- He is a Canadian businessman, investor,
entrepreneur, journalist and television personality.
He's the co-founder and chairman of O'Leary Funds
and the co-founder of Softkey.
His estimated net worth is $400 million.
He's Kevin O'Leary and here
are his top 10 rules for success.
- I tried working for somebody when I was very young
and they fired me.
- Right, in ice cream.
- Right, and it was a very, very profoundly,
affected me profoundly and I just said
I'm never working for anybody again.
It doesn't mean your life is easier,
in fact you have to have a lot of sacrifices on the road
to success and a lot of failures along the way.
I just find it a more interesting way to spend your time
and I really believe in this concept of money buys freedom.
I think it's a very noble pursuit for some percentage of
the people out there, but not for everybody,
because you have to sacrifice a lot for the period
that you're working on your business,
and not everybody wants to do that.
I think you find that in your own,
you start down that path and if it's too much of a sacrifice
you revert back to being an employee.
It's very noble to do that too, but it's not the same thing.
It takes a long time to set yourself free,
working for somebody else.
I was with a bunch of other investors who I respect
and they brought me a deal and I wanted to be part of it,
but it didn't feel right.
And I wrote millions of dollars on that one
and it just didn't feel right and I lost it all
within two years.
- So should investors trust their gut then?
- Absolutely trust your gut.
- What about, you said earlier, don't be emotional
and sometimes the gut is emotion?
- No, this is a barometer of risk.
It's something internalized for an investor that says,
I don't feel comfortable.
It's not about emotion, it's just don't write that check.
That was recently the first time I didn't listen to that
and I lost everything.
So now my radar is up.
I listen to my gut. It's not an emotion.
It's an index of risk and you get I as you age.
You become a better investor every year.
If only I could live to 200, I'd be really good.
Diversification.
What I've learned that works if you're an investor,
no matter how much money you got,
whether it's $5000 or 500 million, diversification is
what saves you from disaster, having investments
in a wide range of businesses and sectors.
There's always something working when something else isn't.
So, today I can go to bed tonight knowing that
I have one objective, I want to go to bed richer
than I woke up, and the only way that's going to happen to me
is to be invested in a lot of different things.
Because everyday one thing works while three others don't,
but sometimes that's why you get richer.
- So how does that play out for
the average working woman like myself?
Does it start with doing an investor profile questionnaire
and starting to invest a little bit of your money
in a diversified portfolio?
- Yes, what I find people do is they fall in love
with one idea or one stock or one investment
or their sister comes in and says I want to open a restaurant.
- Ah, yes.
- You should never do that.
What you should say is whatever money I've got,
I'll never put more than 5% into one idea,
I'll never let myself get caught up in an idea
that ends up being so big to me,
that if it fails I get wiped out.
This is the key to success.
No more than 5% in any one idea and no more than 20%
in any one sector.
For example, if you love energy stocks only 20% max.
If you love gold only 20% max.
You have to have diversification.
This is the one thing that will save your hiney.
You should make the assumption when you make an investment,
there's some probability you'll lose it.
It'll go to zero.
And that's why you need to have
a reserve, like a backup plan,
some cash set aside that if everything blows up you're okay.
I find it extraordinary when people make their first,
liquidity event and they have some capital,
that they blow it all again.
That is the biggest mistake.
You've got to take a nut, even if it stays in cash,
or it's a very, very liquid safe security to say,
that I don't touch.
It goes back to what my mother taught me,
spend the interest never the principal.
I mean look, I make a lot of crazy investments,
I don't touch the principal.
Communication skills it turns out are paramount.
The ability to actually articulate what your idea is
in a very short period of time is number one.
Number two, and this is far in some ways more complicated
to explain but, just 'cause you have a good idea
doesn't make it you're going to make money.
There's a difference between a good idea
and someone who can execute the business plan.
So you spend the next five minutes of your presentation
explaining why you're the right person
to actually execute the plan,
and this is far more complicated
because you get peppered with a whole series of questions
in any presentation that you're trying to raise money for.
Whether it's on Dragons Den, Shark Tank
or else somewhere else.
