#441: Kevin O’Leary on Alternative Assets

Kevin O’Leary is a Canadian businessman, author, politician, and television personality. He is a Shark on ABC’s hit show Shark Tank and has had numerous previous business successes, including when he sold The Learning Company to Mattel for $4.2 billion in 1999. In this conversation, we discuss the economic impact of the pandemic, the PPP loan program, the current state of personal finance in North America, and alternative assets, including wine, watches, and Bitcoin. ======================= BlockFi provides financial products for crypto investors. Products include high-yield interest accounts, USD loans, and no fee trading. To start earning today visit: http://www.blockfi.com/Pomp ======================= Choice is a new self-directed IRA product that I'm really excited about. If you are listening to this, you are likely part of the 7.1 million bitcoin owners who have retirement accounts with dollars in them, but not bitcoin. I was in that situation too. Now you can actually buy real Bitcoin in your retirement account. I'm talking about owning your private keys and using tax-advantaged dollars to do it too. Absolute game changer. https://www.retirewithchoice.com/pomp ======================= Masterworks.io is an exclusive platform that makes it as easy as trading stocks online. And the best part is: you don’t need to know anything about art. Their experts will create a custom portfolio to meet your investment needs. With Masterworks.io you don’t have to choose between big risks and big returns. Sign up today, select PODCAST and you can skip the 70,000 waitlist to get first dibs. Just go to www.masterworks.io and use code "POMP"

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Anthony Pompliano?

  What's up everyone, this is Anthony Pompliano. Most of you know me as Pomp. You're listening to the Pomp Podcast, simply the best podcast out there. Let's kick this thing off. Kevin O'Leary is a Canadian businessman, author, politician, and television personality. He is a shark on ABC's hit show Shark Tank and has had numerous previous business successes, including when he sold The Learning Company to Mattel for $4.2 billion in 1999. In this conversation, we discuss the economic impact of the pandemic, the PPP loan program, the current state of personal finance in North America, and alternative assets, including wine, watches, and Bitcoin. I really enjoyed this conversation with Kevin,

• 0:43Anthony Pompliano?

  and I hope you do as well. Before we get into the episode, though, I want to quickly talk about our sponsors. First up is BlockFi. I'm an investor, I sit on the board, and I'm a very happy customer. BlockFi provides financial products for crypto investors. You can buy and sell crypto on their crypto exchange, you can deposit crypto and take out a US dollar loan against your crypto collateral, or you can deposit crypto and earn up to 8.6% APY on an interest-bearing account. BlockFi's got a whole suite of financial products in the market today, and they're also will be coming out with a Bitcoin Rewards credit card soon. You should sign up for a BlockFi account today at blockfi.com/pomp.

• 1:24Anthony Pompliano?

  Again, blockfi.com/pomp. I'm a user, and you should be too. BlockFi.com/pomp. Next up is Choice. They are a new self-directed IRA product that I'm really excited about. If you're listening to this, you are likely part of the 7.1 million Bitcoin owners who have retirement accounts with dollars in them, but not Bitcoin. I used to be in that situation too, but not anymore, thanks to Choice. Now, you can actually buy real Bitcoin in your retirement account. I'm talking about owning your private keys and using tax-advantaged dollars to do it too. That's right, Choice is a self-directed IRA product that allows you to buy Bitcoin, hold your private keys, and use tax-advantaged dollars to do it. Absolute game changer. So head on over to retirewithchoice.com.

• 2:10Anthony Pompliano?

  Com slash pom. Again, retire with choice.com slash pom. I've got a choice account and you better get one too. If you use that link retire with choice.com slash pom, you'll skip their waitlist. No more waiting, no more having zero Bitcoin in your retirement account. Retire with choice.com slash pom. Next up and last, but not least is Masterworks. Masterworks is an exclusive platform that makes it as easy as trading stocks online to buy expensive art. Everyone who is rich that I know owns lots of art, whether you're a billionaire, a millionaire, or you just got cash. They got art. Why do they have art? Because it serves as a great store of

• 2:54Anthony Pompliano?

  value and a great investment asset. Kevin O'Leary's got art too. So if you want to invest in art, but you don't have millions or billions of dollars to go buy expensive pieces of art, you can use Masterworks. Masterworks.io is the website. What they do is they help you buy fractional shares of expensive art. They've got experts on hand that will help you create a custom art portfolio to meet your investment needs. With masterworks.io, you don't have to choose between taking big risks and big returns. Instead, you can sign up today if you use podcasts, select podcasts, you can skip their 70,000 person waitlist to get first dibs.

• 3:34Anthony Pompliano?

  Just go to masterworks.io and use code POMP to skip the waitlist. Masterworks allows you to buy fractional shares of art. No brainer. You should go do it. Masterworks.io. Use code POMP and thank me later. All right, let's get into this episode with Kevin. I hope you guys enjoy this one. Anthony Pompliano is a partner at Morgan Creek Digital. All opinions expressed by POMP or his guests on this podcast are solely their opinions and do not reflect the opinions of Morgan Creek Digital or Morgan Creek Capital Management. You should not treat any opinion expressed by POMP as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his opinion. This podcast is for informational

• 4:16Anthony Pompliano?

  purposes only. All right, guys. Bang, bang. I've got Kevin O'Leary, Mr. Wonderful here. Thank you so much for doing this, sir. I love doing this. Great to be on. Thank you so much. Absolutely. Let's jump right in for the like, three people who are watching who don't know who you are. Give us kind of the two minute on your background and we'll get into some of the different investment asset classes that that we're going to discuss today.

• 4:38Speaker 01

  Well, I'm an entrepreneur. I mean, you know, the good, bad and the ugly is every entrepreneur's had some great successes and catastrophic failures. I'm no different. I got involved in Shark Tank 12 years ago. That's been an incredible platform. Everybody knows the show now all around the world. And we've launched so many businesses, created, you know, millions of dollars of wealth for people and sold billions of dollars of products. So we're very excited about that. But basically, it's the celebration of entrepreneurship. And I'm an investor. I invest in a lot of different things. Some really work out, some don't. And I, you know, I take my lumps like everybody else. I had an opportunity, I was, when I was young, my dad worked the United Nations. So I've lived in Cambodia, Tunisia, Ethiopia, Cyprus, France, Japan, Switzerland, Germany, everywhere. Every

• 5:23Speaker 01

  two years, different place. So like an army kid. But that gave me a different perspective in terms of how I think about investing globally now. Because I've been to all those places. And I think, you know, I think as an investor, a little differently with that perspective.

