Kevin O’Leary: Digging into Mr. Wonderful’s Investment Philosophy (w/Raoul Pal)

RAOUL PAL: Kevin, fantastic to get you on
Real Vision. It's been a while, but we got you here.
KEVIN O’LEARY: Thank you so much. I appreciate it.
RAOUL PAL: People see you on TV talking about a lot of things, but I want to get into the
investing side, and how you look at what you're looking at, and how you think about your investments.
How are you thinking about the world we're in now? Because it's been a complicated year.
It's kind of weird, because equity markets are really expensive. People don't know if
inflation is coming. People are really struggling with this. How are you thinking through what's
going on right now? KEVIN O’LEARY: Yeah, it is a difficult inflection
point, because for the first time in almost 30 years, you're starting to see some rapid
increases in the 10-year bond. And I always think of the bond guys having to be smarter
money, because they have duration and credit quality risk at the same time.

So I spend
a lot of my time looking at balance sheets and bond reports from Asia and Europe, watching
how these spreads on BBB investment-grade corporate debt is moving around versus the
10-year government bond. And we've seen some really difficult challenges in the last few
months for those that have large fixed income portfolios. They've lost some money– up to
16% on investment credit-grade fixed income instruments. And that's been a long time since
that's happened. So that could be signaling that inflation is coming, or it could be signaling
trying to figure out pouring $1.9 trillion into the economy. It's never been done before.
It's basically a big helicopter with money falling out of it for free.

That's what's
going on. So that's likely to manifest itself in different outcomes, but the one big change
I made– or maybe I should say two changes– since January is I went from a 50-50 allocation
fixed income and equities to 70% equities, and then I also took a position in Bitcoin
and increased my weighting in gold to 5% to try and get some protection against what I
think could be inflation down the road. RAOUL PAL: Shifting to equities, equities
are expensive. Or, do you think we're seeing– because I'm toying with this idea. So I'm
feeling like there is a secular shift going on in technology, for example, and technology
equities that means that even though the valuations look expensive, with free money being thrown
at us, it's only going to drive it further. How are you thinking through equity? Because
you've got a 70% equity exposure. How do you think through that?
KEVIN O’LEARY: Well, there's a specific reason for that.

I'm also a bit of a history
buff in terms of policy. And when you go back in time and look at periods in markets when
rates are going up– and they certainly are now. You can argue why they're going up, but
it doesn't matter; they are going up. And if we're going into inflation, you know, historically,
again, that the 10-year government bond which is the anchor of all fixed income doesn't
really compete with equities till it gets past 3%. And so we're only halfway there right
now. But also, you know that in the beginning of inflationary times, equities provide you
with a bit of protection because they have pricing power when there's inflation. This
is the first thing that happens in an S&P 500 company, if you want to use a big index
like, that is they see their input costs increasing– whether it be energy, or what they pay people–
and they immediately start raising prices.

And in fact, if you go back– again, I keep
referencing that– but you'll see that equities still do very, very well if they're the ones
that give pricing power during inflation. So you'll want to reduce your exposure to
fixed income where you have the risk, on a 10-year bond,
that you could lose 20%, maybe 30%, if rates go back up to, let's say, 2 and 1/2% or even
2%, and if you own the S&P companies that have pricing power in the sectors that are
not going to be affected by policy. For example, I wouldn't own energy right now, because we
know Biden is moving away from hydrocarbons, and there's a whole other risk there.

But
generally speaking, companies that can price are very good protection during the period
of inflation. A little dab will do you of inflation. It's very good for an economy,
actually. Not Venezuela inflation, but just a little bit.
RAOUL PAL: Yeah, I mean, the issue here is whether the economy can even take — NICHOLAS CORREA: Sorry for interrupting your
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can afford to be without. KEVIN O’LEARY: little dab will do you of
inflation. It's very good for an economy, actually. Not Venezuela inflation, but just
a little bit. RAOUL PAL: Yeah, I mean, the issue here is
whether the economy can even take 2 and 1/2% rates. That's something– the Fed have already
talked about yield curve control.

People have been thinking about it to try and let the
economy run hotter without bond yields going up and stopping the party. Because they stopped
it pretty quickly in 2018. Rates barely rose, and the whole economy ground to a halt.
KEVIN O’LEARY: That is the issue you've nailed right there. Because if you look at
estimates for Q4 GDP, some of them are north of 7%. That means that analysts have underpriced
earnings. I mean, if we're going to 7% GDP growth in the back end of this year, the estimates
for S&P appear way too low. And that's the conundrum that you have to have as– and I'd
rather err on the side of owning companies with strong balance sheets that have some
exposure to increased earnings. And I think in many cases, they've underestimated the
power of those earnings. And for me, I build my own indexes. That's why I'm the chairman
of an ETF company. It's called O'Shares.

I design– or at least I ask the rules-makers
to design– products that I'd buy for myself. And in the case of the S&P., I don't want
to own the S&P 500. There's only 100 stocks in there that I want to own during inflationary
times, and I have them inside a rule-based ETF called OUSA. That's my largest holding.
I sit back, I clip coupons in the form of profits, and I own balance sheets that are
very high quality with less debt, higher return on assets– very boring stuff. But I feel
safe with it. RAOUL PAL: So how are you thinking of things–
so if that's your largest holding, the core portfolio is the safe things that you've got–
look, you're also a prolific private investor as well as markets investor. So let's first
talk about the public-market side. Then we'll go to the private-market side. So the public-market
side– outside of that core holding, what kind of things are you looking for?
KEVIN O’LEARY: I'll disclose my holdings.

