Speaker 1:
From the library of the New York Stock Exchange at the corner of Wall and Broad Streets in New York City, your 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 for global growth for more than 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 12 exchanges and seven clearing houses around the world. Now, here's your host, Josh King, head of communications at Intercontinental exchange.
Josh King:
You have an idea, a great idea for a new business or product, so you get to work. First, you start small, then you grow. Before you know it, you're standing in front of a banker, a venture capitalist, or maybe a room full of sharks. Your company gets the seed money it needs and goes national. The hard work is paid off, and soon you tap the capital markets to go public. Perhaps right here at the New York Stock Exchange, the long ride of the startup is over and, against the odds, you can him out on top ringing the opening bell. For many people, that means it's time to relax, but for others, like our guest today, it's time to find the next investment. Our guest today, Kevin O'Leary, is better known to our listeners and his millions of fans around the world As Mr. Wonderful. He did ring the opening bell today. He's a man who successfully co-founded, funded, and sold a wide range of successful companies, both on and off screen. Our conversation with Kevin O'Leary, Mr. Wonderful, right after this.
Speaker 1:
Inside the ICE House is presented this week by ICE Global Index System, or GIS. ICE's index families combine leading reference data, evaluated pricing and analytics, along with a track record in index provisioning, spending 50 years to deliver unique cross asset and best in class index solutions.
Josh King:
Kevin O'Leary, the chairman of O'Shares Investments. He's also a bestselling author, CNBC contributor, winemaker, guitar player, and photographer. Today, we try to cover all the facets on a fully diversified individual. Welcome to the ICE House, sir.
Kevin O'Leary:
Great to be here. Thank you.
Josh King:
You spent a lot of time here at the corner of Wall and Broad. The running joke on our ETF team, Kevin, is that we should get you an office in the tower with our fellow NYC employees.
Kevin O'Leary:
Well, I look at the New York Stock Exchange and my first experience with the building was in the mid '80s when my first company went public here, The learning Company, got listed on here. And what matters is this is the iconic central location for entrepreneurship in the world, not just the United States. The ringing bell, the ringing of the bell's broadcast globally, and everybody knows when they hear that clanging bell, it's the beginning of global enterprise and global commerce and global trading. And I'm very proud to be here today.
Josh King:
Kevin, you just rang the opening bell to celebrate the June launch of O'Shares global internet giants, ETF, NYSE, ARCA, Symbol, OGIG. It's your are sixth ETF, all of which are listed here at the NYSE. What exposure does it provide for an investor?
Kevin O'Leary:
Like everybody else in America that seems to be interested in growth and e-commerce and disruption, I own the classic names Facebook, Netflix, Microsoft, Alphabet, Google, you name it, but it occurred to me about a year ago... The great story I like to tell is you think about Uber, it was the grandfather of ride sharing, but it doesn't own that business in Asia. That's DiDi. No one's ever heard of that company until recently. The point is, just because it starts domestically doesn't mean there isn't a counterpart in another part of the world, and I wanted to own them all.
Kevin O'Leary:
Because the truth is, there's many a economies, like China, growing at twice our rate. We're just around 3%. It just printed 6% GDP. Why wouldn't I want to own the equivalent of Facebook there or the equivalent of Amazon there? And there's many names in South America and Germany and UK and Canada that are the global internet giants of those countries. So, OGIG is over 50 names that include all of those companies. They got to be growing very quickly. They've got to be giants. They have to be dominant in their markets. And now I have global exposure to what I think is going to be a trend that remains intact for decades to come.
Josh King:
Who does the selecting of these names?
Kevin O'Leary:
Connor O'Brien actually is the CEO of O'Shares, and he worked with indice designers to create the rules that allow these companies to actually be incorporated into an index and maintained. The great thing about ETFs is they give you total transparency, they're very tax efficient, they're very liquid, you know exactly what you own, but the philosophy behind how they choose names is the magic into how this works. Now, I happen to have him right here. Connor, why don't you tell us how you built this thing?
Connor O'Brien:
Hey, Kevin. Thank you. Yeah. OGIG is really designed to give investors one ticker access to all of the global internet giants. And when we looked at the thousands of companies and then drilled into the data to include only those that are in the internet and e-commerce space with at least 50% of their revenue is coming from internet and e-commerce, we then apply additional metrics. Does the company have a quality balance sheet, great profitability, strong revenue growth? And is it a big enough company to earn a spot in an internet giant's portfolio?
Connor O'Brien:
So, those are the ones that made it in. About 55% are US companies. Another 25 plus percent are listed in Hong Kong, serving China and Asia. And then there are companies in all over the rest of the world from Latin America and Canada and Europe. What's really amazing is the top line growth of these companies, think about this, top line, 30% weighted average growth across the portfolio. More than three times the trailing 12 month growth of the S&P 500. So, that growth is what we believe drives value creation in e-commerce companies. That's why the portfolio's driven by quality and their revenue growth.
Josh King:
So, there were some challenging news for ETFs out this week. Net inflows for June was 3.4 billion. That's still a lot of money, but down 44% for the first six months of the year compared to last year. Connor, if the market is flat, the appeal for ETFs might correspond.
Connor O'Brien:
Your data is right for the short term. Look at the long term. Last three years, flows to mutual funds have been zero to negative. Flows to the ETFs have been over a trillion dollars. Total mutual fund market that's no longer growing is a about 16 trillion to 20 trillion US mutual funds. The ETF market is only four trillion. Imagine saying only four trillion and it's grown at a trillion dollars in the last three years. ETFs are going to continue to grow for some simple reasons. They are much more tax effective for investors, they're much more cost effective, they're total totally transparent. The SEC seems to prefer ETFs, the media seems to prefer ETFs, and of course, most important, investors and advisors prefer ETFs because of those merits: tax effective, cost effect, totally transparent. Now it is up to us and others to build really good ETFs and service the investors and the advisors who want quality dividends if you look at our quality dividend series.
