then the idea is that I'm going to sell it in like a decade and make a big profit.
I can imagine some people go into it thinking like I'm going to make my life in p area running an HRC company. But you know, most of them are like business school people, and like they're choosing between this and private equity, and yeah, they want to do a flip, right.
They want to like buy a sleepy family business that isn't you know, optimizing everything, and they want to spruce up the financials and maybe do a few like tuck in acquisitions and then sell it to you know, a sort of more scale buyer, sell it to you know, private equity roll up or something for you know, if you can buy it at like one time's revenue and sell it at you know, five times revenue, then they you know, make a lot of money.
And so the investors who.
You know, or you retire or something on it.
Or you become an investor in search funds. Sure, so if you invest in a search fund, you're in it for the long haul. You're in it until there's a flip.
I don't really know the terms, right, Like you could imagine, you know, the investors just getting a share of the cash loough and being happy with never flipping it. But no, most of them want to cash out, and yeah, you're in it for a flip, and you know, you say the long term. I don't know what the holding periods are. But like you know, again, the sort of alternative to this is private equity funds. And so yeah, you might think I'm going to take over an HVAC company. I'm
gonna learn hvac, I'm gonna do some deals. I'm gonna spruce things up that won't take me more than five years until I can flip the company, right Like, it's not necessarily your family business for the rest of your life.
I have to imagine a lot of these fail I don't know.
I don't know what fail means. I mean, right like, probably some of them, at least of them, they don't scurce them up, and then they get bored and then they're like, I were shutting this down and I'm going
back to New York. But right like, you're taking were like a stable business with customers, and you know, you like that, You're not founding a business, right like, your downside is not as bad as if you were founding a business from scratch, right you know that this company already has a business and customers and you know, revenue and employees, and probably in many cases it could operate on its own that much from you, So you might
not be able to do a flip. You might like get bored and close it down rather than eke out a very small profit for yourself every year. But like you're not going to lose all your money.
Yeah, that's true. I mean to your point that they're not founding a brand new business. So I was thinking about this in terms of, like, you know, maybe these smart young people with these big degrees, maybe their brain power would better serve the economy by putting that towards new ideas.
Why degrees are not in astrophysics, right, there's there masters of business administration, right, they've learned to administer businesses. I think it's like a really good thing for the economy if like the local sort of mid sized businesses get really good business administration, Right, if like the Harvard MBA is instead of just going to work in finance, like actually go and work for real companies that do you know HVAC.
This reminded me, I know these people who there was a bed and breakfast for sale in a small Pennsylvania town, really charming, and it was an existing business with existing customer base who they had a lot of repeat customers and the owners were retiring and they bought the business and it's going really well.
And those people are named.
Bob and Julia. And Friday is my dad's birthday, So happy birthday, Dad, Happy.
Birthday, Bob. I meant to tell you that I saw someone. Hold on, that's you, Okay, that is me. I mean it's your's your home studio. You need to go to the ville.
It's literally a hairball. He's fine, he's fine. Windsurf windsurf man buying companies, Yeah, but not really, not really buying the company. Well kind of set the scene.
Windsurf is like an AI coding assistant company, and of course it was in talks to be acquired by open Ai for a while. The rumor was that open Eye was going to pay three billion dollars to acquire it, which I think means to acquired in the normal way, like buy all the stock of the company. But they couldn't get to an agreement on some weird terms, including
like sharing the technology with Microsoft. It's open I walked away and then Google did this weird deal where it paid two point four billion dollars to Windsurf for basically like some but not all, of Windsurf's employees. Like basically Google was trying to acquire like the top talent from Windsurf to feed into the mall of like having AI researchers do AI at Google. And they've got like a
non exclusive license to Windserf's product. But it seemed pretty clear that it was a talent acquisition, but they didn't buy the company. They got no stake in the company, but the shareholders of the company mostly got cashed out, like the venture capitalists got paid off for their stock. So Google paid for the stock of the company, but didn't acquire the stock of the company. They just got the talent and like left of the company on its own.
And this is kind of a weird outcome, in particular for the employees of Windsurf who didn't go over to Google, because they were kind of left in this company that had some cash and like a business, but no more of its founders. And it's kind of like it loose ends. And then a couple of days later, Cognition, another AI company, bought the rest of Windsurf for an unspecified price that might have been just like here, you're gonna have a job, and so yeah, that was the deal. It was like
quite controversial. There'should a lot of the deals kind of like this in the AI space, where you know, you have very big tech companies that want to pay a very large amount of money for AI talent, and the top AI talent often has their own startups, and their startups often have the effect of proving that their founders are good at AI stuff but do not have products
that the big tech companies want. And historically the way that ended was the big tech companies would buy the startup, shut down the product that they didn't want, and like give the employees jobs. But that has changed, like that aqui hier model has changed, and I don't quite know why.