What I've done in Jan– third week of January,
when I did the rebalancing, first of all, I went, as I said earlier, to 70% equities,
30% fixed income from 50-50. That put a boatload of cash in my hands that I had to redistribute.
So what I did is I went 40% into that subset of the S&P, OUSA. And then I also added mid
caps and small caps. Now, I don't buy the Russell 2000, the problem being that 2/3 of
the companies in Russell 2000 actually make no money and have abysmal return on assets.
But within the 2000, there's a couple of hundred, just under 10%, that are actually profitable.
They tend to be a little larger– so the $4 to $5 billion market cap range. And they're
found in an index– again, rules-based– called OUSM. So I own 20% of that. So now I'm 60%
domestic, all right? I've got a large cap and the 200-plus small-cap companies– slightly
higher growth than the S&P. But this is another big change I made. People have been ignoring
Europe for over a decade. And you know there are 50 companies over there that are household
names in the United States– Nestlé and Roche, American Tobacco– big companies, strong
balance sheets, lower price-earnings ratios, in many cases, because they have their own
zip code.

And you've got to figure out Swiss franc, euro, and British pounds, which I want
exposure to. I want diversification of currency, given all the things that are occurring in
terms of stimulus in these countries. So that's another 20%.
That's called OEUR. And lastly, for growth– and this is the one that really, really caught
many people by surprise in the last year– I started noticing how much I was spending
digitizing all of my small-cap companies– Zoom licenses, for example, or DocuSign standardizations
or standardizations on Microsoft or standardizations on resale platforms like Shopify. Those stocks
encompass another index– internet giants– because the digitization of the global economy
is being powered by companies that give you those technologies. And there's another index
for those called OGIG– again, an O'Shares product. That was up over 100% last year.
And I don't think that's going to stop. These companies– and the only way to look at those–
it's like the Amazon conundrum.

If you thought Amazon was expensive 17 years ago, you certainly
never owned it for the last 17 years. You missed out on the largest capitalization increases
in history. You should measure these companies by increase in revenue quarter-over-quarter
and quality of balance sheet. In other words, if they're growing and they're spinning off
cash, their balance sheets get better. And that's exactly the way we measure the companies
inside of OGIG. And I will say something intriguing that many people find interesting. If you
go look at the OGIG index– just open it up and look at it, which you can on the internet–
you won't know 2/3 of the companies. And yet, they're behemoths– multibillion-dollar companies.
They just happen to be global. And in fact, the worst-performing names last year in that
index– it went up over 100%– were the FAANG stocks. They're growing the least now because
they've become so big. There's lots of other ones that are growing much faster. You just
don't find them stateside. So that's why it's a great combination, from my point of view.
So that's my holdings.

40% OUSA, 20% OUSM, 20% OEUR, which is Europe, and 20% OGIG. I
go to bed at night and sleep owning close to 1,000 stocks. I know they're all high quality.
RAOUL PAL: Yeah, it makes total sense. It's a good balance. You've got no real emerging-
market exposure in that. Got any interest in emerging-market share? Or just Europe's
an emerging market right now? KEVIN O’LEARY: Well, I do have exposure
to Asia and a lot of the other more advanced emerging markets in OGIG, because many of
the companies there are not US.

They're just– they're listed in the US, but they're actually
in Singapore or even in China, or in many countries, actually. Shopify is a Canadian
index. It's a Canadian company. It has a million companies on its platform, including all of
mine. So you've got to pick your different stocks based on performance on growth when
you're going to an index like that. And many of them are not in the US. So I feel I have
some exposure.

But pure emerging markets– you can buy many indexes that give you exposure
to that. But I think performance, in the next couple of years, will be focused on inflation
in North America and in Europe. And that's where I'm positioned.
RAOUL PAL: What about on the private side, on the direct-investing side? What gets you
excited? Because look, let's face it. Buying ETF baskets– they do the work for you. You're
not really using– apart from your asset allocation, you're not using your intellectual capacity.
But on the private side, you really have to kick the tires of everything. What's getting
you excited? KEVIN O’LEARY: Yeah. On the private side,
I really have made quite a pivot there. I've got lots of investments in everything from
gym equipment, manufacturing, to insecticides. I have a wireless- charging company. I have
giant commercial-kitchen investments– all kinds of different diverse sectors. There's
about 36 of those companies in the portfolio.

But for new investments now, I'm only investing
in companies that are direct to consumer. And I'll tell you why. During the pandemic,
I watched this dramatic– what I call digital pivot in America. I call it America 2.0. The
companies that survived, in my portfolios, were ones that were able to figure out, quickly,
social- media and customer-acquisition costs. Those companies that were able to acquire
customers at a cost that's less than the lifetime value of your customer– in other words, they
make a profit on every one they acquire– were the ones that survived. And they pivoted
from being 50% direct through retail– if you looked at my portfolio prior to the pandemic,
the distribution probably looked like this. 50% of sales went through retail– Walmart,
Target, et cetera. That's a $0.50 on the dollar business. 40% went to Amazon, which is slightly
more efficient than the typical retailer.

We made $0.60 on the dollar there. But we
never acquired the name of the customer. As you well know, Amazon does not disclose that
to you. And 10% went direct to consumer on a Shopify platform. In this last 13 months,
we've been able to shift, in some cases, up to 79% direct to consumer. And that's at 100%
gross margin less manufacturing and customer-acquisition costs. So that's a far more efficient, productive,
and really more powerful business model. So that's, for me, the new way to invest. If
you're telling me you're going to distribute your product or service through retail, I
have no interest. I don't want to be an investor with you.

