Kevin O’Leary, who is also known as Mr. Wonderful is a Canadian businessman and TV personality. He is the co-founder of O’Leary Funds and Soft Key. O’Leary rose to prominence in the business world after his software company was sold to Mattel for $3.65 billion in 1999.
He is now one of the most prominent investors on business shows such as Shark Tank and Dragon’s’ Den.
O’Leary is famous for his blunt opinions and is not afraid to tell someone a few ugly truths. This attitude of O’Leary makes his tips and investing strategies realistic and honest. Every investor should know about the principles that Kevin O’Leary lives by:
Without risk, there is no reward
Kevin O’Leary is someone who is willing to take risks but his risks are calculated. Taking risks is the way you ultimately make a lot of money but you should be cautious and make sure that there are safety nets in place.
According to Entrepreneur, taking risks doesn’t mean you should jump into any situation blindly. Taking risks without financial reserve planning is almost suicidal- a single hiccup could spell disaster and result in complete failure. This business advice from O’Leary can be applied aptly in investing.
Your portfolio should be diversified
According to the MotleyFool, a simple strategy to follow to make sure that you don’t really get hurt if one of your investments doesn’t perform well is to diversify your profile. Diversifying your portfolio reduces your chances of facing a huge loss and increases your chances to generate stable returns.
According to O’Leary, investors should never put more than 5% of total holdings in a single stock or investment, no matter how good or big the name is. Further, the big bull states you should not invest more than 20% in any one sector and has a strong emphasis on sector distribution.
There are dozens of stories out there of certain investors riding one hot stock to riches. What you don’t hear about are the thousands of people who tried the same thing and failed miserably.
Don’t forget about bonds
Another important strategy from O’Leary’s investing handbook is keeping a healthy amount of bonds in your portfolio. According to investory, to decide the percentage you want to invest in bonds, take your age, and have that as your percentage of bonds.
This is a golden rule that even O’Leary follows. For example, if you are 30 years old, then have 30% in bonds and 70% in stocks. A 70-year-old should have the exact opposite allocation. Bonds are low-risk investments and your risk appetite should reduce as you inch closer towards retirement.
Insist on dividends
O’Leary loves dividends and refuses to invest in stocks that don’t pay a healthy yield. The slogan for his investment company was “get paid to wait”. According to MSN, when he was a young boy, his mother always told him to never spend the principal and only the interest. This stuck with him and he followed this strategy all his life.
A company that is willing to pay a reasonable amount as dividends is likely to be well established in the market and have a steady cash flow. You should be able to choose a company with good overall health to receive a sufficient dividend yield.
“When you’re an investor, you can look at the quantitative and qualitative elements of an investment, but there’s a third aspect: what you feel in your gut.”
This quote by Kevin O’Leary is self-explanatory. Like a lot of great investors, he feels that you should have the courage to listen to your gut and to some extent ignore what the market says which is a risk worth taking.
Markets are unpredictable and if you have invested after considering most qualitative and quantitative aspects into the picture, then you should not be afraid of market fluctuations.
It is equally important to wait and have patience when it comes to value investing. O’Leary is a value investor in a business, and as you would have seen on Shark Tank and Dragon’s Den he always insists on not paying too much for an investment.
The idea behind a business
Kevin O’Leary also suggests looking at businesses from a long-term perspective before investing in it. You need to invest in businesses that you understand and keep it simple. The power of compounding is often understated and investors need to ensure the stocks they pick can sustain multiple business cycles without breaking a sweat.