Speaker 1:
From the library of the New York Stock Exchange at the corner of Wall and Broad Streets in New York City, you're inside the ICE House, our podcast from Intercontinental Exchange on markets, leadership, and vision in global business. The dream drivers that have made the NYSE an indispensable institution of global growth for over 225 years. Each week we feature stories of those who hatch plans, create jobs, and harness the engine of capitalism. Right here, right now, at the NYSE and at ICE's exchanges and clearing houses around the world. And now, welcome. Inside the ICE House, here's your host, Josh King, of Intercontinental Exchange.
Josh King:
One of the things we do under a stay-at-home order is to re-binge on some of our favorite programs, and I've got two choices: Shark Tank and Billions on Showtime. In season two, episode two of Billions, back in 2017, Bobby Axelrod meets Taylor Mason, and it's love at first sight, in a manner of speaking. Taylor, you see, exploits satellite images from the Pearl River Delta in China to find a weakness in the trading strategy of Todd Krakow, who's played by Danny Strong. Well, if you're an investor in some of the major cruise lines, many of which are listed on the New York Stock Exchange, you don't need a satellite to understand their fundamental challenge right now.
Josh King:
You only need an Instagram account and follow Kevin O'Leary TV. Yes, Mr. Wonderful has a bird's eye view from his Miami condo of a parade of empty cruise ships stacked and racked a mile or so offshore. Such is the striking image of a global economy on hold. Farther off the coast, if Kevin had a power telescope, he'd see oil tankers filled with American crude, essentially being stored at sea waiting for demand to grow anew. When Kevin reports that those ships, the ones that carry passengers or the ones that carry oil, are on the move again, we'll know that the worst may be behind us.
Josh King:
With 90% of the country listening to this while under a stay-at-home-order, one piece of advice we've all heard is to reach out to friends and check in on how everyone's doing. My dad is celebrating his 89th birthday today, so I'll be dropping in on him shortly with my Amazon Echo Show to see how he and mom are doing up in Newton, Mass. But now we're going to check in on a friend in Miami, Florida, a guest of our show whose first appearance was back in 2018. And yet he's a regular face on the floor of the New York Stock Exchange, where he's brought four ETFs to market since July, 2015 as Chairman of O'Shares Investments.
Josh King:
Kevin O'Leary joined the podcast back in episode 41 when he and O'Shares CEO and President, Connor O'Brien rang the opening bell to celebrate the listing of the O'Shares global internet giant's ETF. That's NYSE Arca symbol OGIG. The conversation dove deep into Kevin's numerous entrepreneurial experiences, both as an owner and a major investor in dozens of companies, to how his mother's investment strategies underpinned the foundation of O'Shares, to his policy positions on regulation and trade.
Josh King:
He's still got an APB out for Justin Trudeau, and it's worth going back for a listen, especially midway through where Connor stepped into the microphone and gave a 10-minute masterclass in the ETF space in investing. But today we're going to stick to current events and discuss the economic impact of COVID-19 and look ahead to how it will impact the markets and investing in the short-term and beyond. Our conversation with Kevin O'Leary on economic policy recovery and the role of ETFs in today's market uncertainty and beyond. That's all right after this.
Speaker 3:
Advancements are coming. Equity and fixed income ETFs are poised for continued growth, and ICE ETF Hub is ready to advance the ETF industry. Simple, efficient, transparent. Get involved.
Josh King:
Our guest today, Kevin O'Leary, is among other accolades the Chairman of O'Shares Investments and Beanstox Inc., a four-time Emmy winner during his 13 seasons on Shark Tank, and a bestselling author. He joins the podcast today from Miami, which is a better climate for a Shark like him to weather this period, to share his experience on the economy, investing, government policy, and more. Welcome back inside the ICE House, Kevin.
Kevin O'Leary:
Great to be here. Thank you very much.
Josh King:
How are you holding up? I saw you shared a picture of your apartment on Instagram that cited your return to college style living.
Kevin O'Leary:
Well, that's true. It's like everybody else going into week four or five or six, depending when you started this. It's a new adjustment to how I live. I'm encumbered here with a tremendous amount of technology. I broadcast to the networks from here. I have a broadcast camera, as well as use all of the different platforms for talking to my companies and investors overseas and everything else. The one change I would say that is occurring is I'm working 24 hours a day with four-hour sleep cycles. It's kind of morphed into an interesting... I sleep for four hours. I get up. I work.
Kevin O'Leary:
It could be 2:00 in the morning, 3:00 in the morning, because I have investments all around the world. Everybody that's sequestered this way is going into these really funky platform way of living. I wake up at 7:00, I order a pizza. It's crazy, but that's what's happening. I have to be honest, I'm very, very efficient. There's going to be some adjustments to how my companies spend money on... Well, we'll get into that later, but I'm learning, and we were forced into this efficiency. We're forced into this, and I am going to come out of this a much more efficient manager. That's for sure.
Josh King:
And then probably also more thoughtful and efficient with both exercise and your artistic diversions. I've seen lots of Instagram pictures of you with a guitar. Between sleep and work, how are you fitting the other lifestyle nutrients into your schedule?
