Which Strategy (MSTR) preferred stocks would I buy?
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There are 4 preferred stocks owned by Strategy (MSTR) that you could buy:
They all serve different purposes. Before we get into the specifics of each one, let’s clarify what preferred stocks are.
What is a preferred stock?
To keep it simple, these are essentially products that behave similarly to bonds. This means they are products you can buy (and sell) that give interest (or yield) when held.
E.g. you can buy a preferred stock worth ~$100 that pays you $11.50 interest payments in a year (11.50% yield), and you can claim back your ~$100 stock any time.
Why should I care?
These preferred stocks / bonds are currently offering very high yields compared to traditional bonds (or traditional bank accounts). This is possible because Strategy (MSTR) — the company that issues these — is highly backed by bitcoin. They currently have over 766,000 bitcoins (55 billion USD worth) at this time of writing — and they continuously acquire more.
These preferreds are giving about 8–14% guaranteed interest for investors compared to traditional bonds which give only about 3–5% tops!
What’s insane is they are giving tax deferred Return Of Capital (ROC) dividends so you won’t have to pay tax on the income until you sell them! These products are quite literally 2–4x better than the next best thing. It’s certainly disruptive and revolutionary. You can learn more about this here.
How is this high yield even possible?
To keep it simple, Bitcoin goes up in value at about 20–60% a year on average over a 4 year period. These “Bitcoin bonds” are backed by bitcoin, a top performing asset backed by a tangible commodity— real energy. Traditional bonds are backed by fiat currency which means literally nothing… This makes all the difference.
The nuances can be discussed another time so for simplicity let’s go through how each product can fit in someone’s investing portfolio:
Since there are four preferred stocks in total (as well as the MSTR stock itself and Bitcoin), I see six extremely good products to choose from.
I will go through each of these six assets in order of my preference and how they can fit in an investing portfolio for myself.
#1 Strategy (MSTR stock)
MSTR is basically a stock that trades about 1.5x both ways of Bitcoin. That means when BTC goes up, MSTR can go way up. When BTC goes down, MSTR can go way down. If you truly believe in MSTR, what they are doing and how they are doing it (acquiring more BTC per share), you will understand that the pure returns from MSTR are even greater than BTC over the long term. More on this here.
MSTR is ideal for those who:
- Believe in BTC going up long term
- Understand their company and how they acquire more BTC
- Have a 4 year+ investing time frame due to high volatility
- Don’t mind high risk and volatility
- Can see when BTC is in a bear market (or dip) and is willing to capitalize on those dips (since it will rip even higher)
- Want to outperform BTC over the long term (4 years+) by 1.5x
- Want potential 5–100x returns in 4–12 years (especially if BTC goes up 2–50x in 4–12 years) — moonshot potential
My take?
MSTR is best to buy when BTC is in a BTC bear market or if you want increased potential returns over the long term (4–12 years+)
#2: Bitcoin (BTC)
I believe Bitcoin is going up forever — I have written heaps of articles on it already that you can refer to here. So why buy BTC if MSTR exists?
Buying BTC is for investors who:
- Prefer to hold the Bitcoin themselves to avoid any third-party risk
- Understand that buying MSTR means you are adding third-party risk — you’d be trusting the management team of MSTR to continuously make the best decisions for themselves (they currently are so far)
- Know BTC is a 2 Trillion dollar global commodity that is completely trustless and you can even self custody your bitcoin — meaning you can hold your own keys and bitcoins and there’s no need to rely on any custodian
- Want the potential returns on BTC that are still very high (2–50x in 4–12 years)
- Understand volatility is lower with BTC than MSTR
My take?
You can never go wrong buying BTC if you’re in it for the long term but since I like buying MSTR more in bear markets, I dollar cost average (DCA) buy BTC when the market is fair value or reaching the “top.”
#3: Stretch (STRC)
STRC is the flagship product of MSTR. It trades at stable price of around 99–101 USD. It pays 11.5% interest monthly, tax deferred. You can think of it as a high interest bank account — where the taxes are tax deferred. You can claim back your $100 any time. The interest rate is variable by up to 0.25% a month. So far MSTR has not reduced the interest rate yet.