• 5:37Anthony Pompliano?

  Yeah. One of the things I want to talk about is obviously the kind of macro environment and the economic chaos that's occurred because of the coronavirus. You've been pretty outspoken about the PPP loans and a lot of just the state of personal finance of people in Canada and the United States. How are you thinking about that today? And kind of where do you think we go from here?

• 5:57Speaker 01

  Well, I lived through the whole PPP loan. It started in March. And I have, I have, I have crystal clear clarity on what happened, you know, nine months later, basically. And so here's my observations about it. It was a very blunt instrument. It was necessary in some ways. But I would guesstimate now that about a third of it was completely wasted. Because it went to businesses and aren't going to survive regardless of how much you stimulate them. And the reason that is occurring is that because of a pandemic that nobody could have anticipated. Consumer preferences and purchase behaviors have dramatically changed. And I'll give you an example. Movie theaters. You would have never thought that, you know, all of these very strategically located movie

• 6:39Speaker 01

  theaters in malls all over America would ever go to zero. But they are going to go to zero for a bunch of reasons. Number one, you know, we've gone from 1,800 malls to 1,200 malls, down to 1,000 malls. We're on our way to probably 500 malls. That is not a preference on how consumers purchase anymore. They've gone online. They've also started to consume all their digital content on a streaming basis, either to their 80-inch monitor in their basement or to their personal device. Who cares which one it is? The point is that that's not a business I, as a taxpayer, would have wanted to find because I think it's going to zero anyways. The wedding industry, same thing. Dramatic changes going on in all of the billions of dollars spent on weddings. There hasn't been a wedding with 200 people in it since March 7th. Why do I know that?

• 7:24Speaker 01

  Because I have lots of investments in the wedding industry. Most of them are going to go to zero. On the other hand, 80% of my companies have done the great digital pivot, have moved the focus of their sales out of retail, direct to consumer. And I would remind everybody, when you sell direct to consumer, you're making 100 cents on the dollar, not 50 cents as you do in retail. So as a result, they've been able to come back stronger than ever with a bigger focus on telling their stories and building relationships with their own customers. That all happened in eight months. Look at Nike's numbers. Last quarter, they reported two weeks ago. They're now one-third of every sale they make around the world is direct to consumer. They don't need retail as much as they used to. That's all happening. And I'm very, very bullish, even though 20% of my companies aren't going to make it,

• 8:08Speaker 01

  the other 80 are going to come out of this mess a lot stronger than they went in, and they're going to develop new business models. And I call it the great digital pivot, America 2.0. So I'm optimistic.

• 8:18Anthony Pompliano?

  Yeah, and we just saw Black Friday numbers that have started to surface as we're recording this. And one of the things that was really interesting is that over $7 billion of the transactions are coming from online. And so is that something where that was just the virus accelerating those online trends? Or do you think that we actually would have seen something similar even without the virus? And it's just a shift of preference?

• 8:43Speaker 01

  No, I have pretty good data on this. What the virus has done has accelerated 36 months of online sales. In other words, if you were budgeting for three years from now to be 50% online, direct to consumer, it was going to take you 36 months, three years, and that was your capital expenditure plan, as it was for many of my companies. We achieved that in five months. And so, by necessity, we had to close retail and we just reached out using GeoLock ads on Facebook, using Insta, using all the different social media platforms. And we learned that our customers were willing to, at least two-thirds of the time, buy direct from us, and they're never going to go back to retail to buy the product or service. And so, it's been a dramatic acceleration. And in some ways, you would have never taken that risk, you would have never shut down your headquarters, you would have never said, "I'm never going

• 9:28Speaker 01

  to go visit a buyer at a big-box retailer," and yet, we couldn't. So, we started using Zoom and other video technologies. We're doing meetings direct for Q1 on Zoom. I'm meeting with my CEOs next week on a series of calls direct to buyers for Q1 product placements that normally would have cost us $10,000 with a business travel. We're spending zero on aircraft. We're doing it direct in 18 minutes on Zoom calls, far more efficient. And by the way, when the pandemic's over, we're not changing that either. I'm cutting my business travel and entertainment by 50% in my portfolio over the next 24 months. We are saving a fortune.

• 10:04Anthony Pompliano?

  Yeah. One of the things that happened with PPP was you also got to see kind of up hand, up close, the financial state of many of the employees of these businesses. And I know that you've talked in the past about just your shock as to how bad they are at saving and kind of their financial investments. You've created some technology to try to help them. Talk a little bit about what you saw when you started to understand what the employees of these businesses were doing.

• 10:27Speaker 01

  Yeah, this totally freaked me out. I mean, I didn't see this coming. I could have never guessed it. I mean, there's so many cases like that in this pandemic. So, here's how it went down. Starting in the third week of March, as soon as we got to read the PPP plan, it was passed on a four o'clock on a Friday in the House. And we all got it through our accountants and lawyers, and I spent the weekend reading it. What it said was, you had to take a snapshot of your payroll on Feb. 15. And then it would be compared against your payroll June 30. And that would determine the structure of the loan you're about to get or how much you get in the first place. But you had to have good accounting records and you had to have really good records around payroll. So, you know, that was the first lesson I learned. Some of my companies were kind of sloppy in their accounting.

• 11:10Speaker 01

  And that really hurt them because we couldn't get the PPP for them because they didn't have the records. But the ones that did, there was a huge panic going on amongst all the employees, not just in my companies, but the up and down channels of supply chains, tens of thousands of people in their late twenties, early thirties, freaking out, and I didn't know why until I figured it out. Ninety-five percent of them had no more than two weeks of salary and cash in the bank. That's it. They had no plan for savings. They had no investment strategy. They had nothing. And they're now sort of three or four years into their career and they haven't put anything aside? That's crazy. That's a failure in financial literacy. So what I did was I formed an app with a team.