Josh King:
To broaden the aperture a little bit for a photographer like Kevin, we are six months into the year. US presidents tend to travel about this time during the year. President Trump was in Quebec earlier for of the G7, Kevin. He was in NATO in Brussels last week and meeting with President Putin, as well. Your take on how the markets have reacted for the first six months of the year, given the trade policy tensions, interest rate increases, talk of inflation.
Kevin O'Leary:
In other times, this kind of rhetoric would've roiled markets and had significant downside pressure on them globally. That actually hasn't happened here, and I have a thesis as to why that's not occurring. Many different administrations have tried to address tariff and balances between the US markets and international markets. Let's take Europe and China's as our ones to talk about. Because, really, this is a dialogue that's going on between the mechanics of the Trump policy, which would be Wilber Ross and Kudlow, Larry Kudlow, and their teams. And the first attempt that this started about two months after the Trump administration took power, and they basically said to the market, "Look, we don't like these massive imbalances in tariffs, particularly in automotive, for example, or in technology."
Kevin O'Leary:
And so, what the market is assuming here, and I talk to people that manage sovereign wealth out of Switzerland, and it's very interesting to hear their perspective because they have a very long-term mandate. They put 500, 600 billion to work in any year, they allocate generally on GDP, so if you're a country like Canada, you're going to get about 2.3% of that fund, or if you're the US over 40. But they look beyond just the skirmishes, and their thesis... And nobody knows who's going to be right or wrong, but it certainly tells you why the market may not be correcting badly. They're assuming that in 24 to 36 months, there's going to be a negotiated outcome to a relationship with China. It may not be the total reduction of all tariffs, but it may be the equalization of tariffs, which means if you think about who the major beneficiary of that's going to be, it's going to be the S&P 500 companies that we're facing brutal tariffs that now may have them normalized.
Kevin O'Leary:
You may not like Trump's style, you may think his strategy is not the usual business of government, and it certainly isn't, but other governments have tried for 40 years to correct this problem and had no success whatsoever. So, many people that are participants in the market and investors are saying, "Let's give this style a chance and see what happens." It doesn't matter what the rhetoric is. It matters what the policy outcome is. And I am an optimist that this ends up being a better place to invest, not just domestically, but globally, by the time this musical chairs dance is over on trade tariffs and everything else, and all the rest is just noise.
Josh King:
Switching gears, Kevin, it was just announced that Shark Tank was nominated for two Emmys and was renewed for its 10th season, going into its second decade. Congratulations.
Kevin O'Leary:
Thank you. We're very, very proud of that.
Josh King:
Any idea that you were signing up for such a long commitment when you first got on set?
Kevin O'Leary:
No. I used to have hair when I started Shark Tank. But we're very proud of the fact that it's become an iconic platform, it helps so many different entrepreneurs. This year is going to be different. We're halfway finished shooting. The deal sizes are huge, millions of dollars. Because large companies that already have products established in the markets realize that if they can get eight, 10 million eyeballs a week looking at them for eight minutes on primetime television, that's extremely valuable. So, we're excited about all these new deals that are coming in.
Kevin O'Leary:
But people have asked me for the last seven years, why does Shark Tank keep going? And I always respond with my own thesis. What are you watching when you watch Shark Tank, you're watching the pursuit of freedom. What does it mean to be successful in America as an entrepreneur? You're free to spend the rest of your life doing with your time what you wish, the things that are important to you, and your family. And that's a very visceral, powerful platform to watch. I'm there every day taping it, and I can't help myself. I watch it, too. I just am so fascinated in how these journeys start. And even when we're shooting it, we've got over 100 people on the set. I watch the cameramen just get engrossed in the entrepreneur's story and the trauma and the heartache and all the things that occur on that set, the crazy moments we've had, it just makes for mesmerizing television.
Josh King:
Any of those deals over the first nine seasons end up tapping the public markets like the NYC?
Kevin O'Leary:
Oh, absolutely. They made their way into it. Think of it this way. Albertson's, a public company, bought Plated. The biggest outcome in Shark Tank history happens to be my deal. Thank goodness. They started on Shark Tank, and then three years later, we're worth $300 million. That's a wonderful outcome. We had Shutterfly by Groovebook, one of my companies, as well. And there's another one in the portfolio that's in a process now that I think in the next couple of months will be announced. Shark Tank has been the best venture investing I've ever had because the secret sauce is zero customer acquisition cost for the companies that make the show, it changes their lives, it changes their income statement, and the entrepreneur's story goes into the ethos in America. And it's an amazing platform to launch businesses on. And of course, it's amazing, our fastest scoring demographic are nine to 18 year old women. Who knew? Who knew that they'd sit with their families on Fridays and Sundays and watch this incredible drama play out in America? And we're just so proud of it.
Josh King:
You were just at the Aspen Ideas Festival speaking with several women entrepreneurs on the podium, and your advice coming out of it was your next investment strategy is invest in women.
Kevin O'Leary:
Well, the outcomes been remarkable. Out of my portfolio over the last 10 years, the majority of the returns have come from companies run by women, even though they don't know each other, even though they're multi-sectors, they're multiple geographies in multiple businesses, and yet, their IRRs and their return of capitals have been significantly better. So, I did some research on this and I shared it with the portfolio. This February took over the Betsy Hotel in South Beach, and I invited all the CEOs down and all the providers of social media, companies like Amazon and Twitter and Facebook, to come and show us best practices. What we learned was that women, and this is probably the secret sauce is, when we looked back at every quarter over seven years, we noticed that men only hit their target 65% of the time by setting very high targets, and we call that the testosterone target. They didn't care that they only hit it 65% of the time. Women, on the other hand, hit their targets 95% of the time even though they had dialed them down as much as 30%.