Like the leading theory for why it has changed is that in the Biden administration there was a lot of anti trust scrutiny of big tech companies buying even small startups, and so they stopped doing aqui hiers and started doing just hires. Yeah, but the other thing that is happening is if you're Google or Meta whoever, it's sort of dawning on you, like, well, we don't really have to acquire the company. We just have to pay the founders to come work for us. And we have to pay
them a lot because they have the startup. I have equity in the startup, so like they have to give up the equity in the startups, we have to pay them a lot. But like, do we need to acquire all of the employees. Do we need to pay the vcs the full value of the company or can we just like acquire the founders and like let the rest go. So there's a lot of talk about like the social contract of startups and vcs being violated by these deals, and I feel like, so far, actually the social contract
holds up pretty well. We're like the vcs who fund it Windsurf. You know, they got several times their money, right, Like they got rewarded for funding Windsurf, even though I think people would say in a sense like the product isn't what's making the money. It's just like the founders are going somewhere else is what's making them the money.
But you know, and the employees ultimately ended up his jobs, although not at Google, So like the social contract sort of held, but it's like it just feels like it's a little bit under pressure, where like, you know, the next deal Google could just be like, we're going to pay the founders, you know, a billion dollars each, and we're not going to cash out of the vcs.
Yeah, reading this and just thinking about similar circumstances, my thought was, why don't they just try to poach people the normal way? Like why is tech this special, weird place where there is acqua hiring, Like why can't they just offer the founder one hundred million dollars or something like that, similar to what Mark Zuckerberg is doing. Why do we have to go through all the hoops of you know, buying the company or doing whatever Google just did.
I think that part of it is like you can now pay AI researchers one hundred million dollars, but you can't pay them five hundred million dollars because all the other A researchers would be mad. And like if they have a startup, you know, that has raised money at a four billion dollar valuation and they own you know, whatever they own twenty five they own a billion dollars worth of it, right, you have to lure them away from that startup by giving them a lot of money.
Maybe it's not a billion dollars, maybe they don't think it's worth what, you know, what it raised that, but you have to give them something like a billion dollars. And the way to do that is to have some sort of M and A like transaction. Right Like, if you're just saying I'm going to give you a salary of a billion dollars, that's tough to sell to your
other employees. But if you say I'm going to do an M and A transaction that technically doesn't involve buying any of the company, but like there's a licensing deal and it's like an agreement with Windsurf, then you can do a transaction that effectively gives the founders a billion dollars. And so I think that's part of it. Where Like, the going rate for poaching an employee from like open Ai to Meta is you know, one hundred million dollars.
But the going rate for poaching a founder of a startup that like was valued at a lot of money by a VC, the going rate for that might be billions of dollars. And the only way to pay that is in something that looks like an MNA transaction.
The other thought I had was that there is still some acquihiring going on. If you think about the recent example of also Meta with skill AI.
These are the same thing, Like these are not quite acquisitions. Yeah, sometimes they're like state acquisitions, but not one hundred percent acquisitions. And sometimes they're more like the Windsurf deal where it's like a commercial license and a big payment, but not one hundred percent acquisition.
Yeah.
I was just thinking about the employees who didn't get picked to go to Google, and that's probably a pretty lousy feeling, but maybe they're happy a cognition.
Yeah. It's like there's this incredible gold rush for AI, and there's incredible variance in people's perceived market value, right, Like there are people who are you like, there are people who are multi billionaires because they like were in earlier and AI, and then there are people who are paid like, you know, six hundred thousand dollars a year and they're like, oh my god, I'm so poor, like like there's a huge range. And some of that is the sort of classic startup like were you there at
the founding of a hot company? But some of it is like people's perceived value to the big tech companies, where like, if you are really really good, a big tech company will pay you, you know, much much, much more than one hundred million dollars if they have to. And then if you're less good, it's like, yeah, you're on salary. It's fine.
And where we are in the world right now, I mean, is this uniquely a tech industry phenomenon and specifically in AI industry.
Phenomenally, Like given in tech people have normal jobs like this is very localized to AI, you know, like they're not these kinds of bidding wars for people who do non AI tech business man.
If I had any practical skills, I'd be thinking I need to be an AI person somehow, But I think search fund founder is more realistic.
Yeah.
You know who else is in the business of buying up a lot of companies is it's Vanguard. They are an index company all the companies. As much as Vanguard likes to talk specifically to me and everyone else about their you know, active management ambitions, they are huge. That means that they own a lot of the shares outstanding of a lot of companies, including companies that you might not expect I.
Would expect, Wait, can I ask you, are they the biggest total stock market index fund? Oh my god, God runs you know, a big S and P five hundred and index fund, and so does everyone else. But like, I definitely own some of the Vanguard Total stock Market Index fund, which is not the S and P five hundred. It's everything, including small companies and including bigcern treasure companies.