• 11:53Speaker 01

  And I built a business called Bean Stocks, B-E-A-N-S-T-O-X. And what it does, and I realized this by talking to these employees, nobody knows how to buy a stock. I mean, there's this whole, you know, thinking that everybody knows how to trade and buy stocks and develop portfolios or diversified. Very few people can do that. So with Bean Stocks, we made it completely simple investing. You just put a hundred bucks if you can aside a week. It puts it to a diverse portfolio of exchange traded funds across a wide range of sectors and stocks. And it lets you over time build a portfolio. And the reason I did that in telling them this is if you can afford to put a hundred bucks aside a week and the markets do,

• 12:34Speaker 01

  over the next forty years, what they've done over the last hundred and fifty is give you six to eight percent a year of compounded returns. I'm not talking about saving. I'm talking about investing now. You can't get that in a savings account. You've got to put it into the market. You'll retire with about a million and a half dollars in the bank. That's a good nest egg to have. Because you don't know what the next forty years are going to do to you, but you do with certainty that you can somehow save a hundred bucks a week. That's what Bean Stocks is all about. Anybody can download it, check it out. I worked very hard on it. And what I would say about it, and people say, what's the difference between that app and all the other apps out there? This app invests according to my investment philosophy. I'm very conservative. I couldn't find anything that was as conservative as I was towards long-term investing, so I built it myself.

• 13:20Anthony Pompliano?

  Because one of the things people give me a lot of flack for is I always say that anyone can become a millionaire. You just have to have discipline and have a really, really long time horizon. And obviously, you've got to be young to be able to do it. But this idea of saving a little bit, but investing it, not just putting it in a savings account. How do you think about or talk to some of these employees about how much they should save and kind of keeping that rainy day fund versus what they should be investing into the markets in a kind of conservative way?

• 13:45Speaker 01

  Well, you're dead right. You've asked the right question. There's a big difference between saving and investing. Saving, you don't even beat the inflation rate anymore. Basically, that's the amount of cash you should have on hand, just in case poo poo hits the fan. Catastrophic illness in your family, car accident, something tragic occurs. I like to have 90 days of window. So whatever it costs you to live for a month, have three of those, just in case poo poo hits the fan. So 90 days. But then you should find a way to change your spending habits. You know, people spend money on all kinds of crap they don't need. You look at your closet full of clothes you never wear anymore and shoes you don't wear anymore, and all the junk you don't need and consumer

• 14:28Speaker 01

  electronics. Take a little bit of that and just invest it, not save it, invest it. And that is where you take and use an app like Beanstalks to pull 100 bucks out of your account and automatically put it into a wide diverse portfolio that you hope will achieve 6% to 8% a year over a long period of time. That's how you become a millionaire when you're in your 60s and you have a nest egg that you can fall against when you want to retire as opposed to having nothing in the bank. I think the scariest outcome for people would be to have nothing saved in their 60s. That's insane. Beanstalks can help you avoid that tragedy, and that's why I did it.

• 15:04Anthony Pompliano?

  Yeah, one of the other things that's really interesting is there's this kind of common belief that the only way to get more money is to save money, right? And what I mean by that is cut out excess spending, etc. But one of the things I've seen you talk about is everyone should have a side hustle, especially if you're young. And so this idea that it may actually be easier to go make an extra $1,000 than it is to cut $300 a week out of kind of your expenses. Why do you think that side hustle is so important for young people?

• 15:31Speaker 01

  Side hustle is really a great idea and let me explain why. I used to run around just a year ago when I'd have a talk like the one we're having right now and people would say, "Well, how should I invest for college?" And I always say, "Well, there's only three options if you want to get a job. Engineering, engineering, and engineering. And if you want a backup plan, become an engineer." But I don't feel that way anymore because what I've learned in the last nine months is when I look at the money I've spent on artists, who are they? Copywriters. I've spent money on videographers, video editors, photographers, animators. Why? Because I've had to redo my entire digital platform on all my companies so that people would engage in the product or service and make it rich enough content that they would

• 16:14Speaker 01

  buy direct from us as opposed to go to retail, which doesn't exist anymore in the same way. And that's all art. That's all great storytelling. That's all great photographers. Now, that's a great side hustle. If you know how to cut video, if you know how to use Adobe, if you know how to record stuff, if you can write copy, if you can do animation, if you're a good photographer, come on, are you kidding? The world is screaming for those talents and you can make plenty of money on the side. I'm paying tons of dough to editors in Israel, in France, in England, in Australia, time shifted, even in China, in India, all these people that are working with us on digital content just so we can be working 24/7, digitizing all of our platforms. So there's a big opportunity and a lot of kids know how to do this because they've become hip to social media.

• 16:59Speaker 01

  They know how to use their cameras. And a lot of the stuff that we actually post now is shot, you know, with iPhone 11s and now the 12 is 4K, 60 frame a second. It's spectacular video quality that's broadcast quality. We're going to be using it for all of our social media. So I'm looking for talented people that know how to do that.

• 17:17Anthony Pompliano?

  Yeah, that's great. Because of the coronavirus and kind of all the economic chaos, people have been now looking for alternative assets. And you probably more than most were already positioned to do well there. I want to talk about wine and I want to talk about watches, two areas that you've been investing heavily in. What's kind of the investment thesis for those two assets and how's it been going so far?

