Stock to Flow

Understanding store of value concept centers around several frameworks, one of the most important that you will hear me blather on about for the next year or so is Stock to Flow ratio.

The premise is simple. It’s the relationship of how much of a commodity currently exists in supply (stock) compared to how much of that same product is added to supply over a period of time (flow).

Let’s say you own a signed copy of Elvis Presley’s debut album. That might be worth a decent chunk of change (low perceived stock and zero flow). However, when a giant crate of that same album signed by the King is discovered….your value is incinerated.

Some assets have a high stock (Gold, Bitcoin) while others have a low stock (trophy real estate, Rothko paintings, faberge eggs). But their low relative flow is what helps preserve value.

More to come on this topic…..

Finally, here is what’s on my radar:

real estate

The WSJ highlights the persistent office vacancy rate in multiple large metros (now predominately in CA and TX). This chart in particular caught my eye:

While the 80’s saw an abundance of overbuilding….the path to occupancy normalization occurred in the 90’s which coincides with the lost decade for US stocks where the S&P remained essentially flat from 2000 - 2010. Could we see a similar scenario in the coming years?

macro

As macro investors, it’s important for us to balance risks based on weighted probabilities of a variety of outcomes. In the end, the data rarely tells us a lie, but the timing is extremely difficult to predict.

While everyone seeks clarity on the soft vs hard landing scenario, there is no shortage of predictions….even from the people closest to the situation. However, humans are fallible.

In 2007, Yellen was almost certain of a soft landing…

Team Bernanke was also spiking the football in early 2007….

Due to unprecedented stimulus measures since 2020, gauging the type of landing we will see remains difficult. As stewards of capital, we must keep all options on the table:

bitcoin

Michael Saylor is the billionaire CEO of MicroStrategy Inc, a software company that also holds billions in Bitcoin on its balance sheet. Saylor has taken a $1 annual salary for years, while being paid in stock options. On the last earnings call he announced that he will be exercising his options between now and mid-April and selling 5,000 shares per day of MSTR stock and buying Bitcoin for his personal account. Saylor, an MIT grad, is one of the brightest minds in the Bitcoin world and also one with the highest conviction. He is looking at converting nearly $250,000,000 worth of his company stock into Bitcoin.

There are multiple nuances to his strategy which are both fascinating and borderline genius. This Youtube video breaks things down in a more technical level, which anyone interested in either Bitcoin or employee stock/compensation will find fascinating. His timing is especially prescient as the approval of a spot Bitcoin ETF looms large over the industry..

Clark Gaines focuses on alternative investment strategies at Almanack Investment Partners, an investment firm located near Philadelphia, PA. He is based in Charleston, SC.

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