Search Modal

Main Area

Main

Kevin O'Leary: Shark's INVESTING Rules - #MentorMeKevin

10Shares
Post Title Placeholder
Image Source: Youtube

Transcript

0:03
- What's up Believe Nation?
0:04
I started the Mentor Me Series with the goal
0:06
to try to learn from people who've done a lot more than us,
0:09
hang around them a little bit longer,
0:11
and by being in their environment,
0:13
hopefully some of their mindsets, their beliefs,
0:15
their way of thinking, seep into us
0:17
to help us become the best version of ourselves.
0:20
So today, we're going to learn from Kevin O'Leary
0:23
and his investing rules.
0:24
Mentor Me Kevin.
0:26
And as always guys, as you're watching the clip,
0:27
if you hear something that really really resonates
0:29
with you, please leave it down in the comments below
0:31
and put quotes around it so other people
0:33
can be inspired, and also when you write it down,
0:35
you're much more likely to lock it in for yourself too.
0:38
Enjoy!
0:40
(inspirational music)
0:52
- Diversification is the only free lunch in investing,
0:56
and I see this happen so many times.
0:58
Here's my basic lesson that I've learned
1:00
that I never vary from.
1:02
And this works. Trust me, it works.
1:04
Never more than five percent of your portfolio
1:07
in any one name, no matter how great the story is.
1:10
If it's the next Nortel, if it's the next Rim, who cares.
1:14
Five percent max waiting.
1:16
For me, usually it's two-and-a-half to three percent.
1:18
I never let a stock get bigger than that in my portfolio.
1:21
I sell into the strength all the time.
1:23
Secondly, never, ever, ever more than 20% in any one sector.
1:29
So if you love gold, you just can't get past 20%
1:31
of your net worth in gold, or energy, or any other sector,
1:35
or financial services,
1:36
so good sectoral diversification is crucial.
1:40
And finally, for me, I'm over 60% weighted
1:43
in debt now versus equity.
1:45
Not government debt, not treasury bonds,
1:47
but corporate debt.
1:49
Remember that a double-B or triple-B bond
1:52
is serviced before they pay the dividend on a common stock,
1:54
so I like to own right up the balance sheet,
1:57
so I own a lot of prefs, converts, senior debt,
2:00
floating rate notes, I love that stuff.
2:02
Because when they get upgraded, I get capital appreciation.
2:04
Meanwhile, I get a check.
2:06
The key to life is the check coming in.
2:09
It's the cash.
2:10
If you always, always, always look at the free cash flow,
2:14
this will keep you safe, because the only friend
2:16
you're going to have when you're old and crusty
2:18
is not your dog, not your kids, it's the cash in the bank
2:20
that's still going to love you.
2:23
- In your book, you also say when you're investing,
2:25
you should have an element of fear in there.
2:28
- You should make the assumption when you
2:30
make an investment, there's some probability you'll lose it.
2:33
It'll go to zero.
2:34
And that's why you need to have, you know, a reserve,
2:38
like a backup plan, some cash set aside,
2:42
that if everything blows up, you're okay.
2:45
I find it extraordinary when people
2:47
make their first liquidity event,
2:50
and they have some capital, that they blow it all again.
2:53
That is the biggest mistake.
2:54
You've got to take a nut, even if it stays in cash,
2:57
or it's a very very liquid safe security,
3:00
to say that I don't touch.
3:02
It goes back to what my mother taught me.
3:03
Spend the interest, never the principal.
3:07
I mean look, you know, I make a lot of crazy investments.
3:08
I don't touch the principal.
3:10
I learned something a long time ago from my mother.
3:13
You're going to find this fascinating.
3:15
When I was a seven-year-old boy,
3:17
and she was working at that time,
3:18
she used to take me to the bank with her every Thursday.
3:21
That's when they paid the girls where she worked.
3:23
And she'd take a third of her paycheck
3:25
and put it into bonds and dividend-paying stocks.
3:29
She used to say to my brother and I then,
3:31
boys, never spend the principal, only the interest.
3:35
I had no idea what she was talking about,
3:37
but she was drilling that into my head for a reason,
3:40
I think, became very important decades later.
3:42
After she passed away, I became the executor for her estate.
3:46
For the first time, I saw a secret account
3:49
she kept from both of her husbands her whole life,
3:51