You have to have a razor-sharp customer-acquisition
team, social-media experts, direct-to-consumer marketing, very high-level graphics and engagement
on your website. Then I might put some money to work.
RAOUL PAL: Yeah, it's interesting, because we're seeing, as retail shifts over, it turns
from a low- margin business to a super high-margin business, if people get it right, as everything
becomes digitized. KEVIN O’LEARY: Correct. And that's the trend
I want to invest in. I don't care what country your business is in. And that's certainly
been a big change.

And my own teams that do the analysis at O'Leary Ventures, our venture
capital firm– we have now brought on more people that can really
examine customer-acquisition cost models. That's all we look at.
RAOUL PAL: Something else happened over the last year which I think is going to be interesting
to you as well– is the financialization of the millennials. They were– student loans.
We're not investing. We've got no money. We can't afford to buy a house– to buying houses
like crazy, punting the stock market, buying call options, opening Robinhood accounts,
buying crypto. It's like a sea change, right? You've got this asset-management business.
You've got to be eyeing this, saying, finally, there's a bunch of 30-year-olds who've all
walked in and realized that the financial markets are a place for them.
KEVIN O’LEARY: Yes, you're right. And I have reflected that in my investment philosophy.
I own many fintech startup stock.

I've invested in multiple platforms. We still have a unique
situation in America, as we democratize investing, because obviously, the Reddit crowd, what
happened with Robinhood, the GameStop situation, which is now known globally– all of this
happened in a matter of 90 days. And it just shows the power of the crowd, or the herd,
if you want to call it that, in being able to gather information and put it to use. And
it's a new risk in terms of how hedge funds work, because today, if the Reddit herd or
the social-media crowd finds a stock that's heavily shorted with a thin float, you run
a risk of really getting squeezed if you're short that stock. So we've made sure, in our
portfolios, where we have actively-managed ones, where we're putting money to work in
anything that involves hedging, which may mean shorting one stock and going long another,
that we are not in a situation where we could be squeezed, because that completely puts
everything on its head. So we've reduced that strategy dramatically in anything we're doing.
We used to do FX hedging.

You go short one currency. You go long another. We've stopped
doing that, not that I'm saying the Reddit crowd could affect a currency. It's too big
a market. But the volatility in short positions now has all gone up. And that adds a tremendous
amount of risk for exactly what you said– the democratization of investors using the
internet, using social media, using information they can glean directly, just like sophisticated
investors used to.

And they now look like the sophisticated investor because they power–
they've taken the power of multiple accounts. They can apply small amounts of money times
a million over to short– to do– RAOUL PAL: Yeah. KEVIN O’LEARY: –lots of–
[INTERPOSING VOICES] RAOUL PAL: –it's the inverse of the world
that I grew up in. I was ex-Goldman. I ran a huge hedge fund. That world was the elites
not having all the information and moving the prices around. It's been completely inverted.
The elites are now being hunted by the crowds who have better information because it's a
broader base of information. And it's democratized. I mean, it's phenomenal. And it's a good change,
I think. KEVIN O’LEARY: Yeah, I think so. I think
it's a great thing.

There is one problem that remains that a lot of people don't realize.
There's 100 million Americans that do not have anything set aside for retirement. And
that's because we failed them in high school and in college by never
teaching them about financial literacy in any way. They don't understand even how a
credit card kills them in a 20% interest rate. And it's a really bad situation. There's two
areas that I've focused on for this calendar year and next year that are initiatives I
got involved in. One is financial literacy. So I made a big bet on a robo app called Beanstox,
which is– as I learned, the most important thing for that 100 million people is to make
it incredibly easy to invest.

So I'm arguing to those people, put $100 aside. Invest in
yourself. You get a bunch of index funds inside that app. And it's incredibly easy to hook
up to your bank account and just redirect $100 off your paycheck. And if you do that
from an early age in your 20s, you'll end up, if the markets just give you what they've
done for the last 100-plus years, about $1.5 million in the bank. So you're going to get
somewhere in that 7%, 8%, 9% return over a large period of time annually. But you've
got to start investing. So that was one big initiative. And the other is mental health,
which is a huge problem during this pandemic. 40% of people showing up at some ERs here
in America, like Miami, where I am right now, don't have any lacerations. There's no broken
bones. They have mental illness when they show up at night. And if they're not taken
care of, really bad outcomes occur, including taking their own lives.

So that's just an
initiative I'm focusing on in terms of what I do in a more focused area.
RAOUL PAL: Look, part of this is all the bigger problem of the rich/poor divide. So many people
got left behind, whether it's education, opportunity. How do we solve this? How are you thinking
that through? I can see you've got some initiatives going. But at a–
KEVIN O’LEARY: Yeah. RAOUL PAL: –broader level, what are you thinking?
KEVIN O’LEARY: The best thing to solve that, long term, is having a competitive economy,
is having an economy that grows faster than 4% across all sectors. You really want to
employ people from an early age when they want to get jobs. And the way to do that is,
simply position the economy in a competitive basis so that your taxes are not too high,
so that you're competing on policy.

I'm more of a policy wonk than getting into the weeds
of politics. But you want to set up policy so that when money, which is very fungible
and moves around the world looking for a path of least resistance– will come to the United
States and invest here. Now, the last administration had a certain way of doing it. We'll see how
this one does. Raising taxes is not a great idea if you're trying to solve for– redistribution
of wealth never works. We've seen that happen everywhere. It just doesn't. So what you really
have to do is try and get the economy to grow and just be the most competitive economy you
can be. And I think that's not lost on the current administration. I'm sure they're going
to focus on it. I'm very happy to see they're keeping the pressure on China, because they're
not playing by the rules.

