In volatile markets, you can use cash as offense or defense. MicroStrategy Inc., which recently had half-a-billion dollars in cash sitting around, thinks it can do both.
The company could have gotten rid of its excess cash by paying a big dividend or by buying back much of its stock. Instead, MicroStrategy bet half its total assets on bitcoin. So is this a publicly traded company or is it a hedge fund?
This foray into digital currency puts an old paradox of investing in a new light. As the great financial analyst Benjamin Graham observed long ago, the better a company is at producing goods and services, the more likely it is to pile up more cash than it needs to sustain the business. Why keep that surplus cash locked up and idle when investors could put it to better use elsewhere?
Most shareholders and corporate executives weren’t bothered much by excess cash when it yielded 5% or more. Now that yields are near zero, investors need to pay attention: When cash is trash, the pressure to take unprecedented risks with it is likely to rise.
MicroStrategy, based in Tysons Corner, Va., sells technology that enables businesses to analyze internal and external data. With software and services so cheap to produce and provide, the company keeps piling up cash.