made up of dividend-paying large cap stocks
3:54
and corporate credit.
3:56
Do you have any idea of the performance of that portfolio?
4:01
She blew away every indices.
4:03
I was amazed.
4:05
She wasn't a portfolio manager.
4:06
She was just a concerned mother that needed to have capital
4:09
no matter what happened.
4:11
I started to do some research.
4:13
You may find this fascinating.
4:15
Over the last 40 years, over 70% of the market's returns
4:20
have come from dividends, not capital appreciation.
4:24
She must have intuitively felt that and knew that.
4:27
That forever changed my investment philosophy.
4:30
I'm a dividend guy.
4:32
I only buy stocks that pay dividends.
4:35
I'll never buy a stock that doesn't return capital,
4:38
because the data tells you not to.
4:40
Unless you're a masterful stock picker,
4:43
and you know exactly when to buy and sell,
4:45
you can't, in my view, beat those odds.
4:48
40 years, 71% returns.
4:50
That's it for me, dividends only.
4:52
I like gold because in a way it's a stabilizer.
4:55
It's an insurance policy.
4:56
I listen to all the gold pundits,
4:59
and they're always wrong as far as I'm concerned.
5:01
It's impossible to time the moves.
5:03
I've owned gold for decades,
5:04
and I simply have a five percent waiting.
5:07
I look at it quarterly.
5:08
When it becomes more than five percent,
5:10
I sell into the strength,
5:12
and when it weakens, I buy into the weakness.
5:14
It's just a stabilizer.
5:15
I'm not one of those guys
5:17
that's going to go to 40% waiting in gold.
5:19
- Okay.
5:20
- I don't believe the hyperinflation story.
5:21
It hasn't happened.
5:22
Gold is popular for a whole host of reasons.
5:24
- [Interviewer] Yes.
5:25
- And five percent seems to be enough.
5:27
It's worked for me in portfolio management.
5:29
It's the only security I own that doesn't pay a dividend.
5:32
- So, Kevin, I guess, do you not care if gold
5:35
goes to 2,000 or 5,000 dollars an ounce?
5:38
You're still going to buy gold?
5:39
- Yeah, I don't care.
5:40
Like let it run.
5:41
I'll be selling into that strength,
5:43
keeping at five percent waiting.
5:44
What I've learned.
5:46
I'm an old crusty investor.
5:47
When everybody is saying you got to own it,
5:49
you should be selling it,
5:51
because when it corrects,
5:52
it doesn't touch the sides on the way down.
5:53
So I simply say five percent's good for me.
5:55
Some people like it 10, 15% waiting.
5:57
I'm a five percent guy.
5:59
And I'm disciplined about it.
6:00
I hope it runs to 5,000.
6:02
I don't care.
6:03
I'll be selling, selling, selling, selling,
6:04
all the way up, keeping it at five percent,
6:06
and when it corrects back down to 2,000,
6:08
I'll be buying it in. It's fun.
6:10
That's the way you should work with gold.
6:11
Never get so caught up that you take
6:13
all your dividend-yielding securities
6:16
that are also a hedge against inflation
6:18
and put it into a commodity like gold.
6:20
What's the value of a stock that never returns capital
6:24
to its shareholders? I don't know.
6:26
Because the only way you can make money
6:28
is if somebody else is willing to buy that position
6:31
at a higher price for some emotional reason perhaps,
6:35
or for some foresight that maybe the company
6:38
will return capital one day,
6:41
and I think, what you learn as an investor
6:44
over multiple decades is the only thing that matters
6:48
is free cash flow. That's it.
6:51
There is no other reason to own a stock.
6:53
And with that philosophy, it brings in you into a place
6:57
where you focus on a company's ability to generate
7:01
incremental cash flow, because just owning
7:04
a dividend-paying stock is not good enough,
7:06
because let's say we find a stock today that's paying
7:09
a three percent dividend yield and tomorrow,
7:12
because its forecast for sales get cut in half,
7:14
the stock drops by 50%, now it's yielding six percent.
7:17
I don't want to own that stock either,
7:20
so my test in this index that I've created
7:23
with FTSE Russell looks at the balance sheet.
7:26
Every year we test to make sure that the company is viable
7:30
in its ability to generate cash.
7:33
This is extremely conservative investing.
7:35
This is for the long haul.
7:37
These tools are not for, as you're suggesting,
7:39
for spicy, you know, the hot stock du jour.
7:43
I've done that. I've been there.
7:45
Let the young legs do that.
7:49
I have zero interest in that.
7:50