Kevin O'Leary:
I ordered a bike from a local manufacturer here, and he custom-made it for me so that I could take really long rides on bumpy board walks. So, I try and put in 20 miles a day. At the end of the day, when the market's close here or stateside, I try and ride from 4:00 to maybe 7:00 to get some exercise. Because the gyms... Every gym in Miami's closed. I have ordered a bicycle. I don't know how I'm going to get it here yet because it's really hard to get delivery on this stuff, but a stationary bike to put in the balcony of my condo so I can do that.
Kevin O'Leary:
I think it's so important to get your regular routine of exercising in these crazy times because you need your mind to drift into... I've been working out my whole life in the morning and a routine on a bike, and I just have to keep doing it.
Josh King:
I've seen visuals on your Instagram account, but what's your take from whether you're on the balcony on a bike or just looking out on the state of the cruise line industry based on what you're seeing?
Kevin O'Leary:
The real question for that industry, and there'll be others, and we can go... Because I'm adjusting my portfolio as a result of this. Here's the question, how many potential consumers are going to change their behavior as a result of going through this? Now, let's assume it lasts till, I don't know, the end of June if you want to be optimistic and maybe the end of July, we don't know. No one knows. But it makes me think, will I go back to my favorite restaurant in New York? I'm not going to name it, because I don't want to hurt the entrepreneur there.
Kevin O'Leary:
But it's in a basement. It's very crowded. It's hard to get a seat. I don't think so. I don't think I want be jammed in a room with 1,000 people. I think I'm going to go full Howie Mandel after this. I'm going to start thinking about crowded places. And so, that may happen to the cruise industry as well. Maybe I don't want to be locked in a steel chamber with thousands of people when we know this can happen again, or we know that this is how bacteria or viruses spread. So, it makes you a little more conscious about lifestyle.
Kevin O'Leary:
I think about something else that I think is more, it's manifesting itself right now in fund flows. And this one's a scary one. One of the most important asset classes over the last 30 years, and I've certainly been a participant, has been real estate, commercial real estate, residential real estate, storage real estate, all the things that I've done in the... I love hard assets. I love hard assets with cash flow. Real estate fits to that. Here's a problem. In this last four weeks... I have 52 portfolio companies that are private right now, all of which have leases, some from private leaseholds, from private landlords, and from REITs.
Kevin O'Leary:
So, as a result of the government bail out package, it's very clear that that package favors companies that are willing to look at the payroll on Feb 15th and then look at it again on June 30th. And if it stayed the same, you can get that whole loan forgiven. So, in the cases, I was about to start laying people off, and I said, "Whoa! Nelly, wait a second. Forgivable loan is extremely valuable asset. Let's see if we can covet these loans and figure out how we can get this money for the next 90 days. But then I thought, "How am I going to fund the companies during the period I'm waiting seven or eight weeks?"
Kevin O'Leary:
So, what do we do? We call our suppliers and say, "I can't pay you." Then we call our landlord and said, "Not paying you. We want to have a deferral for three months and tack it on the end of the lease, whenever that is." The majority of those are held by REITs. So, I started doing mass calls saying, "Look, we all understand the boat we're in. We thank you for understanding. We'll keep the DNA of our business intact, but we're not paying you for three months." Now, not every REIT liked that because they're public and have to pay distributions and everything else.
Kevin O'Leary:
But this is happening all over America as we speak. So, what I said to them was, "Look," I said, "here's the deal. You can send your letter of complaint if you want to file a lawsuit. That's fine. Send it to me personally. I'll post it on my social media to 4 million people, my followers. I'll put a picture of you, the CEO, whoever you are, and list the people that you're throwing into welfare. How about we start with that? That is a bully pulpit, I get it, but I'm doing what I have to do to have my company survive. And so far, everybody has found a way to understand. How about that?"
Kevin O'Leary:
One of the comms women from one of the companies called me and said, "Look, it's a big misunderstanding." I said, "BS, you went and looked at how many followers I have, and that's the only reason you're calling me back. Let's be honest with each other. At this time, honesty is necessary." But the point is the conversation is going on everywhere. I hate REITs. I have exited all REITs. I'll tell you something else. When this is over, I've asked all my companies, "Why do we need all that office space?
Kevin O'Leary:
We're working so efficiently right now. Why don't we get a whacking and a hacking and cut our square footage in half or cut it by 60%. Call your landlord and say you want out of the lease or whatever it is, because we're going to start working more virtually." Also, if I have a REIT of a AAA office tower with 4,000 people in it, 400 people on the elevator at 8:00 in the morning, are people really going to want to work that way, like ants, when the next virus goes sweeping through?
Kevin O'Leary:
I think there's permanent impairment to real estate like that, and that's one big sectoral move I'm making. I'm exiting, taking all my cash out of there, and wait and seeing what's going to happen. Because maybe that office tower was selling in a four cap. Maybe it's going to move to a six cap now. 20, 25% difference in value just like that. I think all of these things are going to happen.