I do so much investing there in terms of manufacturing. And yet,
I can't protect my own IP there. I can't sell to their middle class. And yet, they can sue
me here in American courts. That's so broken. That's got to get fixed. That's so unfair,
it's just ridiculous. And we've got to fix that problem.
RAOUL PAL: Yeah, it feels that we're going to continue to isolate China from the global
supply chains, because everyone has to, right? But for the reasons that you say– and there's
a technology warfare going on right now, whether it's 5G
technology, artificial intelligence– a whole bunch of
this stuff.

KEVIN O’LEARY: Yeah. My thing is– it's
very simple. All I want is a level playing field. I don't want to be given anything and
if both countries agreed, they both had access to the courts, and they both had access to
all channels of distribution without tariffs, that would be a great outcome. And then let
them compete. But that is not the situation right now. Your IP gets stolen in China, and
it's republished in terms of products that are sold there at a cheaper price. It even
gets knocked off and is sold on Amazon or JD.com and Alibaba. I've got lots of examples
of that that's happened to me. And when I go to litigate, I can't do anything about
it. And yet, they can litigate here. I'd be more draconian. I would delist all their stocks
until this is actually resolved and say, look, you can't use our courts, you can't use our
capital systems until we can use yours. That's what I think it's going to take. I think China
is very smart, very competitive, and understands the stick.

And I think we should apply more
stick there. That's what I think. RAOUL PAL: Going back to the domestic economy,
you obviously– there's two schools of thought. One is cutting taxes, freeing bureaucracy,
and trying to open the economy to growth. But we're overleveraged, and it's a bit of
a mess. So there's so much debt out there.

The other half is moving towards universal
basic income and that kind of side. How do you think through this? Because it looks like
the pendulum is going to swing the other way. And it's going towards this kind of stuff
and increasing taxes globally because of budget deficits. Your home country Canada has got
huge, unbelievable deficits now. And the only answer is taxes, as far as they know.
KEVIN O’LEARY: Yeah. But Canada has been suffering mismanagement for decades.

Unfortunately,
their system there does not promote good management into the political arena. I had a go of it
once myself and saw it from the inside. The people that get the mandates to run the country
generally have no experience in business, unfortunately. The finance minister there
is a journalist. I can't imagine that's a good outcome for the country never worked
at a bank, probably can't read a balance sheet. I have no idea. I just think it's a disaster.
And so at some point, the people will make a change there. And it's, I think, number
38 in the country in getting vaccinations, has no logistics capabilities. It's really
unfortunate for me to say this. I'm also an Irish citizen. That's a much-better-run country.
But Canada is unfortunately at the hands of some very mediocre management. And that's
a problem. And you've got to call it what it is, because people there now are so far
behind in vaccination protocols because it's mismanaged.

And it's very sad to see that.
But the economy is very in debt. But the one thing that the Canadians have, if they got
better management, is, they have every resource the world wants, from water through all the
precious metals, through timber, through everything. It's a very, very wealthy country, just incredibly
poorly managed. And it breaks my heart to say that, but might as well tell the truth.
RAOUL PAL: Yeah. No, it makes total sense. And yeah, Canada went through boom time. And
that made it make worse decisions. Booms are never good for making good decisions, because
it covers up all of the mess you leave behind. So yeah, we'll see how that plays out.
The other thing that's interesting to me is, obviously, Mark Cuban has been on Real Vision
a few times.

And he's been a crypto bull. And you weren't a bull for a while. And finally,
finally, you realized that this is probably a bigger opportunity
than you thought. Talk us through that whole shift in your mentality on this.
KEVIN O’LEARY: Yeah. What actually happened was, I became an owner of Bitcoin and Ethereum
back in 2017. That's when I first purchased my coins. Unfortunately, if you recall the
environment at that time– and remember, I'm the chairman of highly-regulated companies
involved in issuing ETFs and all kinds of other areas– financial services.

And the
regulator was extremely– I'm trying to pick the right word, but was not a fan of cryptocurrencies.
And there were many, many situations going on regarding the early adoption of tokens
and digitization of values around what could almost be called securities that they were
not happy with. And I had no choice but to keep my mouth shut. From my point of view,
when you're in a regulated business, you do not go against the regulator. You just can't.
I can't do that. In any country where I'm regulated– and Canada is one of them, Switzerland,
all the European- I'm participating in those public markets. I can't be outside. So that's
not an excuse.

It's just a fact. Now, in the last six months– you've seen it happen–
the regulator in Switzerland, in France, in Germany, in the UK, in Australia, New Zealand,
and Canada have all eased up. They've begun to realize that there, yes, is demand for
crypto. There is a digital economy emerging. The Canadians even allowed the first ETFs
last month. And there's, I think, almost– there's three of them on the market now and,
I think, two more in registration. So now you can buy an actual ETF with one asset in
it– Bitcoin. And so, as a result of that, it has changed my views about being able to
go and allocate, publicly, 3% of my portfolio to Bitcoin. Now, there's something else that
happened that you should be aware of. You know I work very closely with institutions,
not just domestically– because when I'm indexing, I'm making product to serve them– but also
the sovereign indexes in the Middle East and in Europe as well.

When I came out and said,
look– it was a coming out, as you speak. That's true. That's what happened– that I'm
going to a 3% weighting, I got inundated with phone calls from institutions that know me
well and said, where is the coin coming from that you own? And I said, who cares? Because
as you know, the way the blockchain works with Bitcoin is, you get to know the moment
it was born or created, but you don't know where. And they said, well, we have a problem.
We do not want to own coin made in China or any country under sanctions with any of our
European or US counterparts, or companies that waste electricity and are not close to
carbon neutral, or are being mined in unethical countries where there's human rights abuses.
That's a whole new ballgame, because you've got to realize, the majority of institutions
that I work with have never touched crypto. It's not an asset class for them. I would
bet that less than 4% that could buy Bitcoin do buy right now.