• 17:40Speaker 01

  You know, when you're an investor, I mean, the core for me is I like to have an investment philosophy, you know, in my case, and I say this to people, it's not about just investing for growth, it's investing to protect your money in case there's a catastrophic change in the market. So preservation of capital is my number one mandate. And towards that, one of my early investments was to found my own indexing company, a company that makes exchange traded funds. And I did that, I own 50% of O shares, which is a company that's been very successful producing, you know, products like OUSA, a core subset of the S and P that I can invest in long term, so that I'm getting dividends. And then for

• 18:24Speaker 01

  the digital economy, I told the CEO, I said, why is it that I'm spending so much money? This was two years ago. Look at how much I'm spending on Zoom, how much I'm spending on CrowdStrike, how much I'm spending on Shopify. Look at my budget on JD.com, on Alibaba, on Facebook, on DocuSign. I'm spending millions on these guys. Why don't you index that for me? Figure out the top 70 companies around the world that are digitizing the economy, build me an index and I'll invest in that. And that's what OGIG was. That thing is up over 80% this year. And I, obviously, that's a big investment of mine. And the thinking for me was, if I'm writing checks to those companies, why don't I own them? Why don't

• 19:06Speaker 01

  I own them? Because they are, they are the new, they're allowing the digitization of the global economy. They're the internet giants and they're growing at 20, 30, 40% a year. I mean, Shopify has a million businesses on its platform now, including all of mine. And the reason I do that is I do business with Amazon, that's 40% of my sales. But I also want to sell direct where I collect my own customer data, and I can't do that with Amazon, so I do it with Shopify. That's part of the index of OGIG. So that's, you know, one of the ways I invest. And I just look at it and say to myself, invest in things you understand how they're growing. And that's what I do. Another area that really I found interesting, and this falls into some of the discussions we're going to have about alternative asset classes like Bitcoin, et cetera, in a minute, but

• 19:51Speaker 01

  Two or three years ago, people kept calling me up saying, Kevin, why aren't you, you're a known investor, why are you not investing in cannabis? Why don't you have a big portfolio of weed companies? And every time I want to invest in them, and I did, my guys in Washington would tell me, hey, Kevin, this is a Schedule I narcotic. It breaches the RICO statute if it goes from one state to another where it's illegal, and you're going to be a shareholder, it's a very bad outcome for you. You can't invest in cannabis for recreational purposes. So then I got approached about a year and a half ago to invest in psychedelics as medicine. Again, LSD is a Schedule I narcotic. At that time, psilocybin. It was an illegal drug. I said, guys, how can I invest in that? It's the same thing as cannabis.

• 20:36Speaker 01

  And this time, they said, no, no, no, no. These are going to be FDA-approved trials. We're only doing medicine, no recreational drugs. So I became a big spokesperson for that sector, and I invested heavily in it. And the way I look at it in investing in these platforms is, invest in the ones that have a lot of trials and a lot of different molecules, because you don't know the outcome. You don't know if the psilocybin's going to work, the LSD's going to work, the 18 MC's going to work. Invest in something that has a big portfolio of them, and multiple trials going on all around the world. And that one was called MindMed. So I became an investor in MindMed early on. It went public. It's one of my most successful investments this year. I'm a huge advocate for it. I want them to do more trials and just keep growing this platform, because the anecdotal

• 21:21Speaker 01

  evidence of microdosing is really interesting to solve for opioid addiction, for everything like depression, alcoholism, ADD. We haven't had new medicines in that space in 37 years. This may be them. That's why I'm an investor.

• 21:34Anthony Pompliano?

  Yeah, when it comes to psychedelics, what's really interesting to me is, there is this kind of comparison or correlation to the cannabis industry. But you seem pretty convinced that by only going after medical use cases and not recreation, that you can avoid a lot of those problems. Is this something where, kind of, once we get the legalization, like we saw in Oregon or in other places that are working on it, there's this kind of gold rush, and just the institutional capital flows into this space? Or is this something that's going to take much longer, and it's not going to be just one or two kind of legalizations? You're going to need kind of federal legalization to really kind of get institutional capital attention?

• 22:10Speaker 01

  And you really know what you're talking about kiddo. You're absolutely right. The reason cannabis failed and the companies lost 80% of their values, they never got any follow-up with institutional capital. That's not going to be the problem with psychedelics because they're not even attempting to go into the recreational market. They don't want to get involved in that side of the mess. They're just staying focused on the medicinal outcomes, trial, FDA approval, and release as a medicine, a prescribed medicine. And that's how they're getting institutional capital, including guys like me, to say I'm interested because I met the board, I met the CEO, and I said, "Listen, you tell me right now, what matters more to me is to shake your hand and tell me you're not going to pursue recreational drugs. I have no interest in getting involved in that.

• 22:54Speaker 01

  I know what that did to the cannabis people. I have no interest in that. But if you're telling me to develop medicines, I can become a big advocate and a big investor," which I did. And so you're absolutely correct. The entire sector of psychedelics as medicine is going to avoid that blow-up they had in cannabis because they're never going to pursue recreational drugs the same way the cannabis people did. You know, there's groups like Mothers Against Drug Driving that don't agree using cannabis as a recreational drug. Whether you feel or I feel that it's okay, there's not enough tests to determine how the amount of THC is affecting your driving skills. They have some saliva tests in Europe, but they haven't really adopted those here in Texas or in Florida, New York, or California.

• 23:38Speaker 01

  And the Mothers Against Drug Driving is a powerful lobby group. And they certainly, I've spoken to them, and they've talked to many senators and governors about this stuff, and they have made their opinion known, that they endorse medicines, they don't endorse recreational drugs. That kind of issue is boiling over in America. But you just saw the election, the day of the election, that Washington DC and Oregon approved the legalization of psilocybin to pursue a medicine for it. And that kicks in in about 20 months. And as a result, if you look at the price and the valuations of the companies like MindMed that are researching this, their valuations increased dramatically the week after that decision was made.

• 24:18Anthony Pompliano?

  Yeah. And do you think that it's going to be important for those companies' kind of long-term success to continue to get legalization? Like, I know one of the things that most investors, including yourself, aren't huge fans of is basically waiting around for politicians or regulations to change. It feels like with this, though, because of the focus on the medicine and not the recreation, that's not as big of a risk to these businesses?