Josh King:
You've always been brutally honest, Mr. Wonderful, not the least of which is right now at this very minute. Going back to some of those personal lifestyle choices you were talking about earlier, the restaurants in New York and applying it to where you are now and grafting that onto your economic forecast, Governor Ron DeSantis finally this week issued a stay at home order following the lead of Miami Mayor, Francis Suarez. You look at the beaches, you look at the South Beach restaurants, you think about Disney World and Universal Studios, will Florida's and the country's recovery be, as you think, V-shaped, U-shaped, L-shaped, or a shape of the alphabet that we don't recognize?
Kevin O'Leary:
I don't think anybody can call that right now. The problem is, and the way I'm playing it from an investment point of view, is I'm using something I've self... I guess I'm calling it the New York Index, the Cuomo Index. The whole world is watching the stats out of New York City. You might as well think about Manhattan as a giant cruise ship with rooms 70, 80 storys high, people jammed in into that place. Nobody can really leave now, it's a lockdown, but that virus is ripping through that city because of its density. And so, as the news gets worse, as cases continue to climb and the death toll rises, I think the market trades down or very, very sloppy globally.
Kevin O'Leary:
The minute we sense that they've nipped it in the bud and they've stopped increased cases, either through a therapeutic, a vaccine, finally, the sequestration works. What ever it is. I'm applauding COMO's job. He's at least telling it like it is, and he's giving you numbers every day so you can make your own determination. Now, if that's June 15th, which is what the auto manufacturers are hoping it's going to be, they're going to go back online then. I think this is a short jolt to the system, and you're going to get a violent recovery in the indexes.
Kevin O'Leary:
It's going to be one of those cases where 90% of the returns come in 18 days over 24 months, and if you're not invested, you miss it all. That's one scenario. The other is it's a protracted, and everybody's talking about this. I'll give you an example. We're not shooting Shark Tank in June. We've postponed it for months because we just don't know. There's another industry that's suffering. Not a single sound stage in California is open for business right now.
Kevin O'Leary:
That means all that content that they need to shoot for the fall seasons isn't happening. So there's ramifications ripping through the whole economy, but it's all about timing now. But coming out of it, and I start to think about viral risk, this won't be the last time this happens. You go back to SARS or any of these epidemics or pandemics, does the frequency increase? Do we need to think about that in cap rates? Do we need to build that into our models in terms of risk profiles?
Kevin O'Leary:
I think everybody's going to try and start thinking about that. Maybe one of the issues on the WHO or at The Hague would be, let's stop having wet markets. Let's change human behavior. Let's not digest species that aren't safe to eat. Because every one of these has started that way. And maybe we need to start thinking about it on an economic basis and penalize countries that don't abide.
Josh King:
Kevin, thinking about where some reporting has been that the virus started, I usually talk about a guest's family in the second half of the show. But just like calling my dad on his birthday, I remember when you and I were together at the New York Stock Exchange talking about how you'd take your kids to a different city each weekend, which was really a way of life for you. How is everyone else in the O'Leary family adapting?
Kevin O'Leary:
Well, they're freaking out because they're locked down in different cities. I've got a father in Geneva, a wife in Canada, a son also in Canada, which is why she's there. I've got a daughter in New York. I worry about her. And I'm here in Miami. We do family calls every day and try and see how it's going, but we've been locked down now for three weeks. You have to get into a rhythm when that happens, because you start to get a little crazy. There's no question about it.
Kevin O'Leary:
But as I said earlier, I'm using this time to really focus on the changes I'm going to make in terms of my own lifestyle and on my company's portfolios and how they operate. We're going to be making some major, major changes. I think I can cut 20% of the cost out of my portfolio when this is over, primarily at the unfortunate outcome for landlords, because I'm going to be cutting back on square footage like you can't believe
Josh King:
We've talked about some of the real estate and cutting back on the square footage, but what are some of the other tools and strategies for companies under your portfolio that will to maintain productivity and continue to prosper?
Kevin O'Leary:
Well, I'm going to work with most of them towards shifting hours. I've started to work with virtual assistants. Let me give you an example. These are anecdotal examples, but it's really changing my mind about how we're going to operate going forward. I've published every week on YouTube, my YouTube channel called Ask Mr. Wonderful. I did an interview with Maria Sharapova last week, a very interesting woman running her own confectionary business and of course a tennis star and all that. It was a really fascinating interview, longer than usual, because she was so interesting. Normally I would've gone into the TV edit bay and cut that with a couple of editors, one on my left, one on my right, remembering the interview, etc.
Kevin O'Leary:
We can't do that now. And so, we've used various technologies to be able to record from her home. I have an editor sitting in France, another editor sitting in LA, and we're all doing it virtually together at a fraction of the cost of me renting that New York studio, a fraction of the cost. I'm never going back into an edit bay again, never. I'm going to shoot these things. Any of my companies that do social media and produce commercials and all the things we spend on because Facebook's our number one digital spend, I'm saying, "Guys, we're going to go to virtual assistants here. We bid out the work."
Kevin O'Leary:
I have five editors in Europe and five editors in stateside, and I can time shift by 6 to 10 hours. I can work for 14 hours efficiently and just sit in the middle and say, "Okay, cut this. Cut that." Whatever. I'm just making a point of how this way of work. Because we have the technology to facilitate it, well let me cut my costs. I think there's going to be a big change across multiple sectors on how this works. And so, time shifting, virtual assistance, allowing employees to work more at home. Cutting back on the square footage in my office space in Boston, New York, San Francisco, Dallas, I can't wait to start hacking that.
