O'Leary talks up his own book

As sure as night following day, business television is chock-a-block with fund managers practicing that time-honoured tradition of talking up their own books. There’s nothing wrong with that, of course, as that’s exactly why they’ve been invited onto the broadcast in the first place: to share their insights and favourite stock tips with the viewing public.

If things go well, the fund manager gets invited back. If the ideas never pan out, they have to suffer with the knowledge that their “best” promotes ideas are ingrained in the minds of every viewer that watched the appearance that day. Unlike a mutual fund portfolio where you can trade out of bad ideas prior to the quarter end – and no one is the wiser – touting stocks on television is only for the brave of heart.

Which prings us, of course, to Kevin O’Leary (see prior post “Kevin O’Leary is a rock star” June 30-08). That Dragon of business television personalities.

There were a bunch of comments on the site today about his appearance last evening on BNN TV. According to our readers, KO (as he’s known to his friends) shared his investment insights yet again with Joe and Jill Retail – only this time he made a pitch for none other than the O’Leary Global Equity Income Fund (OGE-UN.TSX) (starts around 27 minutes into the show). In fact, it was such a slow news day that BNN dedicated about 20 minutes of air time to the topic.

(I noticed that KO and the delightful yet long-suffering Amanda Lang have now adopted the “Decade of Daddy” line – about 30 mins. into the clip – that we have been trumpeting all along {see prior post “O’Leary ditches his ‘Get Paid While You Wait’ investment cliche” June 1-08}).

According to one of our readers, KO didn’t always get the ticker right (twice it was “OEG-UN” vs. the correct “OGE-UN”), but enough viewers were able to find out the details between the show’s 5 p.m. airing and the time the market opened at 9:30 a.m. today. Lo and behold, the Decade of Daddy Fund(TM) (aka OGE-UN:TSX) traded as high as $14.17 this morning before closing at $13.25, up 9.5% on the day.

This is a fund where you could have filled your boots at $12 (no commission) in June during the IPO process. The moment the market opened today, 79,218 shares are being acquired by folks at $14.17? Not a very kind showing by the market maker.

On the SqueezePlay episode in question, O’Leary promised a 5% annual yield (paid monthly) to his investors, which he probably means in reference to the original $12 IPO price. For the folks buying at $14ish, the yield slips to 4.2%. But that’s just a detail.

What was most compelling about KO’s TV dissertation yesterday was his statement that the Canadian banks were “too risky” for the Decade of Daddy Fund(TM) (they are a core holding in our Decade of Daddy Mirror Fund(TM)). KO prefers a Brazillian run-of-river hydro company named AES Tiete with an 11% yield, for example. Of course, AES may well need to keep up their 43% net income margin to be able to keep paying that kind of yield, but I’m sure the managers have done their homework.

KO’s constant reference to his “$2.1 million” personal investment in the fund was interesting, and generated several comments on our site. One reader wondered if $2.1 million was really much of a throw for O’Leary, considering that some think he’s a self-made billionaire, although he’s never made any of the rich lists compiled by Canadian Business Magazine.

When O’Leary said “this is where my dough is” and “because I have so much of my own dough in this”, in reference to the $2.1 million investment, it really makes you wonder. On Bay Street, a question that the buyside always asks a CEO on a roadshow is this: how much of your own money is in the venture? If the answer is “2% of my net worth”, for example, no one buys.

If the answer is 40% or 50%, PMs sit up and take notice.

Retail investors should take a page from this book. If you are buying into a fund where the top dog has pocket change in the venture, you might think the vehicle is little more than an ego play. But, if there’s real capital at risk, relative to net worth, then investors know that the boss will live and breathe the performance of the fund.

At our firm, for example, our personal investments in the fund are – in many cases – our second largest investments next to our family homes. Our LPs know we care, professionally and financially, about the outcome. If it was 2% or even 0.2% of our net worth, they wouldn’t give us the time of day. And nor should they.

But, for Rock Star O’Leary, 474,611 shares traded up today, which represents about 16% of the total float of the IPO offering. That’s a big victory in anyone’s books. For the IPO punter who made $2 on a quick flip, for the lead underwriters at CIBC World Markets and for KO himself.

And he has BNN to thank for making all of this possible.

MRM
(reminder – this blog, as do all, falls into the Opinion Piece category)