• 24:40Speaker 01

  You know, I make the assumption in my investment in MindMed that they're never going to make it legal as a recreational drug, ever, and that will never come off the schedule list. It will only be allowed as a medicine. And I think that's the best way to think about cannabis, too. You can keep talking about the individual states that are making it legal, but until it is off the Schedule I narcotic list, it is subject to RICO statutes. It is a controlled substance. It cannot cross state lines. There's all kinds of problems with it. And so I just don't see the Biden administration, or certainly the Trump didn't endorse it. So I think cannabis is going to sit there forever, waiting to be legalized federally. I don't think it's going to happen. And I don't think it's going to happen for LSD or psilocybin either.

• 25:21Speaker 01

  But pursuing them as medicines to provide for the misery of opioid addiction, or alcoholism, or depression, or ADD, or all of these syndromes that we've had no medicine work for, I think there's a lot of interest in determining it through clinical trials, stage one, stage two, stage three. And at MindMed, we have multiple trials, many of them in stage two. That's really important. So I'm hedging my bets. You know, I always ask when I'm offered another opportunity in a psilocybin company or a psychedelic for medicine company, how many molecules, how many trials? That's how I'm thinking, just like an ETF. Do I have diversity? And if I don't have diversity, not that interested. I like a lot of different opportunities to get a positive outcome.

• 26:06Anthony Pompliano?

  Speaking of diversity, one place where you have an unlimited number of assets is in wine and watches. What have you been doing there and kind of how has that gone so far?

• 26:16Speaker 01

  Well, wine is a really interesting hobby, and there's an old joke about it. How do you become a millionaire in the wine business? Start as a billionaire and get into wine. The truth about the wine industry is for decades and decades, and over 100 years, it has been controlled through a Byzantine distribution system. West in the Mississippi, three tiers of distribution. East in the Mississippi, two tiers. So you have to pay two sets of distributors. It's really, really hard to make money in the wine business. The break even is 100,000 cases, and very few people can do that. Now, four, maybe five years ago now, now that I think about it, the laws changed, and

• 26:57Speaker 01

  it allowed makers of wine in California and Washington State to ship direct to customers in 42 states. Now, when that happened, the first thing I said was, wait a sec. I'm a well-known guy that loves wine. People know who I am. People trust me in selecting wine for them. Why don't I partner up with somebody like a QVC, which sells hundreds of millions of dollars worth of food in just minutes? You know, they have 6.2 million viewers there. Why don't I go into partnership with them? We go to the wine business together. I'll launch a Larry Fine wines on QVC and see if I can get to that critical mass of 100,000 cases. Well, that happened in the first weekend. And so we learned a lot about the business. We figured out the logistics of being able to do it. And yes, I was selling

• 27:42Speaker 01

  wine in retail, making no money doing that. Now I'm in a profitable partnership with QVC. We had a huge wine sale just before the holiday. You know, hundreds of thousands of dollars a minute in wine. And we continue to grow that business because I basically say to people, look, I've got your back on wine. And here's the facts about the wine industry. 97% of wines sold in America is sold for under $15 a bottle. So you have to figure out how to make a great wine for under 15, and I know how to do that. And so people that get my wine like it. They trust me to bring a Pinot, a Cabernet Sauvignon, a Chardonnay, you know, Moscato. These are some of the varietals I've done. I've done Malbecs. I've done all kinds of wines that I make and I blend myself. I need people

• 28:26Speaker 01

  to trust my palate. My wife works on the whites. She's got an amazing New World palate. She's almost a sommelier now. And so we together blend these for our family. And you know, I've extended my family through my QVC relationship. It's a business, like all of my other businesses, it relies heavily on social media, digital, direct to consumer. That is America 2.0. Absolutely. And watches?

• 28:53Speaker 01

  Okay, watches is a disease. That's a big problem. Nobody needs a watch anymore because you get perfect time on your device. And so, you know, I'm wearing an Edimar PK 1159, a new brand that they brought out two years ago. This is one of 100 made.

• 29:17Speaker 01

  You know, it's very, very expensive, but it actually has appreciated in value. My Rolex, my Patek Philippe, my APs, Seiko, Grand Seiko is probably the biggest value in the watch industry today. Some of the mechanics coming out of Japan now rival that of Patek Philippe. I have a huge selection of those as well. I'm buying watches as an investment, that's what I say to myself. My wife just calls me an idiot. She says, "How many can you possibly own? How many can you possibly use?" And she's right. I have to wear three different watches a day just to get through just one collection I've got. So it's a big problem. But I will say, today you can mark to market the value of your watches every 24 hours with apps like Chrono24.

• 30:02Speaker 01

  And my collection of watches is up 113% year over year. So that's how I justify it to myself, that I have these. It's an alternative asset class, just like art. But, you know, I just bought another watch yesterday that I don't even know and I can wear it. But it's incredibly rare and very, very unique, and I'm going to wear it on Shark Tank next year.

• 30:27Anthony Pompliano?

  What's the most expensive watch you've ever bought?

• 30:33Speaker 01

  That's a great question.

• 30:37Speaker 01

  Well, I've learned, I've been ripped off now twice, both out of two different facilities. So I no longer say how many watches I own or where they are. That's my first rule, because I have a big, complex insurance program now. I have them in three different cities. I'm not even saying that they're in North America anymore. But I would argue that the better way to answer that question is, what's the most valuable watch I have now? It's probably an FP Journe, one of 10 made for the New York boutique. Only 10 ever made.

• 31:12Speaker 01

  I was not an FPJorn collector when I met this watch. I, just by a happen chance, was in New York. This is an interesting story you may find interesting. I got a phone call from a friend of mine who is part of the royal family of the UAE, United Arab Emirates, and may be the largest watch collector in the world. I won't mention his name, probably is. And he said to me, Kevin, have you ever heard of FPJorn? I said, no. And this guy knows every micro brand. He knows every watch on earth. He is the guy in watches. He said, if you're in New York, why don't you just call up the boutique? They know who you are and ask to go see some watches. So I called up FPJorn and there was a woman there named Michelle at the time.