Kevin O'Leary:
Now, here's how it manifests itself in higher IRRs because that in itself didn't mean anything to me. In a company where you're constantly hitting your targets consistently, the culture changes. It's like playing on a winning basketball team. You don't want to be traded. There is practically no staff turnover in these companies run by women. And that changed the IRRs dramatically. Staff turnover in companies that are only hitting their target 65% of the time had a lot of volatility, disrupted cash flows, reduced returns. So, I told every stop setting targets you can't hit. You're not fooling anybody. You're a private company. You got to hit targets you can meet. Let's learn from these women, and go make me some money.
Josh King:
Going from women to young people, because the other part of the demographic was not just gender but age, I was up in the Catskills with my kids this weekend, Kevin, all of the toys were out, bikes, volleyball nets, the stuff for the swimming hole, and yet, many of the boys were glued to their screens. You used to be a CEO in the toy industry. With Fortnite capturing the attention of kids with their eyes, are we in a post-toy world?
Kevin O'Leary:
I think there's going to be a backlash to that phenomenon, and it's starting to happen. One of my portfolio companies Surprise Ride takes old school science kits, packages them up in new packaging, and sells them online and in retail to help mothers and parents get their kids off their screens, and it's growing like wildfire. Because parents now realize having kids just watching screens all day long is a little dysfunctional. You got to run around, you got to dream about other stuff, you have to exercise. And so, I think you're going to start to see some normalization on that trend. I mean, you can't put the genie back in the bottle, but if you're a child and you're not playing with a doll or doing something physical or trying something else like having volcanoes explode with baking soda and vinegar, which has been a classic toy forever, has nothing to do with digitization, you're missing something in your life., And I think parents are figuring that out.
Josh King:
What's the best way to teach kids these days?
Kevin O'Leary:
It's to actually engage them in a dialogue at the family dinner table. That's what I think. I'm a big advocate now for financial literacy and I've learned something really remarkable. We teach kids everything: sex education, geography, math, reading scores, you name it. We never talk about debt, we never talk about credit cards, we never talk about investing, and that has to change forever. In fact, I convinced Connor about a year ago that we should build an app for that are able to at an early age start to invest, and it was impossible to do because if you only have $5 to put to work, how do you do it?
Kevin O'Leary:
Now we have something called Beanstox, B-E-A-N-S-T-O-X, that lets kids put five, 10, $20 into an account and actually own a fractional share of their favorite company, or ETF, and learn how to invest. The truth is, and I teach graduating classes of cohorts of engineers, I can't believe these kids, these are engineers don't know how to invest. And if you put your money aside, 10% off every paycheck from your early 20s, you'd have over a million dollars in the bank if the markets just did what they did for the last 100 years, give you 6% on average, 7% on average a year. You need to invest, and you have to start doing it. That's why we developed Beanstox.
Josh King:
Connor, looking at these portfolios... What does the data suggest about how the kids are investing?
Connor O'Brien:
It's interesting. The self-directed investors using Beanstox buy the big names that they know, and you got Amazon at 15, 1,600 bucks. A lot of these kids are buying a fraction of a share. So, Beanstox allows them to buy their favorite three or four or five companies, they can buy 10, 20, 30 bucks of each one, and that's where they start.
Josh King:
How does it fund? The parents put a little money in? How do they fund themselves?
Connor O'Brien:
The investor chooses where the money comes from. It's so easy. ACH transfer. You just link it to your downloaded app. Three minutes, your account's open. Another minute, you've done your bank connection. And then your money is in the account, you can start buying stocks. So, you could link it to a parent account, you could link it to a personal account. The demographic's amazing. But one of the things that we actually need to work on, we have more male participants in Beanstox than female, and so there's something about our marketing we need to adjust to appeal more to the female crowd, as well. And what we're bringing out soon is a core portfolio service where we're actually going to give people portfolio management services to an internet advisory feature in Beanstox, and they can trade their own stocks for those that they want to pick themselves and they can use our system to own a core portfolio. All of this for an incredibly low cost, free for people under 25. That's pretty low, free. And max is five bucks a month for the rest of the world.
Josh King:
Do you share data with how many Beanstox accounts are open?
Connor O'Brien:
So, we have 30,000 user accounts at the moment. We've done virtually no marketing. We're going to get the automated core portfolio portion of it live in the next month or so. And then we're going to start doing the marketing. And what Kevin said about Shark Tank actually works with Kevin. His name, his visibility really helps us keep our customer acquisition costs extremely low, extremely cost effective. We got a terrific marketing team that uses social media and the content that Kevin and the rest of the team develops, and it allows us to reach thousands and thousands of people really cost effectively.
Josh King:
Is there any limit to the number of symbols that Beanstox users can buy, or how do they actually get a fraction of a share of Amazon?
Connor O'Brien:
Thousands of tickers of all the stocks and all the ETS, open architecture, buy anything, and they can choose to buy the dollar amount that they want. It's just incredibly, incredibly flexible, open, easy to use feature.
Josh King:
Kevin, this is a great answer for me, because the kid wants to buy a little Tesla and it's a big risk and I'm not sure he should do it, but if he buys 10 bucks of Tesla, that can't be that bad, can it?
Kevin O'Leary:
Well, first of all, buy the car, not the stock. One day that stock is going to trade at the multiples of all the other car companies and grown men are going to weep when that happens, but for now, it's an... I own one. I can't believe how fantastic a vehicle it is. My wife convinced me to buy it, along with my son, but I will not buy that stock. So, I can't get behind a stock that's trading at an infinite P/E when it, really, it should be trading at 17, if it ever has an P/E.
Josh King:
One stock that I think you and I would both owned if it were publicly traded, if Mr. Craft were to float the name, would be New England Patriots.
Kevin O'Leary:
I would. And I think he's done a masterful job in mitigating risk and delivering results. I mean, how can you not be a Pats fan? It's probably America's most hated team because they can't do anything else except win, and I love that.