Josh King:
A couple of days ago, you announced a partnership with StartEngine. What is StartEngine, and how is O'Leary production going to work with them to drive entrepreneurship?
Kevin O'Leary:
If you recall back, and you do remember the 2008 financial crisis, what was born from that for entrepreneurs and small companies was Indiegogo, if you remember. It was the idea, and other platforms like it. Kickstarter was another one where you could bring an idea to market, get it funded by people that would eventually receive your invention or your prototype or whatever it is. What's going to come out of this correction is a brand new industry that was made possible by a law of the SEC pass or at least approved about 36 months ago called the JOBS Act. Now what we're going to have is a bunch of companies that are going to be doing crowdfunding equity. Let me tell you the advantage of that.
Kevin O'Leary:
Crowdfunding equity is basically a shelf prospectus up to $1,070,000 that the SEC approves that you can go out and solicit individual investors for small amounts of money, $25, $100, $1,000, whatever it is. You can basically go issue a security on a platform and raise capital from thousands of investors. Now think how different that is. My companies are always going to the Silicon Valley or Boston to the VCs and saying, "Look, the typical startup is a 5 million valuation, a 1 million raise." They give up to between 20% and 30% to one concentrated entity, and they become beholden to them every time they raise capital.
Kevin O'Leary:
Now I'm telling my guys, "Why don't we use this crowdfunding as a way to diversify our shareholder base so we don't have a concentrated." Now there's some merits to having VCs with big brand names, but those boys are going to have to sing for their supper going forward. I was looking at all the equity crowdfunding platforms, and I was even thinking of starting my own because I have a fair, pretty large following. I thought I could show this too. And then I ran into a guy named Howard Marks.
Kevin O'Leary:
He's the co-founder of Activision. He showed me his platform. He said, "Listen, Kevin, I'm number one in the world right now because I was able to attract a quarter of a million investors that live on the platform and look at deals every weekend. I've done 130 deals. I've raised 150 million bucks, give or take, whatever. I've already got scale. Why don't you partner with me? And we'll use this platform that's already got a huge advantage. The SEC likes our compliance and, and, and." Look, I'm not an idiot I looked at it and said, "Well, I can't catch up to Howard." I came up with that guy. He's smart as hell.
Kevin O'Leary:
Why don't I just buy a piece of his company and we'll partner, which is exactly what we did. And so now I'm showing it to all my Shark Tank companies. I'm showing it to any small company. I just want to give some competition to VCs who got very fat and sassy over the last 10 years, but now they have got major competition in this. I think a lot of my companies will take advantage of it. There's three things all of every small company needs in America today. Number one is crowdfunding. Number two, they definitely have to find a way to be more efficient in acquiring customers. That means better digital spends, better use of geo locking.
Kevin O'Leary:
For example, if you have inventory sitting in Texas while you're advertising in New York, you want to just ship it to the people in Texas to save a lot on shipping fees, because most companies ship for free. That's another area. Third, and this is very important, tax. You got to have somebody prepare your tax, both state and federally. These grants require you to have up to date income statements, balance sheets and payroll records, otherwise you can't apply. I'm doing deals in each of those three verticals. I'm finding a company that is the best in each of those areas. You'll see some other announcements in a week or two. I'm buying a piece of the company and I'm becoming their spokesperson.
Josh King:
You talked about what you're doing with StartEngine as it relates to taking advantage of the job act. President Trump just signed the $2.2 trillion CARES Act sweeping Bill Kevin, far greater than Mark Cuban's net worth, that simultaneously tries to shore up the small businesses that you've been talking about, large corporations, local government, individuals, and provide funds to combat the spread of COVID-19. What's your early take on the work of the US government to take on this epidemic? And does it go far enough?
Kevin O'Leary:
That bill was signed at 2:45 on Friday, last Friday. I had it in my hands about eight minutes later. I had all my accountants and lawyers ripping through it. We've put dozens of applications in already. If you really read the bill, what it's trying to do, and this is important for people that are listening if they want to tap into this, it's trying to sustain the jobs of individuals and small business all over the country. I think it's only 350, 380 billion, which is not a lot of money. I know it sounds like a lot, but when you've got 6 million companies, it's not that much.
Kevin O'Leary:
So, it's first come first serve. But the point is, if you understand the intention of the bill as I do now, it's designed to keep people fully employed based on your payroll records on Feb 15th of this year. And if they are the same on June 30th, the law may grant you for that period, which hopefully will be the end of the peak of the virus is forgivable. So, what you need to do, if you understand that, is find other ways to fund your company without firing or reducing the salaries of those people in that period. The bill is incentivizing you to do that, so that's why you got to start pushing back on your suppliers and landlords and everybody else you can.
Kevin O'Leary:
Because you really want to get that loan and you really want to have it forgiven, because that's just magic. It's the best deal I've ever seen. Now you're going to be working through the current account in your regional bank. We've been filing a lot with Fargo, those companies, and it's very, very important that you have the right tax information and you're up to speed on your tax filing, otherwise you're not going to be granted this. But I endorse what's going on there. What I don't want to see and I'm not the only person saying this, I don't want to see Warren Buffett get ahead of me as a taxpayer, take advantage of a giant bailout. Pick an industry.