• 31:56Speaker 01

  She was the manager of the... She said, Kevin, just by happen chance, and maybe it's destiny, we're having our annual event where all of our collectors from around the world are meeting here in New York tonight for a giant dinner. And FPJorn himself is going to be there and everybody in management from Switzerland be our guest. So I go zooming down to this event. They lend me a watch to wear because I don't own an FPJorn. And I met the craziest people I've ever met in my life. Brain surgeons, army generals, collectors, psychologists, politicians with this crazy disease of FPJorn collecting. Now, Jorn only makes 900 watches a year. Like, just to get one's impossible.

• 32:38Speaker 01

  And that's when I saw this, uh, one of 10 made for the boutique for celebrating this big event. And I got down on my knees and begged to buy it. It was a crazy price and they said, no. I mean, you've got 1,000 collectors ahead of you that have been with the brand for years. Why would you get it? And I said, okay, what's it gonna take? He said, well, maybe if you owned another one. I said, I'll buy four. I'll buy four at once. Has anybody ever done that? I don't think they had. I did, and I became part of that family. The FPJorn watches now, for those that collect watches, if you go online and read what's going on... Prices are going from, you know, 50,000 to 700,000 in auction. It's crazy. The F. P. Journe himself is like Picasso, but he's alive.

• 33:23Speaker 01

  He's still alive. He makes these incredibly complex timepieces and he's still around. So you're buying something made by him, designed by him and a bunch of people that he works with in Switzerland. I visited the factory. I know I'm going on too long. You can see I'm passionate about it. But if you're into watches, you gotta check out F. P. Journe. It's just crazy.

• 33:43Anthony Pompliano?

  I love that story. That's an awesome story. And I love that you bought four instead of two.

• 33:49Speaker 01

  It was the only way to get the one of 10. It was the only way to get it. I mean, it was just, and people have called me since saying, will you sell that watch? Never. What's it worth? Priceless. They'll never make an 11th. I've got one of the 10 and it's just a, it's a piece of art. You know, you gotta be careful because people get bored when you talk this way. But for me, I'm infected. It's a disease. I love it. I love timepieces. People know that. And I have a very, very, very eclectic collection. Each year I select eight dials to put it on Shark Tank. Every single one has a red band. You can see this is red. This was on Shark Tank last year. This is an incredible timepiece, this A P. It's probably gone up in value, who knows how much? And they only made 100 of them.

• 34:32Speaker 01

  I got maybe the sixth, first one, first six.

• 34:35Anthony Pompliano?

  All right, let's talk about Bitcoin. You, uh, early on, I don't know, 2012, 2013, seemed to be a proponent. Then you kind of soured on it. Where are you now? Are we a proponent, not a proponent? How do you think about it?

• 34:47Speaker 01

  I, I do own a small amount of Bitcoin and the reason I did it was I was teaching, I'm a guest lecturer at Harvard, MIT, Notre Dame, Temple, Waterloo, McGill. I teach graduating cohorts of engineers. And at my last Harvard meeting regarding this sector, the class challenged me to buy not just Bitcoin, but just get involved in cryptocurrency. Because their argument was, look, if you're, I have a 5% weighting in gold. Each quarter, I have bullion which I store and I pay to store it. And I also use ETFs to balance each quarter to up or down to 5%. And it's been a good stabilizer against, you know, inflation. And it's, you've seen gold set a big move lately, being concerned about inflation. So was Bitcoin.

• 35:33Speaker 01

  But Bitcoin was originally sold to me as a counterbalance to the equity market. In other words, it would move in a different direction. So if you had a big correction in the stock market, theoretically Bitcoin would go the other way and it would protect your assets. That's not true. It has a very heavy correlation to the stock market. It too achieves new highs when the market achieves new highs and when the market's correct, it too corrects. So it's very volatile. You saw it dip 3,000 bucks last week. It's back up over 18 today. It's moving all around the place. So I would argue it's fair enough. I have a couple of questions for you to answer and everybody that's listening. Why is it that only one cryptocurrency gets this designation?

• 36:18Speaker 01

  Bitcoin? Because if you bought a basket of cryptocurrencies two years ago, and there's many, many, many of them, you haven't made a lot of money. There's simply nothing like Bitcoin. And so it's the only one. And that's a little perverse in the sense, if you look at the stock market, it's not the stock market, it's a market of stocks. There's many different ones you can buy, but you can't seem to play that game in the crypto space. You have to be very concentrated to get these returns in one cryptocurrency Bitcoin. That bothers me a little bit.

• 36:49Anthony Pompliano?

  Okay. So on the other hand... Wait, let's talk about that for one second. So if you think of an economy, right? Take the US economy, for example. There's only one currency, right? The US dollar. If you think of Euro, right? There's one currency that is the nation-state currency or kind of the selected currency, right? And if you kind of go to the global economy, right? There's really the global reserve currency, which is the dollar. And kind of each micro economy has their own currency. If you think of kind of the digital economy, or you talked a lot about digitizing the world, the digital economy doesn't have a native currency, right? So if you were talking to somebody like a Jack Dorsey and ask him, why is he so bullish on Bitcoin? What he would actually say is, the first native currency of the internet or the digital world is Bitcoin. Now, the same thing applies, though, that you're not going to have 10 currencies, right?

• 37:34Anthony Pompliano?

  You're only going to have one currency that is native to that environment. And so it becomes this really interesting thing where if you think of it as an economy, right? Bitcoin does... Become that global reserve currency of the digital economy, right?

• 37:46Speaker 01

  I listen, on that, I totally, I totally agree, but that is not what, that has not happened yet. Here's the problem. Let's say I want to, I want to use Bitcoin as a currency to make a large asset purchase. So just theoretically, I want to buy some real estate in Switzerland. Okay? I want it to be above board. I'm not trying to do it on a clandestine basis. If today I wanted to send a million dollars over to Switzerland, I would have to disclose why. I'd have to get permission. I'd have to notify, you know, the banks. They would have to know via the regulators that this transfer is occurring. And I could purchase the land. If I tried to do that with Bitcoin, the problem is the seller is not willing to take the volatility risk of Bitcoin.