STRC is for anyone who:
- Wants a 11.5% tax deferred bank account with near 0 volatility.
- Might need money soon but wants to park their money somewhere stable so they can withdraw any time while earning high interest
My take?
I’d put money here that I’d want to save but might need at some point in the future. You can buy this (STRC) instead of MSTR or BTC during peak bull markets. You can also take profits from MSTR or BTC or whatever investments you have and park it in STRC while you are waiting for your next entry into BTC/MSTR.
Literally think of STRC as a high interest bank account.
Another note on STRC: they have raised over 5 billion from this product alone in under a year. The demand is so high (and increasing) and this is by far MSTR’s most successful product.
How is STRC successful?
As soon as STRC trades above $100 USD, MSTR issues and sells excess STRC to acquire more BTC for their company. Investors get their 11.5% interest, MSTR as a company gets to cash in on all the excess demand to hold more cash or buy more BTC — this strengthens their treasury and allows them to keep going forever. Genius. There have been multiple days that STRC alone makes the company 300 million dollars of profit— in a single day!
#4: Strife (STRF):
STRF is the ‘crown jewel’ of the preferred stocks. It pays a fixed dividend of $2.50 per quarter which = $10 a year. Since it is designed to trade at around $100, its effective yield is around 9.5%-10.5% depending on how cheap you can buy it (it trades around 95–105 USD usually — the cheaper you buy it the better your effective yield).
It is also at the top of the capital structure, which means if MSTR were to go through a liquidation event, STRF holders are first in line to get paid out.
STRF is best suited for:
- Those wanting to lock in a $2.5 a quarter or $10 a year fixed income for ever (9.5–10.5% yield forever depending on what price you purchased it at e.g. if you buy STRF at $95 USD you will have locked in a 10.53% yield forever, but if you buy at $105 USD you will lock in a 9.52% yield forever).
- Those who want the safest long term bet as it is made for long term retirees and those who want a safe and consistent fixed income.
MSTR official website link:
Now’s a good time to share a link to MSTR’s official website.
Here you can find lots of valuable info about the MSTR stock and preferred stocks, but the most relevant to this article is to see how much debt, bitcoin, and cash MSTR has on hand. As for each of the preferred stocks, it also tells you what their current ‘effective’ yield is as well. E.g. click on the STRF tab and it will show you what effective yield you will lock in forever if you buy it today.
#5: STRIKE (STRK)
STRK is a hybrid bond/stock and it’s probably the least straightforward one to explain. Like the other preferred stocks it is designed to trade at $100 USD. It pays $2 a quarter (or $8 a year) fixed interest. The difference here is if MSTR reaches $1000 USD per share, STRK holders have the option to convert their STRK shares into 0.1 of an MSTR share (worth $100).
This means that STRK has the dividend payments of a bond, but has the option to convert into MSTR shares when MSTR hits 1k.
Basically STRK holders get a bit of both worlds — a decent yield (usually not as high as the other preferred) but also some decent capital gains (since MSTR is expected to go much higher than $1000 USD per share).
Who’s STRK for?
- Those who are not sure about MSTR or BTC’s short-mid term performance and would prefer to have some fixed and realised income while they wait for MSTR to go to 1k+
- When STRK is trading really low (like 60–70USD) and the effective yield is really high (about 10–11%) and you want to lock in a good rate to get some fixed income for retirement and potential gains
- Those not worried about sacrificing the capital gains you’d get if you had purchased MSTR (or BTC) instead and would prefer to have some stable yield in the mean time.
- Those who want more total potential returns than STRF and STRC when factoring capital gains (not just dividend yield) and not minding the higher volatility.
My take?