Kevin O'Leary:
Let's make it airlines. Get a super attractive pref that I don't participate in. That's not going to happen this time. I think what's going to occur here, and I heard it from Kudlow in a very... I'm very happy Larry's on the case. If Boeing, and I can... Boeing situation going $400 down to $96, half of it's inflicted on themselves, with their mistake with the MAX, But the other half is because we basically shut down putting people in steel tombs for a while. Nobody can fly anywhere because no one wants to catch this virus in a condensed air space.
Kevin O'Leary:
If they're going to borrow 50 billion from me, the taxpayer, I want a piece of the action. I want a piece of the action. I don't want to hear that some private equity firm got ahead of me when I'm funding the survival of that business. I think we're going to get it on this bailout. I'm going to be participating as a shareholder, as a taxpayer, and I'm fine with that because we need to keep Boeing. When I saw Boeing trading at $96, I thought to myself, well, I got a Fed put and I've got a Buffett put.
Kevin O'Leary:
I think I'll dip my little toes in there and pick some up. Also, buy a little debt. Although I don't think I'll make as much on the debt as I will on the equity because I don't think I'm going to be washed out now. I think it's very, very interesting that I can get offered a supply chain and a defense company and the number of patents that Boeing has at a fraction of what it was trading for 12 weeks ago. There's lots of opportunity in the market if you want to look forward.
Josh King:
So much more conversation now, Kevin, about people looking at individual names like BA. Across the globe, different governments have taken different approaches to tide their economies over during periods before shutdown. Are there any policies that you think will be more effective than others? You certainly have not let up on your criticism of what's happening in Ottawa.
Kevin O'Leary:
Well, I don't ever want to make politics personal. I'm a policy guy. Canada's a short because the currency's going to collapse. The government there... I'm very depressed to say this because I have basically taken almost all my capital out of Canada. That government, that policy, that administration does not understand their economy. It's built on natural resources. It's built on all kinds of commodities. Alberta, just a few years ago, was the envy of all of North America. It is now a tumbleweed blowing through it. The government shut down any chance of pipelines to the east or west coast to attract world markets to Canadian oil.
Kevin O'Leary:
There is no need for oil to be shipped to the US anymore. The Canadian oil as of right now is trading for just over $3 a barrel. The metal in the barrel is worth more. A bottle of beer sells for more than a barrel of Canadian oil. It's been decimated. I lay that at the feet of the Canadian government, not understanding and having very, very weak leadership in stewarding that economy. Now, the country's resilient. There'll be a tremendous opportunity at some point. I don't think this current administration's going to survive another test.
Kevin O'Leary:
And so, the timing will be important. The risk is when you're investing in Canadian Dollars, there's risk in the currency, big risk. It could go as low as 50 cents to the US dollars. So, you've got to put some kind of hedge in. That is not a place I'd deploy capital right now only because the policy is anti-business. It's anti-growth. It's the only government on earth. I was highly critical this week. When this government in Canada applied a doubling of its carbon tax, the people are on their knees. They're not even driving cars, and they double the carbon tax on them?
Kevin O'Leary:
That's heartless and cruel. It's shameful. It just shows you the mediocrity of which is being applied to policies. But don't get me going. I have nothing nice to say about that administration, and I can't wait for it to change. It completely misunderstands the economy that it's managing. But as a global investor, I have to look for administrations that understand what they're doing, the Nordic countries, the Swiss, for example, even the British going through their Brexit, even the French, any of the G7. The worst place to have invested in the last five years has been Canada on a market to market basis.
Josh King:
Well, sir, I don't want to get you going, so I want to take a little break. After the break, Kevin O'Leary, Chairman of O'Shares Investments, and I'll discuss how COVID-19 and the world shutdown will impact investing today and in the future, as well as how equity index ETFs like those in OSHA's portfolio can be deployed. That's all right after this.
Speaker 5:
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Josh King:
Welcome back. Before the break, Kevin O'Leary, Chairman of O'Shares Investment and renowned Shark Tank investor and I were checking in and discussing the current economic climate. While we were planning this conversation, your partner at O'Shares, Connor O'Brien mentioned that you're closely monitoring how this period will jumpstart certain permanent changes in the economy, such as online retail. In 2019, e-commerce made up only 16% of total US retail. Your team at O'Shares predicted just a couple of weeks ago in a paper entitled Mega Trends Driving Internet and E-commerce Growth First Quarter, 2020, that it would double in 2023. Has that timeframe changed even in a couple of weeks?
Kevin O'Leary:
It's accelerated. It's going to happen faster. The premise of that index, OGIG, is to say, this phenomenon, we call it the fangs in North America. It's happening all over the world. It's happening in South America. It's happening in Europe. It's happening in Germany. It's happening in Britain. It's happening in Asia. And so, with this index, I think OGIG's unique in this sense. When Connor... I have to give credit to Connor. He's the CEO. This is one of my larger companies O'Shares, and it's an indexing company that creates unique indices of which I invest my money and my family's money. And so, I have a fair amount of say in what these indices are, because I generally am the first investor.