How much of your own money have you put into this business?
- I've put $50,000 of my own money
and I haven't taken a salary out of this company
in a year and a half.
- Well cry me a river.
You have to go through that gauntlet to prove
that you're the right person
or your team are the right people.
And if those two things come together,
then the magic starts.
That's when a team or a person starts to sizzle
like an isotope, because clearly they've become a leader.
It's clear that they're different than everybody else.
Not only can they articulate their idea,
they can actually convince you they can execute it.
The reason most people fail in business
is they make the assumption they're good at everything.
And they're egotistical maniacs
and even when it starts to fail
because of their own inadequacies they don't stop themselves
and they blow up.
That's a typical situation for an entrepreneur.
So you have to look yourself in the mirror
and this is hard to do sometimes, and say,
what am I really good at and what do I suck at?
Because you don't want to spend any of your time
doing things you're no good at.
I'll give you an example, I hate logistics and operations.
If you got a software company you have to make 10 million
discs a month and you don't like that,
you better find a guy who knows how to do that,
and you better make him your partner
very early on in the process.
And I mean partner, I mean you give him something.
You give equity up to fulfill the weaknesses
in your own portfolio.
That is the key to success.
I will never make any money doing by myself ever.
I've sold many businesses now,
started many, failed at many,
the only ones I've really made money from are partnerships,
where I found people that were good at things
that I wasn't good at.
I don't mean employees, I mean giving them equity
in the business so that they have the same risks
and desires that I have.
There's only two things in business that matter.
One is, owning it and the other is being an employee.
Guess which one you want to be.
And I remembered a story, really affected me years ago.
My mother, I was born in Montréal worked at a company
called Kitty's Togs and she used to come home
and tell my brother and I, because they'd pay them
every week on Thursday morning.
She'd always invest a third of her paycheck
into Bell bonds with coupons.
She'd always say to me,
"Boys, never spend the principal, just the interest
and never ever, ever, ever buy a security
that doesn't pay a dividend."
Back in those days stocks paid higher dividends
than the bonds.
So example, Bell Canada had a 6% yield
on its five-year papers, bonds.
The stock yielded seven to entice people to take the risk
to own an equity, and we got lost somewhere between the 50s
and the 60s and 70s, and we actually thought
that it was a good investment to buy a stock
that didn't pay a dividend, which to me is insane.
So anyways, I wanted to found a firm on that,
my mother's basic concept because, she died a few years ago
and I was executor for her state and I looked at
her portfolio, which she never shared with anybody.
But 40 years, compounded dividends and bonds,
73% of the markets returns in last 40 years
came from dividends not capital appreciation
and she knew that intuitively.
So that's how we built the foundation of O'Leary funds.
We listened to mom.
We don't own a single security that doesn't pay a dividend.
I will never buy a stock in my life
that doesn't pay a dividend.
It's not returning cash to me it's a speculation,
and if a manager can't send me cash, I'm not interested.
Often, your family will come to you, your cousin,
your uncle, your sister saying please invest in my business.
You've got to differentiate between family,
friends and money.
You've got to be careful that you don't get yourself
in a situation where you lose your money
because you got emotionally involved.
That's a very big piece of advice, because I've done it the,
everybody's made mistakes as an investor.
That's one of the ones I made in the early times
I never make again.
But I tell every Canadian entrepreneur I talk to
and business leader and owner of business, any business
try and get over the next five years 30% of your sales
outside of North America.
And Canada is unique.
We actually have within the government a support system.
You can call the consulate in any country you want
to do business in, they'll return your call,
they'll set up meetings for you.
I did this two decades ago when I wanted to move to states,
I called the Canadian consulate in Boston.
You can do that now in Brazil, India, China, Asia, Cambodia,
Thailand, and there's somebody that will say,
I care about that Canadian company,
I'm going to make calls for them.
You still got to do the work
but the whole idea is you diversify your sales risk,
you diversify your portfolio.
If you're just selling in the US, you're going to be selling
to an economy that's growing at sub 3%
for the rest of your life.
So, Oprah has a hairdresser.