Josh King:
Mark Wahlberg agrees with us. He was in Atlantic City recently and placed a hefty bet on the Patriots winning the Super Bowl this year. Good investment do you think?
Kevin O'Leary:
I think so. I think Brady's done an incredible job in keeping himself physically fit as he's aging, because 20 years ago you would never see a quarterback this age being so active. But he's using all kinds of technology, he talks about it openly. He's got a really good philosophy about this. And his teammates support him. The key is to protect him in the pocket. If they do that, he's just practically invincible and he can take tremendous pressure. So, I'm looking forward to the season starting again, although I did love the whole FIFA soccer thing. That was really interesting. That's probably going to help soccer in America just watching those games.
Josh King:
Wahlberg made his bet, Kevin, at the William Hills Sports Book at the Ocean City Resort Casino in Atlantic City, New Jersey. In Murphy versus the NCAA, the US Supreme Court just struck down the federal law that prohibited states from legalizing sports gambling. What are the implications for sports commerce innovations, some of the technology that you guys are talking about?
Kevin O'Leary:
So, many of the companies that we own in OGIG, global internet giants will be involved in this, but I will say one thing about when I talk to owners of basic franchises, whether it be in basketball or in baseball or hockey, they're concerned about compliance. They want the state compliance on gambling to be identical to the federal. And so, what we need to do to get this industry off the ground is not have multiple compliance platforms, no different than the ETF market. The number one cost of financial services, and we're going to have to include gambling in this soon, is compliance. So, if you have a state or municipal compliance regime that's different than a federal, that's chaos for the owner that's letting them bet on your franchise.
Kevin O'Leary:
So, I think you're going to see a lot of resistance from the owners until they can be guaranteed that they're not going to be breaching compliance rules. The last thing you want to be is a billionaire owner of a sports franchise being litigated by the government because you were not compliant on this new rule. It's akin to the problem going on in the cannabis industry where you've got nine states allowing legalization, and yet, it's a schedule one narcotic federally. That doesn't work. That's why you don't see any real money in the cannabis business yet, even though CBDs are promising as a medical solution.
Josh King:
On Shark Tank, Kevin, you and your fellow sharks are engaged in gambling of a sort. Do you look at it that way when you're on the set? What are your thoughts on the various methods beyond Shark Tank of crowdfund that are burgeoning online? I'm a big fan of two products. One is the Ruroc ski helmet, which is based in the UK. Another is Acodaboard electrified longboard based in Denver, Colorado. They may have a shot to get on Shark Tank, but probably not. They need to figure out ways in which the thousands, maybe tens of thousands of dollars can come in so they can expand.
Kevin O'Leary:
I like the crowdfunding platforms to help entrepreneurs start their businesses, but I don't use the metrics of them to make investment decisions. I'll tell you why. If you get a great campaign going on one of these platform and you sell 1,000 units or 2,000 units or 3,000 units and you come to me and say it's been the biggest success and you raised quarter of a million dollars, you don't have the data that I need. I want the customer's experiential data on the product. Because just because you had a great video that sold a whole ton of advanced orders doesn't mean poo poo to me until that product's in the hands of the consumer.
Kevin O'Leary:
So, if you try and do the old game and you come on Shark Tank saying, "We had a very successful crowdfunding campaign and we got a quarter of a million dollars worth of orders," we couldn't give a flying beep about that because you don't have the real data we need, and you're going to try and give it a five million valuation or 10 million valuation. I squeeze people's heads that give me that data like teenage pimples because it makes no sense to me whatsoever to price a forward sales. I want real sales with real customers that really say they'll buy it again and have had a good experience. So, a little advice to those that are thinking and coming and pitching on five million pre-money valuations because they had a great crowdfunding campaign, I can't wait to get you in my claws. Join me soon.
Josh King:
Mr. Wonderful, when they approach you on set to make the pitch, I know the pitches themselves are edited down significant, but in the first 60 seconds of them standing in front of you, what are you looking for?
Kevin O'Leary:
I now see the aura before they say their first word. I've seen so many pitches for so many years that I know before they say anything what's going to happen to them. I know that sounds crazy. But the winners have an aura around them and the losers have the stench of death, and it's just the way it is. And I'm sorry, I got to tell the truth. I'm the only shark that has the guts to tell the truth because I know the market's going to eat them alive. I always tell these people that are crying in front of me, "Oh, how can you be so mean?" I'm not mean. I'm your best friend. I just told you the truth. I told you stop wasting your family's money because you're going to go to zero, 100% probability you're a zero. So, why do you want to waste all this money? Why don't you just take the truth and go do something else as opposed to blowing your brains out in a horrible way financially? It's better to tell these people the truth because if they think I'm mean, wait til they meet Mr. Market. Mr. Market's going to chew them up like a great white.
Josh King:
Never shy to share your opinion, so it's not surprising how active you are on social media. Earlier in the summer while guest hosting on CNBC, Kevin, you voiced concerns about the potential regulation of social platforms, and last week you gave the keynote at the Facebook Boost Conference. What role does social media play in the new economy, and How does social fit in your personal business strategy?
Kevin O'Leary:
Well, first of all, I have an overall premise about government involvement in business, anywhere on earth, including our domestic market here in the US. The words I hate to hear are from any politicians saying, "Hi, I'm from the government, and I'm here to help you." Those are the words of terror to me because every time the government gets involved in regulating something, it increases a massive amount of inefficiency, and the cost goes up. So, I always like to think the market will regulate itself. If you thought Facebook was something that was going to take your data and completely make it public, and that was of a concern to you, you wouldn't use it. You don't need the government telling you that. If you really believe the company's that dishonest and it's doing all these bad things... Here's what I know. Of my 34 plus portfolio companies, our number one span in advertising is with Facebook. Why? Because it works and we can measure it and we can geo lock it and we can test it. There's no other platform like that, which is why it's been so successful.
