Kevin O’Leary, AKA Mr. Wonderful from Shark Tank, joined us on Smoke Screen, to discuss OSUA, the new ETF Hedge Fund he created, along with some other interesting points of interest. Here’s what he told us:
Let’s start with the basics.
Kevin, what is an EFT?
An ETF or Exchange Traded Funds, is a fund that holds a basket of stocks that fit rules created by design to meet specific investment objectives. For example if I wanted to own all the stocks of companies that are bigger than ten billion dollars of market capitalization (which is a measure of company size) and are growing dividends and are historically are less volatile than the market and use less debt, I could make a rule to find them. Creating such a basket of stocks is called designing an index. It takes a lot of work to design and test an index but it’s worth doing if you are investing for the long run.
There are approximately 1,700 ETFs on the market today,
what made you decide to create your own?
When I was a young boy my mother would always tell me “never spend the principal, only the dividends”. I had no idea what she was talking about. After she died I became the executor of her estate and for the first time saw the results of 50 years of investing in only dividend paying stocks. Her returns were stunning. She was not a financial advisor but she believed in the principle that you should get paid while you wait. Dividends assured her of income and she would only spend that.
Seeing the results of her philosophy changed my mind about investing forever Did you know that over the last 40 years over 70% of the markets return came from dividends, not capital appreciation? That settled it for me, today I never invest in stocks that don’t pay dividends.
When I invest, the 3 principles I look for are low volatility, quality and dividend yield. I also want diversification. I never want one stock to be more than 5% of my portfolio or one sector of the economy, like energy, to make up more than 20% of my investments. I learned long ago that diversification is the only free lunch in investing.
Couldn’t you save yourself all the time and money,
and look for an EFF that follows these principles?
That’s exactly what I thought. It should be a no-brainer. Just capture the EFT’s that work with my principles. However, after my team went through over 1,000 ETF’s, not a single one encapsulated my investment principles. I have a fair amount of capital to put to work and when it comes to deploying it anybody who watches Shark Tank knows I’m a disciplined investor. So I asked my team to design an ETF for me that exactly fit all my investment criteria of low volatility, quality and dividend yield. That’s how O’Shares was born.
There are so many ways for people to invest, and so many intricacies involved in choosing the right one. I’m not familiar with all the I’ve got some money to invest, what’s the one rule I need to know before I make a decision?
“If they cant explain it to you in one sentence, don’t invest”. People often think that the more confusing things sound, the more details and profound the investment opportunity is. That’s nonsense. Everything needs to be clear. If they cant explain it –on your level, never do it. Its that simple
The great Jack Welch, met someone who was creating their own company, and asked Jack what he thought of the company. Jack told him “the company is okay, if you want to make it great, you need a close to death experience”. You need something that shakes you up and makes you reach new heights. Can you reflect on any “close to death experiences” that have changed the way you do things?
Early on in my career, I borrowed $500 MILLION, that’s half a billion dollars, and had to pay it back in 36 months. That was a nightmare. Definitely an almost death experience. It completely tamed me. From that day on, I have never borrowed money again. If you’re looking to get involved in investing, on any level, you’ve got to make the commitment never ever borrow money.
Warren Buffett says: Always surround yourself with great people.
Was there one person who you looked up to, as you were making your way to success?
Jerry Patterson was someone who inspired me very much. He taught me a tremendous amount of discipline and the importance of goals. To this day I am very slow to hire, and quick to fire. If you mutually agree on goals and don’t achieve, its over. If you are an entrepreneur, don’t listen to the noise. Set your goals and run with it. If you take off the ball you’ll never get there.