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Secrets From the Shark Tank

The stars of the hit TV show give you the keys to a worry-free life

Shark Tank Lessons

 

The cast of Shark Tank, from left: Barbara Corcoran, Daymond John, Lori Greiner, Kevin O’Leary, Mark Cuban and Robert Herjavec -- Brobel Design

AARP The Magazine decided to throw the Sharks some bait. We dangled an idea with a huge potential market — the 109 million Americans who are 50 or older and desire financial independence. Could the Sharks take the advice they often give the entrepreneurs who pitch them on business ventures on the ABC hit reality show Shark Tank and broaden it to our financial world?

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Mark Cuban arched an eyebrow. Daymond John scratched furiously on his legal pad. Barbara Corcoran, Lori Greiner and Robert Herjavec nodded. Even Mr. Wonderful, Kevin O'Leary, smiled over tented fingers.

And then they bought in, every one of them. The seven tips that follow are based on exclusive interviews with the Sharks, in which they shared their expertise for becoming more financially secure and successful with age.

"Shark Tank is a microcosm of the real world," says O'Leary. "It's a great place to learn the lessons of life."

Lesson 1

Be ready for when the poo-poo hits, because it always does.

As an investor for more than 35 years, O'Leary, 61, says, "I've learned you need to prepare financially for the unexpected, because there's a 100 percent certainty the unexpected will happen." One important way to do this, he says, is to keep 10 percent of your total assets in cash. In addition, he has three basic investing rules he follows personally and in managing O'Leary Funds.

  • Never put more than 5 percent of your money in one stock. "If I fall in love with a company and it grows to more than that, I trim it back."
  • Never put more than 20 percent of your money in one sector. "That's why when the energy market collapsed, I didn't get hurt."
  • Do put 50 percent of your investments in dividend-paying stocks and 50 percent in interest-bearing bonds. "My mother taught me this. She intuitively felt that if you don't get paid, you shouldn't invest — that the principal earns the money you live off of. Over the past 40 years, 71 percent of the returns of the S&P came from dividends, not capital appreciation. That's why I do not let my fund managers ever buy a stock that doesn't pay a dividend."

Lesson 2

Follow the green, not the dream.

This is Mark Cuban's poetic way of telling overzealous entrepreneurs that their passion is blinding them to reality. "So many people get caught up with what they dream for their company that they forget they have to make money in order to survive and thrive," he says.

To apply this advice to your life, replace the word "company" in the preceding sentence with "retirement." Now read it again. Then use the following checklist, suggested by O'Leary, to better align your dream with your green.

  • Assume a conservative 4 to 6 percent return on investments over time.
  • Commit to living off the return and not spending the principal (because you don't know how long you'll live or when the poo-poo will hit).
  • Calculate what that leaves you to live on annually, monthly and weekly.
  • Last but not least: Adjust your dream or lifestyle accordingly.

"I'm not a big fan of reverse mortgages and all that stuff," says O'Leary. "I'm a fan of dealing with reality, dealing with the truth and living within your means. That's what matters."

Lesson 3

Cultivate healthy paranoia.

Cuban, 57, has the reputation of being a ruthless businessman. "Never underestimate your competitors," he often warns entrepreneurs. "If you compete against someone like me, you can expect I am eating, sleeping and breathing nothing but my business, and I'm doing everything possible to make your customers mine."

In your financial world, the same advice applies. There are sharks everywhere looking to take a bite out of your savings, reputation and dreams. To protect yourself, cultivate two types of paranoia.

  • Short-term paranoia. This involves learning to spot what Daymond John, 46, calls Slick Willies. These are slippery folks, quick to take shortcuts or shift stories, and they're often dishonest. Slick Willies are in every profession, from financial advisers to lawyers to real estate brokers, and the best way to tell if you're dealing with one, says John, is to call a time-out and listen to your gut. Lori Greiner, 46, agrees. She asks herself, Is this a hero or a zero?—then proceeds accordingly.
  • Long-term paranois. Robert Herjavec, 53, made his fortune in the fast-changing tech industry, which taught him to consider the worst-case scenario in every situation. For example, what's the personal impact of a significant stock market correction in the next five years? What if you're downsized before your official retirement date? What if a parent falls ill and needs long-term care?