Kevin O'Leary:
When Connor came up with OGIG, I thought it was sheer genius because there is no way for me to easily buy an index based on market caps. These are the of giants in all of their markets and sales growth. And so, he came up with it. He worked with scientists, the analysts to build it. When he showed it to me, I said, "It's genius. It's phenomenal. I'm going to reallocate. I'm going to go out of the fangs and go to OGIG." It was the right thing to do because this global trend is going to be in place for decades moving forward. Coming out of this test with the virus globally, think about how people are moving all of their eCommerce or all of their purchases online. And that's exactly what OGIG tracks.
Kevin O'Leary:
So, that is a huge holding for me now. I really think it's a core holding in terms of how I play technology. Because for example, OGIG, one of the earliest investments was Zoom. It made the assumption that this would be an important company, and it was. We're probably in the Zoom before anybody even heard of it. So, it's a fantastic way to have a complete diversification of the global phenomenon of giant eCommerce, and that's what OGIG is. Sometimes when you get it right, you get it right, and he got it right there.
Josh King:
Think of how many millions of people have just adapted to Zoom over the last two weeks just around cocktail hour to maintain those connections that you talk about with your dad in Switzerland and your kid in New York and everybody else. We're certainly doing it around the clock, seven days a week. You talked about this test with this virus globally. You are a student of history. Experts have thrown out a litany of theories of what today's economy most resembles. Either there's elements of 9/11 in it or the 1918 Spanish flu to I even saw the chart that tracked wage growth following the Black Death in the mid-1300s. Are you looking back to a particular period to help model how you expect the economy to recover?
Kevin O'Leary:
You can do all the work you want in to trying to second guess how it's going to recover and which sectors will be favored, but here's what I've learned at being an investor for decades. I don't care what forecast the CEO gives today. It's irrelevant because he or she does not know the length of this trial the world's going through right now. The only metric that's going to matter in how you manage capital that stays at risk, when you deploy risk capital and buy equities of global companies, is balance sheet quality. Because the ones that are going to survive are going have the stronger balance sheets. If you have a lot of... I'll give you an example. Let's look at the energy industry.
Kevin O'Leary:
It's a good place to go and just do a quick analysis. The bottom of JNK, the index that tracks junk debt, 18% of it is single C credits from garbage energy companies that went to covet list debt and went and raised a bunch of money when times were good and oil was 100 bucks a barrel five or seven years ago. Now it's all coming due, and they're all going to zero. Their balance sheets are garbage. All the shareholders will be wiped out and the bond holes will be wiped out, but the survivor is going to be a Chevron or an Exxon that can buy these bonds for pennies on the dollar and acquire the leases for when oil goes back up to 30 or 40 bucks.
Kevin O'Leary:
There's an example. If you stayed through the trials and tribulations of the downstroke, if you owned Exxon, if you owned Mobil, two names that I own yielding north of 6% now, I might add, those are names that are inside another index that we have called OUSA. OUSA gives diversification, looks at the entire S&P 500 and says, of all 500 companies, which have the best balance sheets in every sector and only owns those, so about 130 in change companies. Basically, if you look at the performance of it, the one thing I care the most about is it tracks the index or close to it, but that's not what I care about.
Kevin O'Leary:
When you get the drawdowns, you only participate in 20 or 30. You save 20% or 30% of the drawdown because the higher quality balance sheets don't go down as much. That's what OUSA does. If you're going to own the S&P, I'd rather own it in OUSA, which I do obviously. But my point about your question, which is a good one, is you don't know which sector's going to get favored. You don't know if next year's darling will be energy through the recovery. You don't know if it's going to be materials or manufacturing comes back, supply chains come back to the US, whatever.
Kevin O'Leary:
But I do know this, the strongest balance sheets are going to win, and I own all of those. And so, when I see 1,000 point down day, I top up a little bit on an OUSA and another one midcap that does the same thing. It turns out the Russell 2000, the majority of companies make no money. About 300 of them do, and that's what's inside that index that was designed with Connor, myself and FTSE Russell. OUSM is just the quality names in the Russell 2000 without any REITs because you know I hate REITs. Now I hate REITs more than I've ever hated REITs but that's another issue. I use indices to put on, to buy equities.
Josh King:
We've talked about OGIG, O-G-I-G. We've talked about OUSA. We've talked about OUSM, portfolio rebalancing and investing for income. You've apparently been saying it's time to sell treasuries and buy income equities. Tell us about your plan and your investment strategy for the long-term.
Kevin O'Leary:
Yeah, my fixed income portfolio has done its work, and it's been great to have bonds in there. They're up 14% this year or even more. It depends on which day you look at it, but what's so interesting about this, you now have to make a decision about, what is the outcome of pouring $2 trillion into the US economy and maybe another trillion down the road in part of a stimulus package? The risk there is inflation in the 10-year. And so, you're getting paid 50 basis points to take 10-year risk on a US treasury. Is that a good idea? No, I don't think so. For the first time I'm saying to myself, I would rather... I used to be 50/50, 50% fixed income, 50% equities. I'm going to adjust that.