Sometimes STRK trades really cheap — I’ve seen it go down to 60–70USD per share which gives an effective yield of 10.5–11.5%! The neat thing is when MSTR hits $1000 USD per share eventually, not only are STRK holders earning interest while they wait, the fair value of STRK will hit around $100 USD+ (meaning you can sell the shares for capital gains) and you’ll have the option to convert them 1:1 to MSTR shares if you want to keep the capital gains coming!
I’d buy STRK when the yield is comparable to STRC and STRF if you want to build up your retirement money. However holding MSTR and BTC for pure gains are definitely higher than STRK. STRK is like the in-between mid-duration option — a hybrid BTC stock/bond.
#6: Stride (STRD)
STRD pays out $2.50 per quarter or $10 a year, fixed income. The catch? It is last in the capital structure (so STRD holders are last to be paid out if MSTR were to get liquidated) and there is no penalty for MSTR if they skip a dividend payment.
Now’s a probably good time to mention that if MSTR fails to pay out any of the other dividends from any of the other preferred stocks we’ve talked about (STRC, STRF, STRK), they pledge to pay double at the next date plus interest. STRD is the only exception (no penalty for MSTR — you just straight up miss a dividend).
Are they likely to skip a payment for STRD?
Not likely in my opinion, I have a few reasons why:
- The total yearly dividend obligations MSTR has is only about $1 billion dollars. Sounds like a lot… until you realise MSTR can raise $1 billion in a single week for some weeks.
- They also keep 2 billion in cash and they straight up have about 55 billion in BTC lol
- STRC alone brings in about 200- 300 mil a week profit on average and demand is only growing…
- Their software business also brings in about 300 mil profits a year
- They have so many different ways to raise money in a pinch — they can borrow more money for example at a low cost.
- It would be really foolish for MSTR to miss a dividend payout for any of his preferred stocks — they can easily afford them and if they miss just one payment it would severely erode shareholder’s trust across all their products and shares, in turn eroding billions of dollars in equity.
Who is STRD for? It’s for investors who:
- want high yield
- don’t mind the risk or volatility
- strongly believe in MSTR’s ability to consistently pay out their dividends
My take?
I’d invest in STRD as part of a diversified portfolio since it is high risk and relatively high volatility. I would use it either as part of a retirement plan to collect extra income (alongside the other preferred stocks) or as a supplement to a high yield (and high volatility) bank account. Like the other fixed income preferreds (STRF and STRK), the lower the price you purchase it, the better the yield.
STRD often trades well below par ($100 )compared to the others in exchange for taking on these extra risks, so it often gives around 12–14% effective yield.
TL;DR summary:
- MSTR is good for 4–12 year + investments, potential returns of 5x-100x. Especially good to buy during BTC dips.
- BTC is good for 4–12 year investments, potential returns of 5x–50x, less volatility, risk and no third-party risk.
- STRC = 11.5% yearly variable interest tax deferred bank account paid out monthly, put money in here when you need to save money but you might need it soon. Especially good to buy during BTC tops/peaks. If you understood nothing else, STRC is the simplest and safest bet. It’s basically an 11.5% bank account.
- STRK = 8–11.5% fixed income with more potential gains. Buy when it is undervalued and offering high effective yield (compared to STRC and STRF) and you’re wanting yield for retirement (fixed income)
- STRF = 9.5–10.5% fixed income. Buy when you want the most stable retirement income that is consistent. STRF holders are also the first to be paid out if MSTR were to ever get liquidated.
- STRD = 10–14% fixed income but MSTR have no penalty for skipping a payment. Buy this when you want maximum yield (either as a volatile bank account or retirement account) while it trades low compared to the other preferred stocks and if you really think they won’t skip a payment (I personally don’t think they will skip a payment given how strong their balance sheet and income is).
The “I just scrolled all the way down here so please explain like I’m 5” summary:
- MSTR for big potential 5–100x gains in 4–12 years+
- BTC for big potential 3–50x gains in 4–12 years+, less risk and volatility
- STRC for ~11.5% short-long term bank account — variable interest rate
- STRF for ~10% long term retirement account — fixed interest rate
- STRD and STRK only if you know what you’re in for.
