Price does not equal value. I could charge you $100 for a coffee mug or I could charge you a dollar. It’s only a dollar, but someone very well might pay $100. It happens on eBay all the time, with sellers submitting items for outrageous prices and people actually buying them at that price. That price is not the item’s worth — just what someone paid for it. The same idea holds true for investing. When you’re looking at a business or a stock, its price has no relative meaning to its actual value.
As a part of my series about the The 5 Essentials of Smart Investing, I had the pleasure of interviewing Todd Sullivan.
Todd Sullivan is Co-CEO of leading cannabis investment firm Cannapreneur Partners. He founded his first business in 1986 at the age of 18, and has been involved in entrepreneurial businesses either as an investor, advisor or founder/employee his entire working life. Todd is the owner of ValuePlays and former General Partner at Rand Strategic Partners.
Todd’s commentary has been seen in the Wall St. Journal, New York Times, CNN Money, Business Week, Crain’s NY, Kiplingers, and other publications. He has also appeared on Fox Business News & Fox News and CBNC. His critical analysis of Starbucks during 2008 was quoted by its Founder Howard Schultz in his book “Onward”. In 2011, he was asked to present an investment idea regarding Audiovoxx at Bill Ackman’s “Harbor Investment Conference,” and the stock became a top performer over the following year. In 2015, he presented before the same conference and has made several stock investment presentations for the Manual of Ideas “Best Ideas” Conferences.
Thank you for doing this with us! Our readers would like to learn a bit more about you. Can you tell us the “backstory” about what brought you to the finance industry?
Finance has been an interest of mine since day one, and entrepreneurship has always been a staple of my career. I started my first business at 18-years-old, installing above-ground swimming pools alongside friends I hired to help out. It paid for my college education, and I eventually earned a degree in economics and management science.
In 2007, there was a tiny website called Seeking Alpha, which today is hugely successful. They published a finance article covering Dow Chemical — a company I owned stock in at the time — and sent them my comments, which were based on my journal of stock trades and investing history. These comments were published, and the editor suggested that I start a blog, setting off a chain that set me up to be a Seeking Alpha “gold contributor.”
All of a sudden, The Wall Street Journal picked me up, then The New York Times. Even Howard Schultz, former Chairman and CEO of Starbucks, quoted me in his book Onward. Next, I found myself on CNBC and Fox Business. The stocks I talked about, which I owned and many others purchased on behalf of my recommendations, were doing very well. Eventually, I opened a small hedge fund with a group of investors. We ran that for ten years before I decided to join cannabis investment firm Cannapreneur Partners. It amazes me that this all really started with my online blogging about stock picks.
Around 2016, when states began legalizing cannabis and Canada was on the cusp of legalization, I realized the cannabis industry was where I wanted to be. Research of the market revealed massive potential. However, I saw inexperienced businessmen in a highly regulated industry throwing billions of dollars into a market all at once to grow it as fast as possible. In the history of finance, that approach has never ended positively. When cannabis stocks plummeted, it highlighted the fundamental problems of large multi-state operators, as investors were bouncing around to buy out private entrepreneurs at crazy premiums.
I wanted to be the seller of that asset — not the buyer — but didn’t have any connections in the cannabis space. After a year of searching for a partner, I stumbled across Michael Scott and Cannapreneuer Partners, whose office just happened to be a half-mile from my house. Mike had lived that close to me for ten years and I had never run into him. And just like that, I made the investment and jumped into the private cannabis space.
People are presented with multiple opportunities to improve their lives dramatically, but most don’t jump on them. Seeking Alpha told me to start a blog, which I was averse to at first, but my life trajectory would be completely different if I hadn’t followed through. I believe there are seminal moments in everyone’s life.
Can you share with our readers the most interesting or amusing story that occurred to you in your career so far? Can you share the lesson or take away you took out of that story?
I have a great story of an event that didn’t happen directly to me, but one that completely altered my outlook on investing and finance. Wilbur Ross is a very famous investor who told the greatest story about the housing crisis, which was around when I began my career. One day when Ross was golfing, his caddy approached him to ask a finance question. The caddy told him that he owned property in Las Vegas that he rented out, and asked Ross if he should sell them or continue to rent them, considering everything that was happening with housing at the time. Ross asked a series of questions regarding the location of his properties, their condition, the surrounding neighborhoods, and so on. The caddy looked at him and said, “Geez, I don’t know. I’ve never been to Las Vegas.”
Looking back at that moment a few years later, Ross reflected on a specific housing problem, a realization that ended up earning him billions. He realized that if his caddy in Florida owned four homes in Vegas, none of which he’d been to, there were hundreds of thousands of people doing the same thing. Ross believed this was not an aberration, and he turned out to be completely correct.
This story taught me to listen. If Ross had blown off the conversation, who knows what would have happened? The main lesson is about being present with what is around you. I think the people who are most successful in business are the ones that take a step back and work to remove their own biases.
If you look at other investors who have made large profits on uncertain bets, it’s a very similar story. In order to bet against housing in 2007 and 2008, before it crashed, you had to understand that the entire history of the housing market was irrelevant. Investors had to put aside a century of financial history, since housing never dipped more than 5% at a national level, and recognize that the history was immaterial. That shift in perspective is extremely difficult for most people to accomplish.
Are you working on any exciting new projects now? How do you think that will help people?
At Cannapreneur Partners, we are focused on finding the early-stage cannabis entrepreneurs that are purpose-driven and have values aligned with ours. We provide strategy, capital and resources to boost them to the next level, just like a Shark Tank for the cannabis industry. One of our strategic advisors is actually one of Shark Tank’s original sharks, Kevin Harrington. We also partner with investors and help them land investments to create amazing shareholder return and dividend yield.