I'm trying to find out because I don't want to miscall myself, but I think that the Vanguard Total stock Market Index fund is the largest. I mean, it's it's in the trillions, so I would imagine that that's it.
So when you say Vanguard owns is one of the biggest sholders of companies, you wouldn't expect. I would expect them to be the big sholder of every single public company. That's what I.
Would and they are, and they are, including Strategy in.
Particular, I'd expect them to be one of the biggest holders of every non P five hundred company because like, there are a lot of SMP index funds, but like, yeah, Vanguard is really into total stock market index ones. But anyway, but yeah, they're the biggest holder of Strategy micro Strategy now called strategy.
I guess I did not appreciate that strategy isn't in the S and P five hundred, but we're also talking about a non S and P five hundred tracking fund. Because I don't know, it just feels like increasingly the whole world revolves around the S and P five hundred, but the Vanguard Total Stock Market funds biggest shareholder of strategy. I say that you might not expect it because the personality of Vanguard is an asset manager that is deeply, deeply skeptical slash repulse by cryptocurrencies.
I know. This is the thing about running index fund. It's like it doesn't matter what you think, you just buy it. Yeah, It's like a really good, like disciplining mechanism. Right, Like you consider that and be like, wow, I think this company is overvalued, but it doesn't matter to buy it because you're an index one manager and like that's what people are paying you for, and they're not paying
you very much. Right, If they're paying you a lot, then you might be like, well, I'm going to short this company because like I think it's overvalued and I'm you know, getting paid a lot from my wisdom. But they're paying you like two basis points to buy every company, so you buy every company. It's a really good pass.
The thing that's slightly different here is that Vanguard obviously has control over what products that it launches.
Yeah, but like it's it's products or index ones.
I know, I know, but this is a relatively new phenomenon where you have equity companies that just hold bitcoin and you think about like commodities. For example, Vanguard for a long time would not launch a commodities fund. They're never going to launch their own cryptocurrency funds. And okay, yes they're going to buy every single stock out there, but it's a new phenomenon where that means you're also buying crypto indirectly.
Yeah. Well, the things I like about it is that a little inside baseball but not really. Bloomberg has this like view that you shouldn't own stock in companies that you write about. So like I don't own stock in you know, Goldman or Apollo or whatever, but I own index funds they own stock in those companies, and so I e right, and like in some ways it would
be weird if I didn't. Right, Like to me, like I should have my savings in like the global financial portfolio, and if I owned like all of the stocks except Goldman, then like in theory, that would create a financial bias against Goldman. I would be like, well, I don't want any of their stock, but I own every other stocks. I want their stock to go down relative to the
rest of the market. And then like crypto is kind of the same, right, Like, you know, we have like sort of rules that you shouldn't own crypto if you're writing about it, but like if I own zero crypto, then I'm sort of biased against crypto, right Like I you know, I own like all of these stocks, and I want the stocks to go out, but I don't want crypto to go because I don't want any crypto.
But now, because on the Vanguard Total Stock Market Fund, I own some bitcoin indirectly, but like I have some exposure to bitcoin through strategy, and I think, like more generally, like it is good for ordinary investors to be able to get low cost access to like market cap weighted ownership of like the entire global financial portfolio, right like, just as like it's probably good for you to not have to pick which stocks will go up and just buy all the stocks, like you shouldn't even have to
like pick like which asset classes will go You just like be able to be like I'm going to buy the market right, And you can't really do that that It's not really a thing like people try. It's not really a thing because like, you know, how do you decide how much real estate to have in that? But by smuggling a little bitcoin into your you know, total stock market fund, it means you have like a little
bit closer to exposure to the entire financial portfolio. And if you don't like crypto, you'll be mad about that. But if you're buying the total stock market fund, your thesis has to be I don't know what I want to buy. I have no strong views about which companies will go up, So like you have some bitcoin, why not?
Yeah? Occasionally Tom Keane invites me on radio and just kind of bullies me about crypto for a couple of minutes, and then I get off air and super I don't I would not describe him as pro christ I'm not surprised yet he famously calls it bitdog. But in trying to make him care, I have tried to make the case that you should care because it's probably in your retirement account through this sort of indirect exposure, Like your fortunes in a small way are tied to bitcoin now, right.
I would reverse that. I would say that, like, if you don't have a strong reason to be short crypto, you should be long crypto in proportion to it's like weight in the market, right, and like that weight has gone up a lot in the last ten years, right now trillion dollars. And if you are just like completely on a blank slate, completely agnostic about everything, like your weight should not be zero and now it's in your
retirement fund. Great problem solved. I'm not saying you should buy crypto of like by all means, this is not investing advice, but like you know, I'm just saying, if you have no views, like the default weight in your portfolio for every asset is not zero. The default weight is like it's market weight, right, And so if you're just setting it to defaults, you should have some crypto.