Kevin O'Leary:
I don't need the government to tell me how to use it. I know what customers think about it. And by the way, and this is perhaps an ugly truth, when I talk to Millennials about their data, they want their data to get out there, they want people to look at their photos, they want to be on social media. They don't have the same concerns that somebody's in their 50s and 60s do about having their data being sequestered. They just don't give a damn, which is why Facebook stock is right back where it started before we heard all of these outcries and concerns about security of data. Data should be secure, and the company's doing what it has to do, but I don't want this platform destroyed because I need it for my companies.
Kevin O'Leary:
And look, let the market be the market. If there's a better Facebook around the corner. If Instagram, which is owned by Facebook, ends up being better, we'll use that. If LinkedIn can be a platform, we're going to use it. Twitter, same thing. Snap, whatever the next hot thing is, bring it on. But the last thing we need is, "Hi, I'm from the government, and I'm here to help you." The whole idea of shrinking government is a wonderful thing, and the deregulation going on right now is driving the Russell 2000 to new highs.
Josh King:
I think your references as you began your answer to the last question were to the domestic market here in the United States, many of your fans know that you are Canadian, so what does it... Speaking of regulation and, "Here I'm the government, I'm here to help you," what will it take to make you long on Canada?
Kevin O'Leary:
I have to see it get competitive. I have to see it reduce its tax rates to compete with the US platform. I have to see its tax policies change on capital cost allowance. I have to see this phobia on carbon taxes... Canada is the only jurisdiction in North America with a federal old carbon tax mandate now, and as a result, you've seen the flight of capital unprecedented in the last six months. Billions and billions and billions of dollars leaving the country being reinvested in a much more regulatory friendly environment called the US, particularly in energy where we care. 49% of the economy of Ontario is tied to trade with states just south of the border. 39% of Alberta is tied to states just south of it.
Kevin O'Leary:
Canada is an amazing country with incredible assets. It's the size of California. Unfortunately it's very poorly managed, and I've been an open critic of the government both federally and provincially. But the cavalry is arriving. We just had an election in Ontario where a Ford, the brother of the late mayor, took over and not only won, decimated the liberal party of Ontario. It's no longer a political entity anymore it lost so many seats. So, Canadians are waking up to the fact they're being poorly managed and they're firing those poor managers. In that case, it was the premier of Ontario. She won't be running a mandate again probably ever, and her party has been destroyed because of incredibly bad performance. That theater show is going to come to you soon in Alberta.
Kevin O'Leary:
And then we have a federal election I'm very optimistic about in 14 months. I am going long Canada in stages. I put 1% to work when we kicked out the liberals out of Ontario. We're going to kick the communist... not the communist, the NDP party, I get that mixed up, in Alberta. And then I'm going to put another 1% to work, and when we take over the federal government to a more pro-business, pro-competition, pro-investment environment, that'll be another third. That's what your allocation would be to the Canadian economy. It's 2.8% of the world's global GDP. And I am waving the flag everywhere I go telling people Canada is a long, not a short anymore. Change is a coming. The cavalry of business is coming. Change is afoot. And we're going to get that country back on track soon.
Josh King:
You mentioned earlier in our conversation Wilber Ross and Larry Kudlow. Kudlow was one of... You were on Larry Kudlow's last show before he headed to the White House, talking about eventually going long on Canada or this process that you are beginning now. Do you see another run for office or perhaps a similar type advisory to the role, the one that Larry is playing in Washington?
Kevin O'Leary:
I went into the process to get a majority mandate in Canada, become its Prime Minister and make drastic changes to the way the country's run, to run it more like Switzerland or Denmark, and that was very appealing in every province except Quebec where I don't speak French. Quebec has 78 out of the 338 seats. It's the Florida of Canada. Not only did I not win there, I got decimated. I needed to get at least 28 seats at least interested in how having me run the place, so I lost there. And I know when you lose, you have to take your licking and move forward, but I haven't lost my voice.
Kevin O'Leary:
I won't be doing that again anytime soon. I'm an active investor. I'm a pro-Canadian investor, I'm a pro-global investor, and my hands are really busy working with O'Shares. That's why I'm here at the New York Stock Exchange today. So, I've got my work cut out for me, but I'm not going to stop at making noise. The last thing I want to see is a country as rich and as successful as Canada used to be not become competitive. I want it to get back and be competitive again, and obviously that's happening here in the US. We've got to catch up.
Josh King:
We don't often see in our leaders the kind of creative streak that we think they need to have an expansive mind and a fertile approach to the things that make up a society. Having appeared for years as a dragon and then a shark, does it surprise you when they discover that Kevin O'Leary has a creative side such as your music playing when you were on your boat that you posted last week on Instagram or your performance with Chuck Leavell, from the Rolling Stones or the White House Correspondents Jam?
Kevin O'Leary:
I've always wanted to be a rock star, and my only problem was my mother and father said, "You will starve to death if you pursue that. You're just not good enough." And that was good advice, and I went into business, and luckily that's worked out. Now I can afford to go back and play with the band I wanted to join, the Rolling Stones because that was a great dinner. And we came in second in that whole contest. But I've been working on my guitar now for multiple decades and I'm still not a rockstar, so I have a lot of work to do here. But it's so much fun to play with your iconic idols that you grew up with and actually be able to play alongside them. Because I've been working on my guitar for a long time now and I'm getting better and I'm rocking wherever I can. I have 42 guitars. I was even a shareholder at Fender for a while. And so, I've got some very eclectic instruments and I love to drag them out. And Steve Liesman, the guy from CNBC, the-
Josh King:
Head of the Mooncussers.