I don't care what the hot new stock is.
7:52
When a company comes public, I won't own it either.
7:56
It's got to prove to me over multiple years
7:58
that it can continue to generate cash
8:00
before it even fits into what I'm doing,
8:03
so I'm really boring, and I like it that way.
8:06
- So a great company doesn't necessarily
8:08
have to equal a great stock.
8:09
They can be two very different things from your perspective.
8:11
- There's many companies where I buy their products
8:13
and services, I would never touch their stock.
8:16
So it's sort of, we're talking about real money here,
8:20
the stuff that you need to preserve.
8:23
When I think about my family trust, I can't afford
8:27
to mess around with that.
8:29
- What investments are you liking today?
8:32
- I'm liking very simple deals where I can understand
8:36
the business model.
8:37
I'll give you an example of how boring and simple
8:39
and how successful it can be.
8:40
This is from Shark Tank.
8:43
I look at a lot of deals on Shark Tank and on Dragon's Den,
8:46
because I invest five percent of my net worth
8:48
every year in venture deals.
8:51
So I used to have to find them; now they come to me.
8:54
I've got two platforms to work on.
8:55
This is a Shark Tank deal.
8:57
So Oprah has a hairdresser.
9:00
Interesting guy.
9:02
His hobby was tea.
9:07
This tea you drink.
9:08
And he became what's called a nose.
9:10
He had a certain skill to be able to smell
9:12
(mumbles) teas and blend them.
9:14
One day he gives, a couple of years ago,
9:17
a cup of tea to Oprah while he's doing her hair.
9:19
She sips it and says this is the best tea I ever had.
9:22
She goes on the show a half an hour later
9:23
and says this tea called Talbott Teas
9:25
is the best tea I've ever had.
9:27
He gets orders the next day for $500,000.
9:30
You know the Oprah effect; you've heard of it, right?
9:32
- [Interviewer] Yeah.
9:33
- He can't finance that.
9:35
So he comes on Shark Tank and he's looking for $250,000.
9:39
I agree to buy 35% of the company for that.
9:42
I love tea. It's so simple.
9:44
Gets on Oprah, 500,000 orders, Neiman Marcus,
9:46
all kinds of individuals ordering on the Internet.
9:48
Simple. Tea, orders, cash flow, right?
9:52
While we're in the middle of doing the deal,
9:55
the show airs, and Jamba Juice, a public company,
9:58
says we want to be in the tea business,
9:59
we love this story, we love the brand,
10:01
I want to buy the company.
10:03
I haven't even written the check yet.
10:05
And bang, the deal's done.
10:06
- [Interviewer] Wow.
10:08
- Yes, wow.
10:09
That's the kind of deal I like.
10:10
Because it was simple.
10:12
It's not a complicated tech story.
10:13
It's tea. Tea with a brand.
10:15
Now you go into a Jamba Juice anywhere in North America,
10:18
that's my Talbott Teas. - Wow.
10:21
- Isn't that wonderful?
10:22
- It is wonderful. That's why you are...
10:24
- That's why I am Mr. Wonderful.
10:26
But you know, I look at this way.
10:27
The simple deals are the ones you make money on.
10:29
- [Interviewer] Okay.
10:31
- So I take that cash back. I redeploy it.
10:33
So I like simple stories with revenue attached to them.
10:36
You know the high-tech stuff, I came out of that market.
10:39
It's so complicated and so much can go wrong,
10:41
so I just love deals where they see an easy path to revenue.
10:47
- So thank you guys so much for watching.
10:48
I'd love to know what did you learn from this video,
10:50
what clip spoke to you the most, and what are you
10:53
going to take from these clips and immediately apply
10:55
to your life or to your business somehow.
10:58
Leave it down in the comments below.
11:00
I'm super curious to find out.
11:02
Finally, I want to give a quick shout-out
11:03
to the Lonely Bookaneer.
11:05
Thank you so much for picking up a copy of my book,
11:06
"Your One Word", and for making that awesome YouTube video
11:09
on it as well.
11:10
I really, really really appreciate your support,
11:12
and I hope you enjoyed the read.
11:13
- [Reviewer] I definitely think that this book
11:15
is about finding the core thing you want for your work,
11:18
your life, and your business.
11:21
- So thank you guys so much for watching.
11:22
I believe in you.
11:24
I hope you continue to believe in yourself
11:26
and whatever your one word is.
11:28
Much love. I'll see you soon.
Advertisment Banner Image Placeholder
2017 Acropreneur. All rights reserved.