And the way to have some crypto is either like, ah, you go create an account on coinbase, or like you just you know, own a total stock market index one that happens to have some crypto.
So you're a marked cap weighted guy.
I'm not saying that's the best way to invest. I'm saying that's the neutral way to invest. I'm saying that, like anything that you do to deviate from like the market cap weighted global financial portfolio, should ideally have every reason ideally not that, not that I you know, follow that. I'm just you know, as a theoretical matter, like you should own the market unless you have some reason to think that something else is better.
And that is investment advice.
No, I mean, I don't know how I could get suit over that, but no, it's not investment advice. The bitcoin treasury companies are interesting in part because they give you away to own crypto if your only investment is the total stock market. But more broadly, they're interesting because they are a way for equity investors to own crypto without owning crypto. And I think that there's a lot
of demand for that. Some of it is from like Vanguard, Right, Vanguard, which let's hypothesize does not want to own crypto, nonetheless owns a lot of micro strategy. It's like that's like a good arbitrage, right, Like you have like bitcoin, which like Vanguard doesn't want to buy and you have micro Strategy, which Vanguard, against its will does want to buy, and so like you can like transport bitcoin into Vanguard and
make some money on it. But like, more broadly, I mean there's a lot of like equity investors who for one reason or another can or want to buy micro strategy for bitcoin exposure, can't buy like just bitcoin for bitcoin exposure. They get an email from one guy saying, like my hedge fund, our prime broker will give us sixteen to one leverage on micro strategy, and they'll give
us no leverage on I bet like the bitcoin ETF. Right, So if you want to get exposure to bitcoin, getting it in the form of a stock, like a real stock, not an ETF, like a corporate stock. Getting in the formu of a corporate stock is in many ways preferable
to other forms of owning it. And that's why that's part of why the bitcoin treasury companies often traded a premium to their underlying bitcoin, because like there's a whole class of investors who can get crypto that way, but can get it as easily or as efficiently in other forms.
That's really interesting because after the spot bitcoin ETF's launched, I think a lot of people, perhaps myself, questioned what the use case for micro Strategy was.
Yeah, and the number one answer is index funds. Vanguard's total stock more good fund does not own ETFs. Yeah, it owns companies, and micro Strategy is still a company even though it's a pot of bitcoins. Like that's the number one answer. There are other answers, because like someone at some prime brokerage is like, we'll give more leverage on corporates than we will on ETFs, even though the
corporate is like more volatile than the ATF. But like the number one answers index ones, and like, yeah, micro Strategy is not in the S and P five hundred. It wants to be in the SP five hundred. That's like the next that's the next frontier.
It did make it into the NASTAC one hundred, and that's a big d. It was somewhat controversial.
Yeah, because like these indexes don't include ETFs, They don't include investment vehicles with like rare interesting exceptions, right, Like there's like an argument that Berkshire Hathaway is an investment vehicle and like you know and then you I don't if you remember, but friend of the show Bill Ackman of perching Square Capital Management. Uh, when he.
Found his way into another episode when he was so not.
The bird but the actual Bilackman when he was.
Trying to trow Yeah.
I haven't even talked about that long. When he was launching his clothes un fund, he's like, it's going to
be in the S and P five hundred. It was not going to be in the S and P five hundred because the S and P five hundred does not include clothes down funds, but it does include Berkshire Hathaway because it's not quite a closed un fund, it's a company and microshrate is the same deal, right, Like, if you're like, I'm going to launch a fund that holds bitcoin, that will not be in the S and P five
hundred or even the Nazak one hundred. But if you're like, I am a tech company, I'm going to almost exclusively hold bitcoin and talk about it a lot, you can be in the S five hundred at least the Nazak one hundred, and that's different.
Well, that was the controversy around its NASDAQ one hundred. NASTACK one hundred does not hold financial companies and it feels like micro strategy. It was micro strategy at the time, like it was sort of grandfathered in because it is nominally still a tech company, very nominally.
Yeah, you're right, that's the arbitrage, right, It's like, we're not a financial company, we're not an investment company. We're just the tech company that happens own seventy billion dollars a bit quin. Yeah, it's a good trade. I'm sorry that Bill Lackman caught so many strays at the end of this episode.
It's okay. I don't think he listened to the end if you want to say that.
Like when we mentioned last week that we're going to name your bird friend of the show, Bill Lackman, we got approximately twenty emails saying of Perching Square Capital Management. A lot of people will I know I did that joke, and we did not, and I'm sorry.
But very clever.
We'll do better next time. Perching Square. Yeah, he just learned to perch. And that was the Money Stuff podcast.
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