Kevin O'Leary:
The Mooncussers. He gave me a slot on the Mooncussers who went to the White House correspondents dinner, and that guy runs a tight band. He is a great guy to play with because he knows all the nuances about how to put a band together. Lester Holtz kind of probably took the headline win there with the Bacon Brothers on top of him even, but next year we're going to kick butt and hopefully we can take the whole thing. I'm already rehearsing. That was so much... Listen, it's the yin and yang. Business is so disciplined. It's so binary. It's so black and white out. Wither you make money or you lose it. Playing an instrument is just sheer chaos and absolute fun.
Josh King:
So, whether it's music, photography, or inspecting your wines at your winery, how does having so many hobbies and interests help you succeed in your various ventures? Because it is so binary. You've got to go from this creative side, what makes a grape evolve from year to year, to how to develop a business to bottom line.
Kevin O'Leary:
You got to find great partners that know how to run businesses. Connor O'Brien's a good example. He's the CEO of O'Shares. O'Shares is not a small investment for me. Not only do I have millions of dollars in the actual ETFs, but I've invested millions of dollars to build out the platform of what it's become because I believe in his ability to deliver on it. But also, I think the sector's going to grow for decades to come and I want to be part of it and I want to have my own platform. So, he's a good example of how we do this. We find great CEOs that have major shares. Connor owns half the business. He's just as involved and motivated as I am. We're 50/50 partners in this thing. And I do that across my portfolios. I look for managers that really know what they're doing that have skin in the game and people that are really motivated to work like hell. That's how it works. My wine business should hit 10 million this year in sales. That's not a small business, that's a real business. It's going to make money, and I'm very involved in it. And I've got great partners in it. And boy do I ever love to drink wine.
Josh King:
After the break, we talk more with Kevin and Connor, how they moved into the ETF space by using Kevin's mother's investment style as a barometer. More after this.
Speaker 1:
GIS provides access to top level and constituent data for the complete universes of ICE BAMLbond index and convertible index families. GIS has extensive functionality that allows you to view and download current and historical performance data and statistics. With the customization tools on the site, you can analyze relative value of individual bonds, sectors, and indices. Visit theice.com/indices for more information.
Josh King:
Welcome back to the ICE House crew with Kevin O'Leary, Mr. Wonderful on Shark Tank, and chairman of O'Shares Investments. Also with us, Connor O'Brien, its CEO, the CEO of O'Shares Investments. Connor O'Brien, we were talking before the break about how Kevin's mother actually provided the investment philosophy that drives much of O'Shares. Care to elaborate?
Connor O'Brien:
Yeah. I guess Kevin has a lot of respect for his mother. She was very, very cautious conservative investor, and her advice to him principally was whenever you make investments, don't spend the investment, only the income. And so, investing in equities where income can grow, dividend incomes, of course, streams grow when you have quality companies. Kevin invests exclusively in companies that pay dividends because he discovered that his mother's portfolio was half stocks, half equities, all the stocks dividend paying stocks. And it was a fantastic performance that she got over the decades. So, when we started building O'Shares, we started with a quality dividend philosophy and we developed the index rules for US large cap, that's in an ETF ticker. OUSA listed on the New York Stock Exchange. We have OUSM for US small cap. Very similar quality dividend rules. And then we did the same thing for international stocks for ONTL for international, OEUR for Europe, OASI for Asia. Again, quality dividend rules to determine what stocks make it in.
Josh King:
So, when did you and Kevin begin to work together on O'Shares?
Connor O'Brien:
Well, we began to work together over 10 years ago. We had an initial meeting to talk about investment philosophy fee in building a mutual fund company, which we did successfully, and we grew that quite well for over 10 years. 50/50 partners. And he's been a fantastic business partner for me and I think for all the other Shark Tank related and other investment partners he's had in different ventures. So, for the investment business, we built this mutual fund company, we managed strategies investing in US equities, international equities, high yield bonds, investment grade bonds, a nice diversified set of products and did very well for. His family trusted, invested in him, as well, of course, the many clients and advisors.
Connor O'Brien:
And as time went on, it became clearer and clearer that the money wanted to go, investment money wanted to go into ETFs, and you could see that now in the money flows. So much of it going into ETFs, nothing going into mutual funds. We got out of the mutual fund business, we sold it. So much more refreshing to be in the ETF space. So, we've been business partners for over 10 years. We started developing the ETF business about two years before it actually launched. We've just been through our third year anniversary of the launch of OUSA. So, it was five years ago we started working on it.
Josh King:
What's the total AUM now?
Connor O'Brien:
We're getting close to a billion. Not yet there. We think the growth rate's going to accelerate as we expand the product set. We will have more New York Stock Exchange listed ETFs coming into months ahead, and our growth rate should accelerate quite nicely.
Josh King:
ETFs market themselves in so many different ways. Traditional paid advertising, a lot of people are doing that, but you have a social media phenomenon sitting next to you. What are the ways in which O'Shares attracts more money in flow?
Connor O'Brien:
So, here's an interesting stat. One third of the assets in our ETF come from self-directed investors using their account at Schwab, E-Trade, Ameritrade, Fidelity, et cetera. One third comes from advisors who are choosing our ETFs for their investor clients, and then the final third come from mid-size institutions who just look at the metrics. They don't talk to us, they don't look at social media. They look at the metrics. Is this ETF delivering a great result? So, we have a really, really nice mix of self-directed investors, advisor-driven decisions, and the mid-size institutions.
Josh King:
Kevin, we were talking about Beanstox earlier, and you often cite your mom and your stepfather's advice in shaping your career, but not everyone learns financial literacy at home, has that dinner table conversation that we were talking about, or someone who urges them to go get their business degree. How do we improve financial education in Canada, in the United States?
Kevin O'Leary:
Well, I'm on a mission to do exactly that. I've tried to do it in several levels. First of all, I've made it in messaging for all the work I do in television, whether it's on Shark Tank or Good Morning America or the work I do on CNBC. We talk a lot about this now because it's one of the causes I care about. But I also teach graduating cohorts of engineers. I've done that across the nation at places like MIT, Temple, Notre Dame, Waterloo McGill, where I go to the graduating class because a third of engineering classes generally will start companies. So it's a great place to meet entrepreneurs, but I'm, I'm always amazed. And these are the brightest kids from around the world. You know, MIT, you need practically a perfect math or even qualify to get in there. And yet you ask them about their investment strategy for when they start their first $150,000 job, they have no idea.