And they've now built, as
you're well aware, these ethics committees, these ESG committees, and these climate-control
considerations that all came out of the Larry Fink letter last year. CalPERS talks about
it now. Before you can even get an allocation to a new asset class, it has to go through
the ethics committee. And so I got inundated with phone calls saying, look, how do you
know these coins weren't made in China? And of course, I didn't.
So here's how I've solved the problem. This is the way I look at it. Going forward, the
only way I can know with certainty that I own a coin that was not mined in China is
if I mine it myself. So I've reached out to many of the large and smaller miners all around
the world in countries like Denmark and Sweden and other jurisdictions, northern Canada.
Some of these jurisdictions spend a lot less electricity because they don't have the air-condition
the servers as much.

So I'm very concerned that I be carbon-neutral as I can be. And
I've said, look. You need capital. You want to grow your capacity. You want new technology.
You need to invest. I'm here. I'll be your partner.
I'll invest in your mine. We'll expand its capacity. And here's what I want in exchange.
Pay me a royalty in virgin coin. So every single coin that you make from this new capacity,
I get a portion of them virgin to me.

And that way, I can say, with certainty, to every
institution and asks me, "where do your coin come from?" It's all compliant. It's all ethical.
And it's very well in terms of productivity, made with as little electricity as possible.
Now, when I came out and said that, all of a sudden, lots of institutions called me and
said, wait a second. Why can't we partner with you? We have the same problem. You have
the same problem we have. You have capital you want to put to work. So do we. Let's partner
on them. So that's what I'm doing right now. I'm having conversations every day with miners
all around the world, bringing them into this consortium of ethical miners that are compliant.
That's what's going on.

RAOUL PAL: Yeah, that's a great idea. And
I've been looking at this for a while. Firstly, we all know that if you look at the most efficient
Bitcoin miners outside of state-subsidized places like China, they're actually in Iceland.
And they're using hydropower. They're driving a green revolution. These are really good
players. Or we look at Canada or even Texas, where they're burning gas flare off that's
being wasted. They're using that– again, incredibly efficient. And to buy it directly–
I'm hearing of some people– Temasek in Singapore, I know, have been buying directly from miners
for several years now.

They choose who they get it from. I don't know where they're buying
it from. But it makes total sense because it gets around all of the ESG FUD, as they
talk about in crypto markets. And everybody can then show a face to their committees and
say, listen, we bought– first thing, we do the same with gold mining and diamonds and
everything else. There's no reason why you can't have provenance —
KEVIN O’LEARY: That's the whole point. I have to have provenance.

And I don't want
to own blood coin– the analogy to blood diamonds. I just don't want to be offside in the in
any way, because it takes me out of the domain that I do so much other work in– compliant
with institutions. And so I believe– and we haven't seen this happen yet, because there's
so little institutional investment yet in Bitcoin. But it's coming that we are going
to see a differentiation in value between a virgin coin with full provenance from creation
to a China blood coin.

And the majority of coins today are mined in China. They burn
a tremendous amount of coal to do it. They're polluting. Obviously, the human rights issues
have been documented. There's a lot of tension about that. But I don't want any of that in
my portfolio. I don't at all. And so we're going to see, I believe, over time– there's
100 years worth of mining left to do, millions of coins yet to be mined. The ones that are
mined ethically with provenance are going to be worth more. That's my speculation, if
you will. RAOUL PAL: Yeah, I think that's really interesting.
Again, even for retails, to be able to launch an ETF in that space, if you can source enough
virgin mine coins where you've got provenance– that's a very attractive proposition–
[INTERPOSING VOICES] KEVIN O’LEARY: I think that will happen.
I think that will– [INTERPOSING VOICES] RAOUL PAL: –the space a lot of good, because
you're moving the mining share away from China, which is what needs to happen, because it's
too– if we all believe that Bitcoin is something that has a bigger viable future, then it needs
to move away from China.

And this does that. KEVIN O’LEARY: I think we should starve
those mines until they're compliant, until there's– I go right back to how we started
this conversation. Until I have a level playing field with China, I would like to make their
coin worthless. And I can do that by having other buyers say, "I don't want blood money
from China." And until they get on board and they start to mine ethically with less [INAUDIBLE]
less waste, more productivity– there's all kinds of technologies now that do exactly
what you said earlier– use energy that is already being spun off or wasted or flaring
gas or hydroelectric that isn't in use, and put that towards Bitcoin.

That's far more
compliant with the SG committees, and the right way to do it. I just think, now, that
it's becoming a real issue. And people are allocating up to 5% in Bitcoin. And I'm a
believer. I think this asset class will perform very well over the next 20 years. I own British
pounds. I own Swiss francs. I own euros. I own Canadian dollars, US dollars. Why wouldn't
I own Bitcoin? Why not? RAOUL PAL: And are you following the whole
growth in the digital-asset space? It's happening very fast. It's impossible to keep on top
of. So almost none of us can be an expert on any of it. But we're seeing the NFT space.
We're seeing the decentralized finance. We're seeing the Ethereum. We're seeing a bunch
of other protocols. It's exploding. The future is digital. The future of money and the financial
system and the internet of value is all happening in front of our eyes at lightning pace.

How
are you thinking through all of this? KEVIN O’LEARY: I think it's a very simple
equation. If you can create an asset class that can't be counterfeited, that's very attractive
for long-term value. And in doing so– and this is also happening in music. We're actually–
we're stamping the blockchain, or at least a ledger system, to music so when it gets
sampled, the original author gets a royalty. The same thing is going to be happening with
digital art. But I find it very attractive that you can't counterfeit it. Even real works
of art– Picassos on down– are counterfeited all the time. You can't do that with a digital
version of Picasso. So for it to sell for 60 million plus 9 million in fees doesn't
surprise me. The whole point is that the value will be retained by those that believe that's
the only piece of that art in the world, which it will be. And I can completely understand
the investment thesis behind it.