Kevin O'Leary:
I'm going to go to probably 65% to 70% equities for the next five years, and 30%, 35% fixed income because in inflation, if there is any because of the 2 trillion, 3 trillion getting poured in globally too, you'd rather be in corporate equities because they have pricing power in inflation. If you're getting a good DIIV yield of say 2% to 3%, you're going to do significantly better because you're getting the protection against the asset declining in value.
Kevin O'Leary:
If next week, and I'm just speculating here, you had an inkling in inflation on a ten-year bond and you bought it with a yield of 0.5 something, half a percent, you're going to get killed. You're going to have the principle value of that thing drop 20%, 30%. And so, I don't want that risk. So, yes, I'm moving a little bit out of that and a little bit more into really high quality balance sheets that pay me a distribution in the form of profits and cash flow and dividends.
Josh King:
As we wrap up, Kevin, most of the news cycle has been on medical innovations underway to cure or vaccinate against coronavirus, but periods like the ones we're going through often lead also general technological leaps. Do you expect to see an uptick in the social distancing friendly startups on Shark Tank next year when you do finally get back into the sound stage?
Kevin O'Leary:
We were talking about that. Every time as a crisis, I was talking to the producers yesterday trying to pick a time to go shoot this again, the number of applications is unprecedented. It's being all done virtually online now in three-minute videos and interfacing with these companies all over America. But I made the observation, which has always been the case. At times of extreme pressure, extreme trauma, which we're going through now, you've got some entrepreneur, some man or woman sitting somewhere dreaming up the next giant innovation. I don't know what it's going to be. I just hope I get to invest in it, and I hope they come to Shark Tank first before they go to StartEngine.
Kevin O'Leary:
It's sort of, you know that's happening. Every time there's a massive correction, people solve problems, and then they become giant companies. I am 100% confident that's going to happen, and I intend this time to spread my best into even more companies, which is why I'm doing this platform of service, the StartEngine stuff. There's things I'm doing in tax. There's stuff I'm doing on digital spend. I'm going to build a much bigger portfolio of startups because I'm finding fantastic ideas that will service a new world order, if you want to call it that. I don't think people are going to be as touchy feely as they used to be. As I said earlier, Howie Mandel, baby. That's where we're going.
Josh King:
We started the conversation discussing you ordering pizza for breakfast like a college student based on your new time schedule around the day, but what has Chef Wonderful been cooking up to pass the time when you do invest the time to make something more culinary exquisite? I saw your new pizza oven as well.
Kevin O'Leary:
I have done so much work. I was classically trained in Cambodia by a French chef when I was young and became an assistant there. I've gone back to some of the classics. I made escargot the other night for myself very delicately. I use less garlic than many people do with the real shells. I made crepe l'orange, which is a classic French dessert. It takes hours to prepare. I've been doing a lot of Mediterranean dishes. I made an eight-hour osso buco with beef shank. The way I make it is just spectacular. Nobody can beat me, and I left some of it for... There's only 13 people living in my building now, and I gave one to an Italian lady downstairs.
Kevin O'Leary:
I left it outside of her door, and she picked it up and then sprayed the box with Lysol. Not the food. She Zoomed me a couple of hours later and said, "The best I've ever had, and I'm Italian." I love to cook. It is just about how much time you have, and all of a sudden, I have time. So, I'm doing this four hour sleep. Get up, make a couple of dishes. I'm planning tonight to make a seafood linguine with a little lighter sauce blanche. It's going to be a white sauce, but it's going to be lighter.
Kevin O'Leary:
I like cooking lighter these days, and it's just a whole new vibe, but I always go back to my classic training, Cambodian chefs, [Tiba 00:42:27] and [Dang 00:42:27], they were Khmer Rouge women in the late '60s when my father was at the United Nations and I was being taught at home by a French woman. In the mornings, Tiba would wake me up at 4:30 and take me to the market for the sunrise in Phnom Penh, right on the Mekong. I learned so much from her because the merging of the Asian spices with the classic French, which occurred as a result of being colonized by the French, the Cambodian food is some of the best on earth and the hardest to make.
Kevin O'Leary:
It is equivalent to Lebanese food, which is prepared by the grandmothers traditionally. The grape blaze, I can make that, which takes freaking hours. You got to spend all day making a dish that people are going to eat in five minutes, but it's spectacular. Anyways, I could talk about food all day, and you will see Chef Wonderful emerging. I'm doing a tour in the fall. I'm doing a lot of work with QVC these days. I'm bringing spices. I brought sous vide. I'm the number one purveyor of sous vide on QVC, the number one purveyor of wine on QVC. I'm bringing new cakes. I'm preparing. I got a lot of stuff going on in the food industry, a lot of companies in that space.
Josh King:
We started off the conversation talking about what I'm binging, talking about going back to Billions starting from season one, but also Shark Tank, because you never know when some of the episodes that you've filmed were actually filmed. But beside those two, what are you finding in terms of creative, cultural stimulation that you're absorbing as well when you're not keeping your eye on the Bloomberg terminal?