Kevin O'Leary:
So obviously what we've done as a society at the K upward level, and I used to be in that business in The Learning Company, is we teach math and in reading scores first. We want to advance those scores because that's what our testing is doing lower in high school. And we use the math and reading scores the core for all curriculum. That's a mistake in our society. We have to add financial literacy. Because it's just as important as geography or sex education or anything else because people end up in their mid 20s mired in debt, not understanding the risks of loans and credit cards and everything else.
Kevin O'Leary:
So, that's a mission. I've been talking to educators about it. Everybody finds their passion. This is mine. Beanstox is a reaction to that. Certainly I've taught my kids the idea of investing and how they have to monitor it and it's for life. And so, this is just a cause and there's more and more people getting behind this because they're seeing the outcomes of people at 65 years old with nothing in the bank. It's a disaster. It's a national catastrophe. Because if they don't have the means to support themselves, who's going to do it for them?
Josh King:
So, a recent article looking at the O'Leary household itself, Kevin, focused on how you taught your own children how to understand money and investing, including using a glass piggy bank and overnight compound interest to make sure you didn't end up with a couple of dead birds. You've said that they've grown into good investors. How does their styles differ from yours?
Kevin O'Leary:
So, my son is far more active in picking stocks, building portfolios. My daughter's more interested in using ETFs, and she uses, obviously, O'Shares because she wants that work done for her. And that's what you're going to find in different people's styles. But I use the glass piggy bank to sneak into their rooms and drop pennies in it when they were very young, and then I'd make them count it in the morning and they were just in awe. Now, if only the real world worked that way. But it was a great way for them to understand that money compounds because that piggy bank was their bank. And it stuck in their minds, and that really comes from their grandmother, my mother, that she was always about spending the interest, not the principle, or spending the dividend, not hitting the actual principle of the stock holdings. That was ingrained in my head when I was seven years old.
Kevin O'Leary:
So, I didn't know exactly how important it would be, but certainly, I do not live a lifestyle beyond my ability to generate to pay for it because I don't know... And I know many wealthy people that I make them do my simple test, put down their come over 90 days on a piece of paper, and then how much they spend in the same 90, you'd be amazed. People that have hundreds of millions of dollars are spending way more than they take in, and that comes home to roost. I don't care how rich you are.
Josh King:
You said that you didn't discover some of your mother's investing genius until after she passed away.
Kevin O'Leary:
I was the first to see her portfolio. I was the older brother. The executor called me in terms of managing the distribution of what she left behind, which was a number that just blew me away because I always wondered, I mean, how was she able to afford all the things? And she basically kept an account separate from both of her husbands or whole life. The money she managed, it was about 21 large cap dividend bank stocks and a whole bunch of telco bonds, and that thing outperformed everybody. And I went back, did research, and realized that over 70% of returns of the market comes from dividends, not capital appreciation. The return of capital really matters.
Kevin O'Leary:
And so, companies with good balance sheets end up being long-term better investments. That she taught me just by the results she had. But she always had independent capital. She paid for her own brothers when they were in trouble and extended family and, of course, my entire education until she cut me off at the end of college. But that was a very important lesson, and I think it worked out well. But I've applied the same philosophy to my kids. They didn't like it when I told them about it, but they've certainly figured it out since then.
Josh King:
Your stepfather, Kevin, was a world traveler when he worked with the International Labor Organization, and you'd like to take your kids around the planet, but you fly first class and they slum it in coach. Why?
Kevin O'Leary:
Well, one of the things I talk about in being an entrepreneur is the concept of personal freedom, and one of the freedoms I provide for my family is every weekend they can pick any city on earth. They want anywhere I'll fly them. Their girlfriends, boyfriends, whoever they want we'll meet in Paris will meet in Geneva, go to New York, whatever it is. And we do it every week. Not every member can be there all the time, but if they want to, it's a free ride. But Trevor, my son, the one in third year electrical, loves to go visit his grandfather in Geneva, and I go over there all the time. My dad's 87 now, still of sound mind and body, but 87's 87. So he doesn't get on planes too often. So we'll go over Geneva J for leave on a Friday night, come back Sunday morning. I know it sounds crazy, but I can afford to do it.
Kevin O'Leary:
And Trevor recently said to me, he was getting on the flight, "Dad, why is it that every time we take this flight over to Geneva, I've got to take a left and go to back of the bus and sit in the back row and you take a right and sit in a giant sleeping bed with a roast beef going by on a trolley. And you're watching movies on a big screen. Why is that? You know, you're eating a roast beef with Bordeaux and I'm sitting in seat 69 D and I said, Trevor, you don't have any money. That's it. That's the lesson of life. That's what my mother did to me. It should motivate you to get a job and get up to the front of the plane.
Josh King:
Do you send him back any warm nuts just to wet his appetite?
Kevin O'Leary:
You know, I used to bring back some peanuts, but it's such a long walk back to 69 D just not worth it. I know he is going to be getting off the plane with me seven hours later.
Josh King:
You've said, Kevin, that who you marry is the biggest business decision you'll ever make. And it seems that you took that advice. A step further. Your wife, Linda is the vice president of marketing for O'Leary Wines. Any advice for those looking to get into business with her spouse or family?
Kevin O'Leary:
Well, she deserves that because her palette on whites, she's almost a sommelier now and has an amazing palette for new world whites. As you know unoaked Chardonnay is the number one beverage in America now on the white side. Pinot Grigio's catching up. There's some work being done on Roses. But she's very good at that. So, we blend all our family wines ourselves. I never issue a wine under my name unless we've blended it and it's been approved by myself, my father, who's just crazy about reds. So, we do a lot of work on it. But she's got a very good palette.