• 38:26Speaker 01

  So if you're valuing, you know, a chateau at $10 million US or 10 million Swiss francs, and you want to pay in Bitcoin, you have to somehow guarantee that when the conversion hits and it goes back to Swiss francs or US dollars, that the seller gets the accretive amount. That tells me the sellers do not have the confidence to do large transactions yet in Bitcoin. Now, I'm sure that can change over time, but it is not today. The other issue with it is I wish, I agree with your premise that we could get an international global currency that I could avoid exchange fees. In other words, when I want to go buy something in British pounds, I have to pay the conversion fee from the US dollar, which I do all the time because I have an ETF in England.

• 39:11Speaker 01

  And I have one in, in Euro and I have one in Swiss francs. So I have that major headache. I wish I could just do it with Bitcoin. I can't. And so the reason is the regulators in these countries don't agree yet that Bitcoin is the standard. So if all the regulators agreed that Bitcoin was the standard for the globe, you would be 100% correct. But that is not the case right now. I totally agree with your premise that the globe needs a digital currency. 100% would I agree. If you told me the Swiss and the Euro and the American and the Canadian, Australian governments agreed to whatever that is, I would put up to 20% of my portfolio in it. Because then I could move across those geographies easily without paying all the fees.

• 39:52Speaker 01

  Fees associated with converting from one currency to another. Love that idea. Now, that was attempted as a payment service with Facebook, as you recall, initiative that started early last year that went nowhere so far. But that was a great idea because they wanted approval from the government. But the Fed didn't give them that and the SEC didn't either, not yet. But I think it's inevitable. You're correct. But you have to bet if you're betting on Bitcoin, if you're buying it today at 18,000, whatever it is, that that is going to be the de facto currency and I don't think you have enough assuredness of that yet.

• 40:24Anthony Pompliano?

  So this is really interesting because there's kind of an evolution of currency. You described it earlier of right now, the volatility makes it really hard to use as an actual currency, right? But obviously as a store of value, somebody like yourself who's got 5% of your portfolio in gold. Do you look at it as, wait, this could be digital gold and actually can do a better job preserving your wealth, right? Last year it's up 90%, this year it's up over 175% so far. Whereas gold has been up, but it's only up 20% or so this year. Do you ever think about maybe you should take half of your gold allocation and put it into the digital gold version? So leave 2.5% in gold, 2.5% in Bitcoin?

• 41:05Speaker 01

  You know, I have thought about that, but you know, fortunately, 5% of my portfolio is a lot of money. And you know, it's sort of, if I'm going to do this, am I willing to live with the volatility that that brings into my portfolio, having days where I'm down 10, 12, even 30% on Bitcoin? It's extremely volatile. Gold actually is not that volatile. It's a, you know, something that's been around for 2,000 years and it's a very good hedge against inflation and still is. But you may be right. If I'm willing to add, let's say 1% of my portfolio to Bitcoin, I would want to know what the most liquid way to do that was and I haven't even researched it yet because well, that's the other thing. There's a lot of fees associated with getting in and out of Bitcoin that I don't understand why I'd have to pay.

• 41:49Speaker 01

  If it really is a currency, I should be able to be very liquid in it and that's not easy to do. And also because I'm, you know, an issuer of securities in the sense I'm a shareholder in something like StartEngine, which is now Doing crowdfunding and you know, huge advocate for that. And I own a portion of O shares, 50% of that manager. I would want to make sure that everything I do is approved by the regulator. I can't afford to go offside in any way. And every time I talk off the record to the regulators, because I talk to them all the time, for various reasons, they're a little squeamish on Bitcoin. They're not quite there yet. When can you get this thing regulated so that I can put millions of dollars into it?

• 42:31Speaker 01

  And know that I'm not offside and that in any way I'm not breaching anything? And that frankly, it would be stable. If that was the case, if tomorrow morning we woke up and the SEC said, you can create an ETF with Bitcoin and we think Bitcoin is a legitimate, you know, payment system and storage of wealth. Not only would it go up, but you'd have a lot of people like me investing in it. Because I'd say, okay, I'm going to give it a 5% weighting. So, you know, I don't really want a significant portion of my portfolio having that amount of volatility. Remember I started this conversation saying, I want to preserve wealth. That's what I try and do. That's what I'm all about. But you're right, it's been a great asset class this year, until it had its big sell off last week and its big run up again today.

• 43:16Speaker 01

  That kind of volatility scares a lot of people away.

• 43:19Anthony Pompliano?

  Absolutely. And I think what's really interesting is like you really highlighted an important point, which is the Bitcoin ETF, right? Because people in the Bitcoin community, what they would argue is, um, you know, there's companies that have bought Bitcoins. You can buy the companies and kind of get indirect exposure. Uh, there's things like the great scale Bitcoin Trust, which really is kind of this, um, you know, again, you get an ETF like product, but it's not actually an ETF. Uh, in international exchanges, you can get ETPs and things like that. But there hasn't been that ETF. And I think many people who listen to this that come from the Bitcoin world will actually be surprised to understand that traditional investors, the ETF is this big kind of breaking of the dam or kind of approval point that will allow a lot of capital to flow in that just is sitting on the sideline saying, hey, this is interesting,

• 44:03Anthony Pompliano?

  but I'm not going to buy it until we have that kind of approval or checkmark, right?

• 44:09Speaker 01

  What I would like, and the reason I suggest an ETF, I'm very comfortable with ETFs and I live in that world, the majority of my money invested is in ETFs and the ones I've created myself, OUSA, OIG, OUR, OUSM, they've been very good capsules of preservation of wealth for me because I helped design them myself. What I would like to have in a cryptocurrency would give me the top seven cryptocurrencies, put them into an ETF wrapper, and let me invest in it with liquidity so that I can, if I want to buy a million dollars worth of it in the morning and sell a million dollars in the afternoon, I can do that in an ETF format. But to me, I don't believe that you can only have one successful cryptocurrency. There must be the idea that there's other and alternative ways, Ethereum and others, that

• 44:53Speaker 01

  would also benefit from the overall move to a cryptocurrency payment system, you know, preservation of wealth vehicle, whatever it's going to be. And I would prefer to own them in a probably market cap weighted basis in an ETF. That to me would make a lot of sense. And frankly, I'm not the only person that says this, many others would. But when you go to the regulator, like the Vinkelvoss twins have done, and I think many others have applied for these applications, I even looked at it once, never went anywhere with it because the regulator basically said no. And so until the regulator says yes, you won't get that institutional, you know, you identified something very early on, we talked about cannabis, the importance of the institutional investor long-term to support a sector. You want that

• 45:35Speaker 01

  institutional investor supporting Bitcoin and other cryptocurrencies, they're not there yet. It's a slow creep into it, but you can't deny the success of Bitcoin this year. But it's just this year. What happens if there's a correction next year? That's the issue institutions have.