Kevin O'Leary:
Well, there's two areas that I'm really engrossed in. Obviously, trying to become a better guitar player is a never ending pursuit. I have a recording studio here in Miami, so I'm laying down a lot of music that we can use on our social media sites royalty free, because that's one of the biggest challenges now. If you upload a video to Google, the bots will find the music if you're ripping it off and not paying your royalties and take it down, which I don't want to have happen, because I want to pay my royalties when I use other people's music, but I also want to use my own. I have a 16 track recording studio here.
Kevin O'Leary:
I get up all times of the night and just lay down some stuff. And then the other area, I'm working with some of the largest watch manufacturers on earth now. I'm a massive watch collector. I have a huge watch collection. I don't say where it is. It's actually in multiple cities around the world, because I've been ripped off twice, but it'll never happen again. But the watch industry is going through a renaissance I've never seen before. The best asset class I've had over the last 24 months has been my rare collectible watches.
Kevin O'Leary:
Some of them are up 138%, and they still continue to climb it because all the watchmakers in Geneva now are no longer at work. They're being sequestered, because they're over 60 years old in age. They're very, very valuable. There's no Pateks being manufactured, no APs, there's no Rolexes, so there's going to be a fundamental demand for those all around the world. I have a... I don't trade my watches, but I mark to market them every night electronically. I speak to some of the largest collectors on earth that are in Asia. I've got a friend at UAE who's probably the largest watch collector on earth.
Kevin O'Leary:
He's one of the Royal family members there. I won't say which one, but he and I are constantly messaging about developments in the watch business. So, that keeps me really engaged. I could talk about watches just all day, just all day. It's just-
Josh King:
Well, in your hand gestures, I see something with a red strap on. What are you wearing right now?
Kevin O'Leary:
Well, I'm wearing a Rolex Daytona. I wear red bands on all my watches, and that causes a lot of angst with some of the manufacturers. They know that. I think it looks great on television. That's what I tell them. For example, when Audemars Piguet made the first 100 11.59 Perpetual, a remarkable new direction from the Royal Oak, when they brought it out last year, you had to be invited to purchase. Of course, when I was invited, but I told the CEO at the time. At that time, it was Anton for North America. I said, "Look, Anton, I have to have a red band." He said, "It's impossible. We cannot give this a red band."
Kevin O'Leary:
And I said, "Well, I can't buy it. It has to have a red band." He said, "Well, only we would make the red band. You're going to have to wait months to go through the process." And I said, "I'm willing to wait months." When that watch appeared, the only one on the world with a red band, collectors went nuts. It looked beautiful. The terrain dial on that watch is legendary already. There's only 100 of them in the world. It's a gold with a red. Now everybody wants the red band. The management there is going to have to deal with demand because people today, collectors today want optionality on their bands.
Kevin O'Leary:
I keep telling these manufacturers, "You're charging $100,000 for a watch. Give the guy a second band for crying out loud." But we fight about this all day long, all day long. Patek, Rolex, AP. F.P. Journe is the hot new independent. The Journe watches are on fire. They only make 900 a year. You're lucky to even get near one. Anyways, you got me going on watches. We could be on here for hours, but that keeps me real busy. When I have free time, I'm a watch guy.
Josh King:
Well, you are a man who's keeping really busy for sure, Kevin O'Leary, whether it's marking to market his collection of watches or preparing for his neighbors new batch of osso buco or seafood linguine. I hope there'll be a time, not too far off, Kevin, where that'll all end and we'll see you back on Post 9 of the New York Stock Exchange to talk to us live and come back to New York city where you've got so many friends and people love watching you.
Kevin O'Leary:
I can't wait to get back to New York. I miss it so badly and everything I'm doing. I'm doing Good Morning America tomorrow virtually. I'm doing CNBC virtually. The way we used to do those things is we do the show, and we all go out for dinner together. I hope that tradition doesn't end. But I don't know my friend. Are people going to want to jam themselves in a restaurant anymore? I don't know. We're going to have to find out.
Josh King:
We will find out indeed. In the meantime, if you are a neighbor of Kevin or can get an Airbnb in his building in Miami, you might be the recipient of a plate of osso buco. Who knows? That is our conversation for this week. Our guest was Mr. Wonderful, Kevin O'Leary, Chairman of O'Shares Investments and renowned Shark Tank investor. If you like what you heard, please rate at us on iTunes so other folks know where to find us. If you've got a comment or a question you'd like one of our experts to tackle on a future show, email us at [email protected] or tweet at us at ICEHousePodcast.
Josh King:
Our show is produced by Pete Asch with production assistance from Ian Wolf. I'm Josh King, your host signing off from the remote library of the New York Stock Exchange up here in Windham, New York in the fabulous Catskills. Thanks for listening, and we'll talk to you next week.
Speaker 1:
Information contained in this podcast was obtained in part from publicly available sources and not independently verified. Neither ice nor its affiliates make any representations or warranties express or implied as to the accuracy or completeness of the information and do not sponsor, approve, or endorse any of the content here in, all of which is presented solely for informational and educational purposes. Nothing here in constitution offer to sell a solicitation of an offer to buy any security or a recommendation of any security or trading practice. Some portions of the preceding conversation may have been edited for the purpose of length or clarity.