I do a lot of alternative-asset-class investing, as well.
For me, watch collecting and vintage guitar collecting– I've made very good returns on
those assets, and I enjoy it. It's something that– I like to be part of that community.
FP Journe watches have their own culture, as do Rolex, Patek, Audemars Piguet, all these
different Mesons that make these watches. You become part of a community that discusses
this all day long. It's no different in the digital world. And my watch collection is
up over 114% year over year. So I'm not complaining. RAOUL PAL: No, that's right. As long as we
ascribe value to something, and there's authenticity to it and a rarity to it, it has value. And
it's as simple as that. I watched, on the internet, as people's minds blew with the
digital art from Beeple at $69 million. It was, A, 5,000 pictures. So if you break it
down per piece of art, it's not that expensive. And the–
RAOUL PAL: –people were like, this is outrageous. It's digital.

You can copy it. I'm like, well,
you've seen photographic art, for starters. That has value. And also, the fact that–
well, if you think about a painting, it's just canvas with a bunch of paint and a huge
margin, right? It's a great business to be in if you're a top artist. It's no different
than digital. KEVIN O’LEARY: Yeah, I would argue this.
If you put a video screen up– a high-resolution 4K screen– of that piece of work right beside
the Mona Lisa in Louvre, as many people would want to see that as to see the Mona Lisa herself.
They're so intrigued with what's happened there, and they'd love to see that image.
And that could be arranged. I'm sure the owner might be thinking about it. But it's that
kind of an iconic piece that's known all around the world for selling at the same price as
a Picasso would sell. So I think it's come of age.
RAOUL PAL: Yeah, and it's the same with guitars. You can have a fantastic guitar, or you can
have a fantastic guitar signed by an artist who used it.

If you get an original guitar
signed by Robert Johnson, it's worth a lot more than the same guitar not. Authenticity,
right? KEVIN O’LEARY: And I have a bunch of those
guitars. You're right. The challenge with hard assets like that is the storage cost.
And that's what's so unique about digital art. Their storage fees are very, very low.
And so I think that's also going to be something that people think about. It can never be lost.
It can never be counterfeited. And the storage fees are low. That sounds like a great asset
class to me. The amount of money I pay for the security of my watch collection is astronomical
in insuring these pieces. They're hidden in bank vaults all around the world. So it depends
what continent I'm on [INAUDIBLE] where this piece or another.

I've got a really complicated
inventory-management system for them. It's just a nightmare. And the same with gold.
I store physical gold, but I also trade the digital version, the GLD. So there's many
different ways to look at these things. But I think you're right. We are coming of age
very, very quickly. As you [INAUDIBLE] in your opening comments, it's happening by the
hour, almost. And that is what's so interesting about this time.
RAOUL PAL: Something that blew my mind the other day, a conversation I had– again, we're
all getting up to speed.

And I've been in this space for quite a long time. In these
games, where kids are now living within games, the virtual world has merged with the real
world. We grew up in a world where television– if you saw an actor, you didn't know if they
were being the character or the actor, because those two worlds are merged for us. But now,
kids live in the gaming world, right? They meet their friends there. They chat there.
They hang out and all of that stuff. But what's incredible is, things like lending
out swords or whatever utilities in a game– they have yield curves. There are 12-year-old
kids who are basically trading yield curves. And that's how fast this digital space is
moving. KEVIN O’LEARY: I think it's terrific.

I
think it's an educational process as well. There's nothing wrong with that. I do feel
that the key is to understand the new metric as it pertains to business. At core of all
of this digitization is the direct interaction of one human being to another anywhere in
the world. And social media is just multiplying that by millions and millions of times. Nobody
controls that anymore. No network controls that. No one individual controls it. There's
so many different platforms and technologies.

So if you have a great idea or product or
service, and you understand how to use these platforms, you
can create a very valuable business almost overnight. And that happens every day. And
it's one of the reasons I stay involved in the Shark Tank platform, for example, because
every year, we see incredible outcomes of just remarkable– they walk in through those
doors, and you say, why didn't I think of that? And we take these companies that have
figured out their customer-acquisition costs, throw a million dollars at them, and then
just pour gasoline on their fire and grow the business to $50, $100, $80 million in
the next 12 months. That happens all the time on Shark Tank because we're getting the advantage
of 100 million eyeballs seeing the product in its original airing and then syndication
every night all around the world. It's an incredible mix. We've got these performers,
shark operator investors, and then this giant social-media platform. I would guess, at this
point, as many people see Shark Tank content on social media as they do on the network.
It's just– it's everywhere.

It's just pervasive. RAOUL PAL: Yeah, and I think there's a key
message behind all of that that I really agree with. It is almost one of the best times to
be alive to be an entrepreneur, because truly big things can happen from small ideas these
days. We don't have to run manufacturing plants anymore. Those things are hard to manage,
let alone raise the capital for. But nowadays, you get the right product, you can get it
manufactured easily, or even digitally, and sell it at scale in the ways that we talked
about before– Shopify platforms, et cetera. It's extraordinary.
KEVIN O’LEARY: Yeah. No, it is true. You're absolutely right about that, that the new
generation of entrepreneur has something else as part of their success. What I've learned
about products and services in the last two years– the companies that are successful
have two new mandates built in. One is sustainability, and the other is mission.