• 45:51Anthony Pompliano?

  Absolutely. Before I let you go, I want to ask one question, which is when you think of your portfolio today, how do you break that down? Whether it's on a percentage basis or kind of just buckets? You obviously have a majority, I think, of your portfolio invested in kind of equity-based ETFs and other sorts of vehicles. What else is in there or kind of on a percentage basis? How do you think about your portfolio construction?

• 46:16Speaker 01

  Yeah, it's an interesting question and every investor has a different way of looking at it. Here are the rules I live by that have worked for me. I've even recently been teaching my son this, who's gotten very interested in investing too. I never have more than 5% in any one stock or asset. So never more than 5% in any one concentrated elements. That's why gold's only ever 5% of my portfolio. I never have more than 20% in any one sector, like energy or technology. You know, we have 11 sectors in the S and P. I have many private assets. I think right now I'm sitting at about 30% in of my net worth in private companies, a wide, massive diversity of them. And I value them based on their ability to generate cash flow because I'm very fortunate.

• 47:00Speaker 01

  I get to see a lot of interesting deals and I put money to work in them. And there are all kinds of technology companies and the ETF company I talked about, Oh Shares, for example, and many, many, many, many others. And then for a long time, and this has been a big change for me, for 20-plus years, I had a massive portfolio of real estate. And I've recently taken down that portfolio from a 31% weighting, so way over the 20. It had grown so large and real estate's relatively illiquid. You can't just flip a building. And I've reduced it down to 8% in the last nine months because I'm seeing this digitization of America. I'm using less office space. You know, 78-foot AAA towers aren't going to be worth as much as they used to be because people don't want to get in L.A. that was 60 people.

• 47:45Speaker 01

  I know when COVID's over, 15% of people that are working from home are going to stay there. So I think there's going to be a reduction in that element of real estate that I used to own a lot of. And I also, I realize all of these stores that I used to sell all my products in, we're never opening those marginal stores and all those strip malls. We're never going to open those again. We're selling direct to customers. So I sold all those too. And so now I'm sitting on a mountain of cash, over 34%. In fact, we're just doing the numbers last week for the year end. I've never had so much cash in my life and I've got to put it back to work. So I'm really, really interested in finding the next MindMeds and these big ideas that I can read.

• 48:25Speaker 01

  Deploy my capital into so the you know America 2.0 is not going to be the same as as the old America was those old stalwart assets like real estate are going to be worth as much you know a movie theater chain or Bed Bath & Beyond close 200 stores I bet you those get converted into climate controlled storage facilities for everybody that's shipping direct to those suburbs but they won't be stores anymore maybe they'll condos maybe they're cloud kitchens but I'm glad I have a lot of dry powder I'm ready to go back and redeploy and I'm looking for ideas and I want to back management teams I'm an investor I love entrepreneurs and I just feel invigorated and very optimistic that what's coming in the next couple of years is going to be really really interesting and I'm ready I'm ready to invest

• 49:11Anthony Pompliano?

  Take 1% put it in Bitcoin you'll be very happy my friend

• 49:14Speaker 01

  I can't I can't I can't argue with you but I gave you a lot of reasons that you got to think it through a little bit and I think some of those like if we had a debate I mean I am not against Bitcoin I'm not against it but you know when you're talking about putting millions of dollars to work you really want to understand that you can think long term about it and I have a feeling there'll be other alternative ideas maybe I should put some to work maybe you've convinced me it's a major benefit of our of our time together today maybe I put a little bit more in just for the heck of it I have a little bit just so I can watch the price but you know it bothers me when I can't get the regulator on board I really there would be so much interest in Bitcoin

• 49:54Anthony Pompliano?

  You're ready for this?

• 49:54Speaker 01

  It was just

• 49:55Anthony Pompliano?

  I'm gonna blow your mind right now two years ago myself and my partners we raised money from US public pensions and bought Bitcoin with it so US public pensions are doing it fidelity they've got a whole business doing it PayPal they got the regulators to approve it the OCC they came out they said that banks you can custody this right I agree with you that

• 50:15Speaker 01

  I know I'm aware of that but if you actually look at the percentage of their assets invested in Bitcoin it is so small that it doesn't even show up in another category it's 0.0000 but believe me I know what institutions are doing that's my whole job watching institutional funds sovereign pension plans

• 50:32Anthony Pompliano?

  Just buy 1% just 1%

• 50:36Speaker 01

  Yeah, no, it's true, but even the sovereign guys aren't there yet. I mean, when Bitcoin becomes a sovereign pension plan asset, I'll know about it before you.

• 50:47Speaker 02

  I love it. All right, ask everyone one last question, then I'll let you go. Aliens, are you a believer or a non-believer?

• 50:53Speaker 01

  I believe there is life outside of the the ecosphere of the of the Earth. There's no question. There's just so many. I'm a big fan of of space and I track it. It's almost a hobby for me. I read a lot of the research. I am a believer that there are organisms alive outside of our planet. And I think we're going to start, when we start scooping, you know, more soil from Mars and bringing it back, looking for, you know, all kinds of micro life, we'll probably find some. It won't be, it shouldn't be a surprise to people that other conditions can exist somewhere in the billions of star systems that are out there. So, yes, I'm a believer in aliens.

• 51:32Speaker 02

  I love it. Kevin O'Leary, ladies and gentlemen.

• 51:36Speaker 01

  Thank you so much. I really enjoyed it. Take care, my friend.