Posted on: June 10, 2012

Take a Stand: Don’t Listen to Advice That Goes Against Your Instincts

Kevin O’Leary is on one helluva roll. When he’s not busy chairing one of Canada’s biggest mutual funds, he’s becoming a genuine television personality, starring as the straight-talking co-host on CBC’s The Lang and O’Leary Exchange and the intimidating financier on the Dragon’s Den. Now he’s at it again with Redemption Inc., a new CBC series where he offers ex-offenders the opportunity to launch a business under his mentorship and a $100,000 investment. Before hitting the airwaves, O’Leary founded numerous companies, most notably SoftKey (later The Learning Company), which he eventually sold for $4.2 billion. Known variously as the Mean One or the Voldermort of Capitalism, he’s the stereotypical hard-nosed businessman, living by the rule that there’s no room for emotion or friendship when it comes to making money. In his recent book, The Cold Hard Truth (Doubleday Canada, 2011), O’Leary relates how hard work, persistence and a little luck made him into one of the top entrepreneurs in Canada. In this excerpt, he shares his personal wisdom on managing your own money.


In the summer of 2008, George and my mother, Georgette, came to Toronto for a visit. Since George’s retirement, they had been living in Switzerland, but my mother had had a few health challenges and wanted to come to Canada while she could still get around. After dinner at one of her favorite restaurants, she fell ill. The next day, George called me on the set of The Lang & O’Leary Exchange and told me to get to the hospital as fast as possible. My mother had had a heart attack. We were all at her bedside just before she went for surgery. It should have been routine, but she had a stroke on the operating table, lapsed into a coma, and died a day later. We were all inconsolable. After the funeral, George told me my mother had made me the executor of her will. You find out all sorts of things about people after they die. I hadn’t realized that my mother was a big collector of some of the finest European couture this side of the pond. It made sense: she had always appreciated good workmanship, having once owned a clothing factory. I also had no idea how much money she had. She married and divorced a salesman who was bad with money, then married a career public servant who made a good living but was by no means rich. They lived well on George’s income and traveled widely. My mother often used her own money to help family members, lending money to some – a crucial $10,000 went to me – and fully supporting others through tough times. She was a deeply generous soul, so I expected her savings would have been depleted by the time she died.

But there it was in black and white: my mother died with a significant nest egg, one most people could comfortably retire on. How had she done it? She’d followed a very simple investment plan. Since her days at Kiddies Togs, she had invested a third of her income in bonds and stocks that paid a yield or dividend. By reinvesting that money over the course of sixty or so years, she was able to accumulate a lot. Her savings budget was one to which most people could stick; her investment strategy was easy to understand. She never made a lot of money, but she died having it, because she kept every dime of her principal intact and lived off the interest. It was a revelation. Because I was a student of the markets, I knew that in the last forty years, more than 70 per cent of returns had come not from capital appreciation but from dividends. I think my mother must have intuitively known this, which is why she never owned securities that didn’t pay interest or a dividend. I had heard of people investing like this, but when you see the actual results, it’s remarkable.

At the same time that I was marveling at my mother’s financial wizardry, my own money was taking a major beating. I had invested the cash I’d made in the Mattel deal – wisely, I thought – by leaving half of my earnings with American money managers. The other half I took to Canada, putting two-thirds into stable provincial bonds, which yielded about 6 to 7 per cent interest. I put the other third into income trusts, a wholly Canadian asset class that has enjoyed some succulent yields, up to 16 per cent. My adviser at the time assured me that the trusts were safe. Plus, the yields were tax-deductible. So I did something entirely uncharacteristic: I moved two -thirds of my money into income trusts, reducing my bond portfolio to one-third. It was a risky move. My mother would have put me in a headlock. She would have driven home the point that the higher the yield, the higher the risk. She would have been right. On October 2006, the Canadian government slapped a 34 per cent tax on income-trust distributions to stem the flow of companies converting to trusts. The government was worried about losing out on significant tax dollars, forgetting how that money was being redistributed in ways the government hadn’t even considered. Overnight, income trusts lost about 20 per cent of their value, and I lost a significant chunk of my net worth. And let me tell you, I cried like a baby.


After I wiped my bitter tears, I made appointments with new money managers, telling them about my mother’s money, my loss, and my need to feel more secure. I had let greed get in the way of good, sound strategies, and I made a decision to revamp my investment style. I also began to believe that if I felt the need to re-evaluate my investments, other investors must, too. My mother’s wealth and its slow, steady incline were based on her commitment to investing only in businesses that could produce yield, so that’s what I’d do, too. I soon discovered my new money managers hadn’t been listening to me. One had tied up a significant chunk of my money in Research In Motion (RIM) stock. Nothing wrong with RIM – I love my BlackBerry. But I can’t own RIM stock because it doesn’t yield any dividends. Another manager had put me in a gold-mining stock in a foreign country, and those stocks plummeted to zero. And I didn’t own just 5 per cent of the portfolio; the manager had purchased 5 per cent of the entire mine – with my money! I could hear my money asking, “Why? Why are you doing this to us?” It was a massive lesson: I hadn’t been paying attention to what my money managers were doing, and because those managers hadn’t been paying attention to me, they had invested against my style. Most important, they were missing the key component to a healthy investment strategy: fear. The reason you don’t put all your money in one place is that you have a healthy fear that your instincts could be wrong. It’s a brand of humility, the admission that you might have missed something, or that there are forces at play that you don’t understand and cannot know in advance. Fear must be part of the investment equation. Without it, you risk being wiped out. But it’s hard to incorporate that element when you’re not managing your own money. Fear translates into market humility, the ability to stay right-sized, and it can be your friend if tempered with faith in your experience. After that harrowing financial chapter of my life, I fired those money managers. Then I became my own.

This article first appeared in Zoomer magazine, by arrangement with from Random House of Canada Limited.

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