Now, sustainability
used to be a marketing game. You'd say, look, we're going to plant a tree every time you
buy these shoes. But that's not a marketing game anymore. Consumers are demanding that,
somehow, built into the business model is the idea that you stop wasting resources.
And I think that's a very good metric. And it actually drives sales for companies that
have figured it out and hurts or dissuades others that have not. And the other is, you
find the passion of some mission that these entrepreneurs have. I invested in one recently
called Blueland– a rather interesting one, if I have the product here. But basically,
it digitizes cleaning fluids into crystals so that you eliminate the plastic. Comcast
is my partner in this deal.

And this is a woman who said, I want to get rid of 50 million
plastic bottles a year. I'm going to tell my customers, by buying my product, you're
eliminating plastics. Her sales went from 0 to 80 million in 11 months. So that's the
power of really driving the message, the mission, and sustainability all at once.
RAOUL PAL: Yeah, because consumers actually want it. There's just not enough solutions
to the problems yet.

So as soon as somebody develops a solution, people people parliament.
KEVIN O’LEARY: Yeah. But that's the new metric. Obviously, she harnessed social media
to get her message out there. But once she did, people tried the product. Of course,
it worked well. And now they didn't have plastic bottles sitting around their house in the
garbage. They get it. They want it that way. And they buy it. It's that simple. And I think
these simple models with sustainability and a mission combined are the businesses of tomorrow.
INTV: Kevin O’Leary: Digging into Mr. Wonderful's Investment Philosophy RAOUL PAL: So what's
the worst investment you made over the last year, when you just think,
Kevin, why did I do that? What's the one that you did that you really think was terrible?
KEVIN O’LEARY: Well, I would say that, when you invest in venture startups, you're going
to have a lot of– my portfolio now at 36 active companies, every day, there's catastrophic
disaster somewhere in the portfolio, and at the same hour, euphoria as some SPAC is putting
an offer to buy them at 20 times sales, and we actually had that today.

That's a kind
of thing that happens. And so I realize it's like playing an orchestra. You have to have
all the instruments tuned. You never know which one is going to get the great solo that
night. And it is the way it is. And I just– I look at the overall returns in the last
15 years I've been doing this. They're remarkable because of the fact that Shark Tank can reduce
customer-acquisition costs to 0, which is the number-one cost of all startups, because
it's got 100 million eyeballs watching the shows in syndication.

So it really, really
is a very interesting time that way. But I would also say that every one that I thought
was going to be a great investment generally weren't, and the ones that I thought were
just a lark of fun investment ended up being huge returns. You just don't know.
RAOUL PAL: So how do you stop that being drama? Because most people aren't used to it, when
you have to deal with the fact that even the things that you think you love are going to
go to 0, and the things you think, well, that was pretty decent, but I don't know ends up
being the hero in the portfolio.

At first, when you move to that sphere of investing,
how do you get your head around the fact that you have to deal with zeros and not be–
KEVIN O’LEARY: Well– RAOUL PAL: –overly worried?
KEVIN O’LEARY: –I have a very simple rule. If you can't make it profitable after 36 months,
it's not a business. It's a hobby. And I take it behind the barn, and I shoot it. And the
reason you should do that is that you can let that entrepreneur set them free and start
something else. Most entrepreneurs don't get it right on their
first one. I'd much rather invest in an entrepreneur that's felt the sting of failure that motivates
them to do it right the second time. And that experience is also very valuable. So it doesn't
bother me. The 36 months out of an entrepreneur's lifetime is a long time to be wasted on a
product or service that's just never going to make it. And the ones that don't understand
that are never going to be successful anyways.

So I think I give them great guidance, in
that respect. RAOUL PAL: So you still didn't answer my question.
What was the worst one that you did? KEVIN O’LEARY: Oh my goodness. I have many worse
ones. I did one with — RAOUL PAL: You don't have to name names if
you don't want to upset some of those– KEVIN O’LEARY: No, I– well, I won't, because
this is a very large company in telecommunications– one of the big three– deal directly with
the CEO of that company. We were going to consolidate the online gaming space using
cable. I invested a lot of money in it. But ultimately, I learned an important lesson–
that you can't move quickly when you're partnering with a behemoth, that sometimes the meetings
have 28 people in them.

It was just– you can't move. You can't do anything. And they're
their own worst enemies when it comes to entrepreneurship. So I won't do that again. I will develop the
companies and have them acquired by those behemoths afterwards. But I won't partner
with them again. That was quite a big financial hit. And listen, I hate losing money. Every
dollar, I have to fight for. And I just can't stand it when I kill them. And so it really
breaks my heart. I'm feeling bad just thinking about that one, and that was a few years ago.
RAOUL PAL: This is a final question for you.

How are you thinking through the SPAC mania
going on? I don't know who the chump is in this whole equation, but I figure somebody
is being held up to dry in all of this. How are you thinking it through?
KEVIN O’LEARY: Well, I'm very familiar with the SPAC market. In fact, back when SPACs
were a dirty word, I actually did one. It was much harder to do back then. I am a big
investor in SPACs. But let me tell you how I do it. The best way to look at SPACs and,
really, who's the sponsor. And if you're dealing with the Gores brothers, for example, or Bill
Ackman, these are guys that– I know their teams. They've done multiple deals.

They've
been in the private-equity markets forever. They're putting their own money up in these
deals. Yes, they're getting a 20% promote in fact in the case of Ackman, that's a different
structure. But I'm very comfortable aligning my interests with them in the pipe, which
is the big financing, or in the original SPAC, because I just know that they know what they're
doing. And so those are ones that, after they deSPAC, I'll stay invested in. But there's
a majority– I probably have 35 SPACs I'm an investor in. The minute they announce their
deal, I sell it, because the SPACs have actually been a pretty good investment in the SPAC
mania, from issue plus the warrant, right up to when they announce the target– then
you get out– because what you're seeing is you're seeing tomato hot houses getting SPACed
and businesses that will never be profitable– highly speculative stuff. That's not really
what the SPAC should have been used for.

