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Dividend Investing Ideas Center

Kevin O'Leary's Stock Screening Methodology

Calder Lamb Aug 25, 2015


Kevin O’Leary has risen to public prominence through the hit TV show Shark Tank. His sharp wit and keen valuations of Shark Tank contestants’ companies are used to “set the bar” for other Shark investors on the show. Now, O’Leary has created OUSA, an ETF that allows anyone to invest with a Shark using his time-tested investment methods.


O’Leary’s Rules


1. Dividends: Invest in dividend-paying companies.

2. Low Volatility: Invest in low volatility funds to protect your portfolio.

3. Diversification: No more than a 5% weighting in any one name. "Diversification is the only free lunch in the stock market.”

4. Quality Balance Sheets: Key to ensure that the company will endure over the long term.

“I’m a balance sheet guy, I care about cash and leverage.”


Much like sifting for gold, O’Leary isolates key pieces of company information and sorts through thousands of companies in order to locate the highest quality among them. This technique is called a “factor screen”. O’Leary uses three profitability factors and one leverage factor in order to create his screen. His company, O’Shares, was created because “there was no ETF that currently fit all his investment requirements.” In order to meet his needs, O’Leary created three ETFs: one for North America (OUSA), one for Europe (OEUR), andone for Asia (OASI). To note, OEUR and OASI are not currently traded but will be released soon.


Profitability Factor 1: Return on Assets


RoA is a measure of how much profit the company gains per dollar of capital invested with the company. High returns on assets suggest that the company is well managed and using its capital wisely.


Profitability Factor 2: Asset Turnover


This factor measures how productive a company is with its assets. High asset turnover suggest a company is gaining a return on its assets more than once during the course of the reporting period. If the company has an asset turnover of 2, it means that the company is buying that asset and selling it two times per reporting period. High asset turnovers allow for increased monetary gains due to compounding effects.


Profitability Factor 3: Accruals


Accruals are an accounting measure. Typical non­-cash measures are accounts payable, accounts receivable, goodwill, future tax liability, and future interest expense. Accrual accounting allows readers to gain perspective on the future liabilities and credits the company will likely receive.


Leverage Factor


Leverage is the amount of money a company has loaned against its assets. Highly leveraged businesses might be extremely profitable, however, their growth is slowed by interest payments on the loans. High leverage rates are also negative for investors in the event of a company default as stockholders will be paid after loan holders.

“I care about two things, cash and dividends.”


The Bottom Line


The investment objective for OUSA is to preserve capital while generating stable growth. The ETF is designed in a systematic way, so there is no room for human error. OUSA will continue to use its time-tested investment rules, and automatically manage your portfolio year after year. O’Leary has stated that he is using the OUSA ETF as a part of his generational family trust. If you have always dreamed of investing with a Shark, now is your chance.

For more information check out this OUSA fact sheet.

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