Kevin O'Leary:
And our number one success right now for direct to customers on QVC, the average woman there is 62 years old buying, and my wife represents a good foray into that market, understanding what that woman wants in her wines. And so, I'm now the number one provider of wines on QVC. We're the number one brand there sold direct. That's a big business for us. And that's because the laws have changed in America. In 40 states you can ship direct from your California wineries. So, Linda's a big part of that. I make her work for her supper on that. I pay her a check. She's an employee. If things don't work out, I can't exactly fire her, but we'll drink wine together and talk about it.
Josh King:
New York state, is that allowed for shipping?
Kevin O'Leary:
Yes. We ship to New York state. There's certain states you can't that's changing all the time. Distribution of liquor and wines and alcoholic beverages is Byzantine, it's old, it's very complicated, but things are changing all the time. And the wine business is growing like crazy. I'm very proud of it. I mean, I'm doing over 150,000 cases a year. That is not easy to do. That's a lot of logistics.
Josh King:
You're shopping for O'Leary Wines, where do you find it online?
Kevin O'Leary:
You just go to OLearyfinewines.com, or you go to qvc.com. Those are the two biggest places. I do have some retail distribution. A case of wine weighs 39 pounds. Why not let somebody ship it to your house? That's what I do. I ship all my wine to myself because I don't want to carry it around. It's fantastic. That's the dark secret about the wine business, make somebody else carry it to your kitchen table.
Josh King:
Back in March, Kevin, you were on stage at the MIT FinTech conference advising entrepreneurs to make sure they had a strong financial understanding of their businesses. During your talk you to touched on everyone's favorite topic these days, and one that our listeners seem to have an insatiable interest in, which is cryptocurrencies. Are you actively investing in the blockchain, and are you bullish on its value?
Kevin O'Leary:
Cryptocurrencies have had a wild ride, and recently, I think Sweden just normalized it by declaring their country would issue a coin, asset-based coin. We don't actually know how it's going to work. The Swiss have allowed some exchanges. But what's holding back this whole sector and why you haven't seen a lot of institutional capital in yet, is everybody including me wants to see this regulated in the same way that we regulate our stocks and exchanges right here in the New York Stock Exchange. It would be very useful to get a regulated environment to issue these things that was approved by our regulators so everybody knew they were playing by the rules. And if it was a lower cost of capital raising for small companies, that would be a good thing.
Kevin O'Leary:
But I'm not involved in any of this until I know it's 100% regulated. Because believe in the regulatory process, I believe it makes the cost of capital lower. I think it's what institutions want. And all of us would like to see this technology harnessed but by an environment that's 100% regulated and transparent and compliant. And that's how we live in the ETF space, that's how that base is going to live. So, until it gets there, I won't be a participant.
Josh King:
So, wrapping up, Kevin, Connor, how can our listeners keep up with the activities of O'Shares? And Kevin in particular, I've enjoyed over the last couple week just keeping a much more close eye on your social media feed. How do we best follow what's happening with O'Shares and Kevin, your continued travels and exploits around the world?
Kevin O'Leary:
Well, Connor, you've got a big plan for O'Shares over the next 12 months. Why don't you talk about what we're going to be doing and how we'll be talking about it.
Connor O'Brien:
Thanks. For O'Shares and for Beanstox we have some ambitious growth plans. O'Shares is going to be launching another series of ETFs. We have quality growth through the SEC, we're going to bring additional ones after that, all built around the quality philosophy. So, you can expect to see us have 10, 15, 20 ETFs over the next six, 12, 18 months. And our website oshares.com provides ongoing information, access to details of each ETF, as well as some news as well as some investment content. Beanstox, same thing. There's terrific investment content for the people that are new investors, shows them how to use Beanstox, shows them how to think about creating a portfolio with their favorite 10, 20 stocks and ETFs. And so, that's going to be very, very exciting. We're really looking forward to blend all of this. The financial literacy Kevin was talking about is going to be channeled to the new investors, younger investors through Beanstox. The professional investors we're going to serve in the best way we can with O'Shares' ETFs, of course, listed right here at our favorite place, New York Stock Exchange.
Josh King:
I'll be signing the boy up and the girl for Beanstox today. They're going away to camp for three weeks. I'll say buy and hold. We're not selling this thing for three weeks. Kevin, are we going to see you on the boat any time or strumming the guitar on stage any place during these hot summer days?
Kevin O'Leary:
You will. Definitely. And I've been rehearsing/. I've got a new band I'm rehearsing called the Cash Flows. We're going to be doing some work together in August. And that's the thing, you try and find great players and then rehearse maybe 10 or 12 songs, get them nailed down, and then take it on the road. So, the Cash Flows will be coming to a balance sheet near you soon.
Josh King:
Thanks so much, Kevin, Connor, for joining us today in the ICE House.
Kevin O'Leary:
Thank you.
Connor O'Brien:
Thank you.
Josh King:
That's our conversation for this week. Our guest was Kevin O'Leary, founder of O'Shares Investments, O'Leary Funds, O'Leary Fine Wines, and O'Leary Financial Group, just to name a few. He was joined here in the ICE House by Connor O'Brien, the CEO of O'Shares. If you like what you heard, please rate us on iTunes so other folks know where to find us. And 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 @NYSE. Our show is produced by Pete Ash and Ian Wolf, with production assistants from Ken Abel and Steven Portner. I'm Josh King, your host, signing off from the library of the New York Stock Exchange. Thanks for listening. 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 expressed or implied as to the accuracy or completeness of this information and do not sponsor, approve, or endorse any of the content herein, all of which is presented solely for informational and educational purposes. Nothing herein constitutes an offer to sell or a solicitation of an offer to buy any security or recommendation of any security or trading practice.