"Always be thinking like that and about how to minimize risk," Herjavec says. "That's why Andy Grove, the former CEO of semiconductor giant Intel, called his book about dealing with sudden change when running a business Only the Paranoid Survive."

Lesson 4

No deal is better than a bad deal.

The two most dramatic words in the Shark Tank are "I'm out." When spoken, you can almost feel the air go out of your living room.

But while it's an emotionally charged moment for the entrepreneurs, it is remarkably emotionless for the Sharks. That's because, as Cuban likes to say, "No deal is better than a bad deal." The problem is, most people either don't realize the wisdom in that remark or lack the fortitude to walk away. Here are three keys to developing this skill and avoiding bad deals.

  • Understand the investment. Think this is obvious? Tell that to all those people Bernie Madoff hoodwinked. "If you don't understand what is going on, whether an investment or a deal, then why are you doing it?" asks Cuban.
  • Keep emotion out of it. "Money is purely a tool," says John, "and you shouldn't attach any emotion to it. But you see it happen all the time with the buying of homes or people living beyond their means. They get emotionally tied to something, and it eventually hurts them."
  • Speak the truth, not what others want to hear. "Sometimes tears are shed in the Shark Tank, and I couldn't care less," says O'Leary. "I'm the nicest Shark there is, because I'm the only one who tells the truth. I'm not trying to make friends; I'm trying to make money. If you want a friend, then buy a dog."

Lesson 5

Take risks, but make sure they're calculated risks.

What's the difference? "A calculated risk is based on knowing the outcomes of similar investments over a long period of time," explains O'Leary. "It means learning from the past when you're looking toward the future."

The Sharks can gauge risk in minutes. How can you? Three tips:

  • Invest in what you know. Identify your database of experience, as O'Leary calls it. What are you expert in? What companies or products do you love? Build a portfolio around those.
  • Do your homework. With the Internet, all the world's knowledge is at your fingertips. Use it.
  • Prioritize return of capital. Instead of focusing on how much profit you can make, determine how quickly you'll recoup your investment. "The key is return of capital first, not return on capital," says O'Leary. "If I give somebody $500,000, I first figure how that money is coming home."

Lesson 6

Negotiate everything.

Monthly cable and utility bills creeping up? Call and ask if anything can be done to lower them. Financial adviser wants 1.5 percent? Offer 1 percent. Surgeon bills $10,000? Offer $7,000 with immediate payment. Have a valuable skill of your own? Suggest an exchange of services. "My attitude about negotiation is, don't be afraid," says Greiner. "Always try. Even if you get nothing, it doesn't hurt."

Herjavec notes that most people make two mistakes when negotiating. First, they think the goal is "trying to pull the wool over someone's eyes," he says. "But life is long. Always try to find that medium where both sides walk away feeling they've gotten value."

The second mistake is thinking that negotiation is all about money. "The pain of paying too much goes away," says Herjavec, "but the sorrow of bad value lasts forever. Years from now, you won't remember that you overpaid for something, but you sure as heck will remember the quality and service you got."

"So much of life is a negotiation," adds O'Leary. "Even if you're not in business, you have opportunities to practice."

Lesson 7

Listen and keep learning.

Herjavec often concludes a Shark Tank segment by asking the entrepreneur, "What did you learn here today?" The question encourages constructive thinking, even if the entrepreneur didn't land a deal.

Plus, Herjavec recommends regularly asking yourself this question. When a stock that your adviser called a "lock" tanks, "What did I learn here today?" After a home appraisal turns up less equity than you thought, "What did I learn here today?" When a family member has a sudden hardship and savings must be tapped, "What did I learn here today?" The successful make it their mantra. And never think opportunities for learning decrease with age. "Age is a function of how you attack life," says Herjavec.

"With age, you gain more knowledge and wisdom," points out Barbara Corcoran, 66, "so why wouldn't you also have more opportunity? It's just a matter of flinging open doors and finding it."


Company Image Photo Credits

Wicked Good Cupcakes - Courtesy of Wicked Good Cupcakes 

Grace & Lace Knitware - Courtesy of Grace & Lace Knitware

Sponge Daddy SpongesCourtesy of Sponge Daddy Sponges

Tipsy Elves Jon Paterson

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