Shark Tank investor Kevin O'Leary amid Big Tech selloff: This is a buying opportunity

Shark Tank host and investor Kevin O'Leary joins Yahoo Finance Live to discuss the 2022 market and sector outlooks after the first trading week, how best to invest in technology companies, and cryptocurrency prospects going forward.

Video Transcript

- Joining us now, Mr. Wonderful, himself, chairman of O'Shares Investment Advisors and "Shark Tank" investor, Kevin O'Leary. Happy new year, Kevin, great to have you on the show.

KEVIN O'LEARY: Thank you very much.

- I want to start with this sell off we're seeing in stocks. Actually last week, really rough start to 2022. And we're seeing the big tech get beaten up, really, the most with the NASDAQ now formally in a correction. Are you using this as a buying opportunity. And if so, what are you loading up on right now?

KEVIN O'LEARY: I am, actually. I mean, first of all, let's talk about the volatility in tech. Tech stocks are historically volatile, they trade at high PEs. Many of them trade based on growth metrics, not necessarily earnings, and that gives them very, very high multiples. And so generally speaking, they have volatility.

But the way I look at it in corrections like this, is has anything fundamentally changed in their business models? I mean, are you going to use Zoom less? There's a speculative name, are you going to use Google less? Or is it going to continue to grow? Is Microsoft still going to be an enterprise platform?

The answer is yes to all of these questions. And so when you get volatility, generally speaking, in my world, I take advantage of it. Because I have to deploy capital all the time and I have to decide where am I going to put it. I like growth and I understand it's going to be volatile. And days like this, I remind myself I've seen this movie before.

Go back 17 years on Amazon, which I've owned for almost that entire stretch. We had 30, 40% 50% corrections each year. And yet, look where you end up today. And so I look at it and say to myself, let's learn from the past, apply that to the future, take advantage of volatility. The economy is strong the use case for technology, it gets more important enterprise every day in every part of the globe, that's the investment thesis.

- So Kevin we know the new year brings a lot of headwinds, but there are also lots of opportunity. So what is the biggest opportunity for investors, as you see it, in the new year?

KEVIN O'LEARY: Well the one that I really found interesting, over the last 24 months, has been crypto and blockchain technologies and tokens and NFTs. You have to make a binary decision about this stuff. And this is very difficult for many institutions, I talk to them every day, because I'm in the indexing business and many of them have not even started their journey into cryptocurrencies.

But the reason you should think about it is this. This is how I wrap my head around it and I think it helps investors to think this way. If you invest in Microsoft and Google and Amazon and so many of these other platforms, what is the core your investing. And it's basically software. Google software.

Well, Bitcoin is not a coin, it's actually software. The blockchain is software, Ethereum is software, HBAR is software, Polygon is software. So the real decision is if you're willing to invest in software, because it's a productivity tool, as an equity, such as Google, why wouldn't you invest in software such as Ethereum. Because it provides a service, particularly in payment systems that is being used globally.

And that's sort of my investment thesis. And then the question is which coins, which tokens, which blockchains. And for that, I apply the same rules of diversification I apply to my stocks and bonds. No more than 5% in any one position, no more than 20% in the whole sector. So I'm not anywhere near 20% in crypto, I've just gone over 10.7% in our operating company.

But I have a plethora of positions and I'm going to make this decision, there, that this is even more volatile than technology equities. And it certainly is, Bitcoin's having one of its worst starts ever. But you have to get used to it, just like you had to get used to Amazon, where it would have these 30% to 50% corrections, same thing with Bitcoin.

- So are you using crypto, sort of, as a way to hedge or diversify from other assets like real estate, for instance. Are you using a, sort of, instead of the way we would traditionally use gold as a hedge?

KEVIN O'LEARY: That's an excellent question and the answer is, yes. And there's a direct tie-in to real estate. Here was my dilemma last year, I sold a lot of our commercial real estate in our portfolio, turned it into cash. Called my cash desk, said, what are we getting for this cash, because I haven't got any ideas to deploy it yet. I need some time, because I like to put cash back in the market slowly, take advantage of corrective days like this, et cetera.

And they said we can get 20 basis points, 20 basis points. And I said, wait a second, inflation is over 6%, that means I'm being taxed at 5.8% on holding cash. And that was when I started my exploration into crypto. And it took me to two platforms that I use today FTX, where I hold a lot of my, it's a centralized-- and I have to disclose, I'm a paid spokesperson and an investor in FTX and use their platform. And Circle, where I use USDC, where I stake stablecoins and get somewhere between 4% and 6% interest.

That was my first exposure and let me tell you something, you know, it took me six months to get my own compliance department and my own external auditor to agree to sign my statements. That's how difficult this is going to be, but that is in fact, the tremendous potential of crypto. If we make it regulated, if we get institutions into it and find a way for them to be compliant, there's trillions of dollars going to come into this space, because it has a pragmatic use.

Now I'm at least keeping pace with inflation, on my Circle stake, and I've got a wide range of holdings in my FTX account. And it's completely compliant with my external auditors and my internal compliance department. It took a long time to set up, other institutions are going through the same birthing pains.