Interesting guy, his hobby was tea.
This tea you drink and he became what's called a nose.
He had a certain skill to be able to smell sulon teas
and blend them.
One day he gives a couple of years ago a cup of tea to Oprah
while he's doing her hair,
and she sips it and says this is the best tea I've ever had.
She goes on the show a half an hour later and says,
"This tea, called Talbot Teas is the best tea I've ever had.
He gets orders the next day for $500,000.
You know the Oprah effect, you've heard of it right?
He can't finance that.
So he comes on Shark Tank and he's looking for $250,000
and I agree to buy 35% of the company for that.
I love tea, it's so simple.
Gets on Oprah, 5000 orders, Neiman Marcus,
all kinds of individuals ordering on the internet, simple.
Tea, orders, cash flow right?
While we're in the middle of doing the deal,
the show airs and Jamba Juice, a public company
says we want to be in the tea business.
We love this story, we love the brand,
I want to buy the company.
I haven't even written the check yet
and bang, the deal's done.
- Wow.
- Yes, wow.
That's the kind of deal I like, because it was simple.
It's not a complicated text story.
It's tea, tea with a brand.
Now you go into a Jamba Juice anywhere in North America,
that's my Talbot Teas.
- Wow. - That's right.
- Isn't that wonderful?
It is wonderful, that's why you are?
- Well, that's why I am Mr. Wonderful.
But I look at it this way, the simple deals
are the the ones you make money on.
So I take that cash back, I redeploy it.
So I like simple stories with revenue attached to them.
The high tech stuff, I came out of that market,
it's so complicated, so much can go wrong,
so I just love deals where they,
see an easy path to revenue.
- Thank you so much for watching.
I made this video because Adil Albert asked me to,
so if there's a famous entrepreneur that you want me
to profile next, leave it in the comments below
and I'll see what I can do.
I'd also love to know which of Kevin O'Leary's top 10 rules
had the biggest impact on you.
Leave it in the comments and I'll join in the discussion.
Thank you so much for watching.
Continue to believe and I'll see you soon.
You know they're probably in their 50s, 60s, 70s
and even older, their number one mandate
to their own investment strategy is preservation of wealth.
Secondly it's income,
and lastly on the hit parade is capital appreciation.
The only way we get capital appreciation
is we find companies that are growing free cash flow.
I don't believe in earnings. That's mumbo-jumbo to me.
I believe in free cash after cap X.
You tell me how much free cash flow you're making
every quarter, it's the only thing I care about.
I don't want to hear anything else
because if you're not, you can't lie about cash.
That's what I love about cash.
There is no vision, there's no story, there's just cash.
That's what I trust and that's what I understand.
So I find companies that grow in cash,
I buy their debt, their prefs, their converts,
their common shares because they're paying dividend
and I wait in the weeds.
I get paid every single quarter.
Anything that doesn't pay me cash, not interested.
When it comes to winning in business,
I like to be very competitive.
I like to pour boiling oil over my competitors
and think everyday how can I kill them?
Because that is the war of business.
Ultimately, I want my shareholders to make money
than my competitors, and that's very healthy.
So I think the DNA of a business has to be,
how do you make money, how do you spend your time
making money for your shareholders?
You're nobody as an entrepreneur until you've made money
for somebody else.
I'd like to be remembered for sticking with one ideal,
supporting capitalism, believing in it and fighting for it
my whole life.
I mean I really, really, really believe
that the only value in a society is that of an entrepreneur
creating a company, creating jobs, creating wealth
and sustaining our standard of living.
Government gets us nothing, there is no value created there.
You pay for it from the private sector
and it provides a service.
As far as I'm concerned, every government employee
works for me and that we should ask from them
the same metrics we put on ourselves.
If you don't perform you should be fired,
we do that in the private sector.
We should do it in public sector as well.
I respect them as leaders but I also understand I pay
for all of their costs.
So what I want and what I want to be remembered for
is to my dying day, I want to cut government by a third.
I believe that every dollar they spend is 33% wasted
and they're 33% too big.
In this country we need less government.
We need more private sector.
That's how we become rich and win.