And the celebrity SPACs– I don't touch those.
Just because you're a celebrity doesn't mean you have deal flow. To me, that's absurd.
But look, you're in a mania, as you pointed out. But I've done very, very well with SPACs,
and I've only kept two that converted. Generally, from what I've seen– I don't really track
them after I sell them, but they all seem to trade down because you're paying a stupid
price for a tomato hot house.

Eventually, it comes back to Earth. And so that's why
you've got to be very careful. That's how I play it.
RAOUL PAL: And do you ever keep hold of the warrants, or do you just sell those as well?
KEVIN O’LEARY: No, I keep the warrants, too. Generally, you go in at the beginning.
You get the warrant, and you get the unit. And then they separate. They start trading.
Sometimes I trade the warrants. I'm very familiar with– Ackman's probably the best return so
far. You can even ask him. I think I'm up 21% on that, and he hasn't even announced
the deal yet. So I'm an early investor in that. And I know his team. They're really,
really, really good at what they do. So I have no– when he announces his deal, it's
going to be a really interesting one because he's got such a large SPAC.

But the Gore brothers,
I've known for a long time. And they are really good as well. There's some really terrific
people realizing that it's competition for private equity.
So I could put my money into a five to seven-year fund with one of the big private-equity guys,
which I've done in the past. Or I can have the liquidity any time I want in a SPAC. Now,
am I willing to pay a 20% premium for that? Because that's what I'm paying. But it's not
that crazy, because a lot of these private equity firms are 2 and 20 also. So you're
paying a 2% management fee and 20% of the proceeds. Now, luckily, I've got to a place
in my life where I don't do 2 and 20 anymore, because I can invest alongside the private-equity
firm in a sidecar with no fees. So I'm very fortunate to have capital to do that with.
And I'm well-known as an investor, and I help deal flow. I have lots of deals I look at.
And I've been offered countless SPAC board seats.

I just don't do them. I much prefer
what's called the RTO, Reverse Takeover, which is something very interesting developed in
Canada in the mining industry in the old days, which I'm now using for companies like MindMed,
which is an incredible outcome. It's my best-performing stock in the last two years. It's around this
trend of testing LSD and psilocybins as medicines with the FDA. And I think it's the leader
in the space now in terms of number of trials at stage two with the FDA. So I'm very excited
about that investment. But that was done with an RTO, not a SPAC. There's no time limit
on an RTO. I don't blow up in 11 months. And yet, it's just as powerful a vehicle.
RAOUL PAL: The SPACs are fascinating because there's going to be enormous amounts of money
going back into the VC industry. This is going to release huge amounts of capital, because
all this stuff– as you know, virtually nothing was going public for the last five years.
It was all stuck somewhere in the VC– KEVIN O’LEARY: Yeah–
RAOUL PAL: –private-equity space.

KEVIN O’LEARY: I would argue there's something
more exciting than any of those. And it's equity crowdfunding. That, just March 15,
announced, for the first time ever, you can do a first round in equity crowdfunding at
$5 million. It used to be, until then, 1 million 70,000. So I got involved and became an investor
in a platform called StartEngine. And now I'm their paid spokesperson as well because
I'm such a believer in the platform. I brought a lot of my Shark Tank companies to it. And
basically, now, imagine we put– the venture-capital companies used to say, well, you can go do
an equity crowdfunding, but you can do the same amount of work for 1 million 70, and
I'll give you $5 million. And obviously, many went that direction. But now it's a competitive
landscape– $5 million on either platform. But what I hate doing to my companies– and
I certainly never do it to myself– I don't want to give a venture-capital firm a preference
share.

Why should they be above me on the cap table? Why should they have exit rights
that I don't have? I don't understand any of that. So I'm taking my company and saying,
forget the venture- capital guys. Let them sing for their supper. We're going to go do
an equity crowdfunding. And we're going to raise money on a level platform with a common
share with everybody in the same interest, without the time bomb, either– in other words,
without having fund six from some VC company saying, I've got to sell your stock in five
years because I need liquidity for my LPs. Who needs any of that? These guys are going
to have lots of competition equity crowdfunding now. And it came out of the JOBS Act, and
that's what the regulator wants.

So I'm very, very happy to
be taking this and I'll still work with VCs. But I'll sell them my companies. I'm not going
to invest with preference shares beside them. That makes
no sense to me. RAOUL PAL: Fascinatingly, Real Vision itself
is entirely funded by our members. So we've raised 70 million over the last six years
entirely from our members– not a single VC, institutional investor, or anybody– because
our members happen to be high net worth, investment bankers– yeah, all of these guys in their
own personal capacity. And the JOBS Act was a game-changer for us, because as long as
they're accredited, we could raise money. KEVIN O’LEARY: Well, next time you're considering
doing another round, consider StartEngine. We're very efficient at it. We've got over
4– almost 400,000 investors on the platform now. So it's just– I have to draw a plug
out for them because I love them so much.

RAOUL PAL: Brilliant. Kevin, listen. Really
great to chat to you. There's a lot we could talk about. And hopefully, we'll get you back
on, and we'll dig into some other stuff as well in due course.
KEVIN O’LEARY: Really enjoyed it. Take care, my friend. RAOUL PAL: Yeah, take care. NICK CORREA: I hope you enjoyed this special
episode of the Interview, the premier business and finance series in the world. However,
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