- Yeah we'll see if 2022 brings some clearer regulation in that space, Kevin. But I'm curious if you've bought any of those nonfungible tokens, those NFTs. How much of the portfolio is dedicated to those?

KEVIN O'LEARY: No, I don't have a lot of NFTs yet. But I will tell you, I actually believe that the potential for the NFT market is actually larger than Bitcoin and I'll tell you why. The idea, and let's take a physical asset, the one I like to use as an example is watches. I'm a huge watch collector, I have a massive collection of watches.

One of the biggest challenges I have is inventory management, insurance management, and then, of course, authentication. When people offer me vintage watches, I have to go through a very arduous authentication process to know if it's fake or not, there's so many fake watches in the market. NFTs could solve all of those problems.

So in a use case for the multi-billion dollar watch industry, because the actual trading of secondhand watches is 10 times the size of the original watch market each year, because there's billions worth of very desirable watches in trade all around the world. If I could turn all of my watches into NFTs, and in that way, I could let my insurance company know, look these are the ten that are out of the vault this week. Bid me on insurance just for these ten, here's where they're located, here's why I want them insured. And all the rest I'd self-insure, because they're in a bank vault in some city somewhere.

Authentication. Every time I sell that watch, the scan of its dial, which is, down at the micron level, attached to the NFT would authenticate it. You can re-scan it and prove that was the original watch. So for that kind of thing, same with real estate, same with fine jewelry, same with pens, same with cars, all of this is going to move on to the chain.

And so the best way to invest in it, from my point of view, is take positions. Like I invested in immutable.com, they own NFT.com, they're building a curation platform for NFTs everywhere. And so that's an equity that I own. I own wonderfi.com which has just bought the largest exchange in Canada. They have 375,000 accounts in a jurisdiction that really is progressive in crypto. The Swiss, the Canadians, the UAE government, some of these places are now becoming a little bit more progressive and you have to invest in those geographies, if you want exposure.

So there's a lot going on. But it certainly takes a lot of time in my day, just tracking all this stuff. I'd say I spend 40% of my investment day tracking cryptocurrencies now.

- You know, we actually had the CEO of WonderFi, Ben Samaroo on recently, to talk about that deal. So all right, we understand it, we get it, you're liking the NFTs, you're liking the crypto. What else do you like? Talk to us about other sectors where you really see opportunity this year.

KEVIN O'LEARY: Well, you know I've always had a 5% weighting in gold. People don't talk about gold very much anymore, because cryptos become the gold de jure, the digital gold so to speak. But it's still, actually, I think an asset you want to have in a rising rate environment.

And I think diversification, now, towards stronger balance sheets is going to be very important. When you think about a portfolio, you're managing an equity portfolio, for growth you're going to have vol, there's no question. So if you're going to put 20% into technology, you're going to see price swings like we're having today.

But if you want stability, go through the S&P 500 and find the balance sheets of the strongest, that actually are growing free cash flows, distributing portions of those profits through dividends. So my theory for 2022 is this, we're not going to get another 20% plus return in the equity markets. It's going to be more muted, more like 8% or 9%.

Earnings growth, I think will be around 8% on the S&P 500, plus add another 100 basis points for dividend distributions. You're going to make 8% or 9% this year, you're going to go through a lot of volatility. But that's still way better than how you're being treated in the fixed income market.

Plus, think about the risk you've got. If you buy long duration bonds right now, you're going to get killed if rates continue to go up. And the yields right now on AAA, or BBB and above, corporate credits are not that attractive, they're still sort of 3%, 3.5%, doesn't even beat inflation.

So I think right now, it's focusing on higher quality names. For example, I don't own the airlines, take United, for example, I always use this case. They started the pandemic with $7 billion in debt, now they're way over $20 billion. Why would you want to own that balance sheet. why? There's no reason to do that, there's so many other companies that don't have that upside down balance sheet situation, today.

And those are the ones you have to look at, you've got to groom through the S&P and pick your positions. And then for growth, you stick with technology.

- Well I would take 8% or 9% in a volatile year, for sure. Listen, Kevin, before we let you go, new year, new you. You look great, I understand you lost something like 20 pounds. In the 15 seconds I have left, how did you do it?

KEVIN O'LEARY: I went into intermittent fasting. My doctor, I had my annual checkup last year, and he said, look, you've got to lose 20 pounds, your blood pressure's way up. It's been going up every year, because you've been gaining weight. That happens to a lot of people, over time, you become more sedentary and put on pounds.

He said, have you ever tried fasting. And I never had, so I fast 16 hours a day. It was hell for the first three weeks and now I'm never hungry. It's remarkable, it's a remarkable thing your body can do if you get used to it.

So basically I don't eat breakfast, I have my meal at 7:00 or 8:00 at, night maybe a little later, and then I don't eat till 1:00 in the afternoon the next day. Try it, it really works, and you're never hungry. Just some advice from one guy.

- I love it, you are disciplined, not only in your investments, but now with your food. You're an inspiration. Kevin O'Leary, thanks so much and be well.