At the end of the day, our projects are always more focused on the medical and societal benefits of cannabis, rather than the profits. When you help society and the people within it, you profit regardless. We truly believe in the power of this plant and we think it’s going to change a lot of people’s lives medically and financially, leading to the improvement of society as a whole. We’ve already seen this in statistics — state after state, we are seeing the exact same thing.
Ok. Thanks for all that. Let’s now jump to the main core of our interview. According to this report in Fortune, nearly two-thirds of Americans can’t pass a basic test of financial literacy. In your opinion or experience what is the cause of these unfortunate numbers?
Finance is not taught enough in schools, yet it’s arguably one of the most important skills for someone to have. Throughout my entire high school experience, I was never taught how to read a bank statement nor that I even should be reading my bank statements. I was never shown the importance of compound interest or how to balance a checkbook. These skills are not touched upon in most high schools, despite the fact that 16-year-old students are working and earning their own money. Even in college, unless it’s your major or you sign up for a finance class, they don’t teach students financial literacy. It’s a malfeasance of our educational system. A lack of financial education typically leads to bankruptcy and poor financial decisions, so people are left to figure it out on their own.
If you had the power to make a change, what 3 things would you recommend to improve these numbers?
First, I would mandate basic financial literacy as early as middle school, because by the time kids reach high school, many are working. Next, I would push for higher financial literacy in high school. Lastly, I would increase options for finance courses in college. Many colleges are teaching economics classes that are not equivalent to basic education in personal financial management.
This type of education is crucial for everyone, and I’ll give you an example. Say an art student expects to earn around $50,000 per year before taxes and they want to take out a $100,000 loan in order to attend college for an additional major in art history. With loan repayments plus interest, in addition to monthly rent on an apartment and lease payments on a car, a $50,000 annual salary will not suffice. Without that financial education, this student might not realize attending that college for a major in art history is not an affordable option on their expected salary. Without proper education, students aren’t prepared to effectively analyze their options and determine what they can or cannot afford in the long run.
Ok, thank you! Now to the main question of our interview: You are a “finance insider”. If you had to advise your adult child about 5 non intuitive essentials for smart investing what would you say? Can you please give a story or an example for each?
- Be present in your current environment. For example, if you believe the economy is doing well right now and everything is fine because the stock market is going up, I advise you to go take a walk. Take a walk through downtown Boston or New York City or Minneapolis and you will see that the economy is, in fact, not fine. It’s important to be aware of that.
- Don’t follow the crowd. Historically, those who have made the most money and achieved the most success have done so because they followed a unique path. Whether they invested in a company or idea most people didn’t or they invented a new process, they veered outside the status quo. There are so many examples of this, such as George Soros when he “broke” the Bank of England or Steve Jobs’ invention of apps. If you do the same thing as everyone else, you’ll get the same results as everyone else.
- Price does not equal value. I could charge you $100 for a coffee mug or I could charge you a dollar. It’s only a dollar, but someone very well might pay $100. It happens on eBay all the time, with sellers submitting items for outrageous prices and people actually buying them at that price. That price is not the item’s worth — just what someone paid for it. The same idea holds true for investing. When you’re looking at a business or a stock, its price has no relative meaning to its actual value.
- Boring can be very profitable. One of the best investments anyone could have made over the last 15 or 20 years is in a company called Church & Dwight. They make Arm & Hammer baking soda and Trojan condoms, among other brands. Not the most exciting of companies, but it was a very safe and very successful investment. There are hundreds of companies like it out there that make very mundane products, but that doesn’t mean they aren’t growing. Too many go for the hot company or the company at the forefront of innovation, but these aren’t always safe bets. Just look at cannabis — when it first gained traction, everyone piled in and then lost it all.
- Understand the power of compounding in investments and portfolios. Even just a rate of 10% per year doubles every seven years, as per the rule of 72, a method for estimating an investment’s doubling time. Many people focus in on a month’s or week’s returns without realizing the power of holding onto a dividend stock that grows 10% a year. I bought Innovative Industrial Properties, a Real Estate Investment Trust in the cannabis space, in August 2018. At its current pace with the dividend increases, I’m receiving 12% in dividends. I expect it to reach 15% next year, without doing a thing. If you were to strip out the dividends from the S&P, stock market returns over the last 50 years are a lot less impressive.
None of us are able to achieve success without some help along the way. Is there a particular person who you are grateful towards who helped get you to where you are? Can you share a story about that?
When I was selling advertising, I had a boss who told me that the sales world was not for everyone and that not everyone is fit for every job. Just because you think a job may be cool, that doesn’t mean you have the mental makeup or the personality to succeed in that job. There is absolutely nothing wrong with that, whether you are in finance or you own a bakery, as long as that’s what you enjoy doing.
You can’t force a square peg into a round hole, whether it be personnel-wise, investment-wise, relationship-wise, and so on. We all do it when we want something to work out, pushing and pushing until it breaks. I think it’s better to recognize that people are suited for different roles, and to move on once you realize something is not the right fit.
Can you please give us your favorite “Life Lesson Quote”? Can you share how that was relevant to you in your life?
My grandfather liked to say that “no matter how hard you try, you can’t polish a turd.” It’s about recognizing when you’re tirelessly working toward something, but never reach the desired result. No matter how hard you clean and polish it, the object will never shine. You often see it in the stock market, where the stock of a company keeps falling because decision-makers ignore the fact that it will never rise, and keep trying out new methods tirelessly until it’s run down to nothing.
The idea that we can jump between different careers is new. Previous generations never changed jobs. They stayed in their role whether they loved it or despised it, and it made a lot of people miserable. They found themselves wasting 30 years of their lives in a position they didn’t want. We only get one life, so to spend half of it in a job, relationship or anything that you don’t enjoy is such a tragedy.
The lesson is about knowing when to admit something is not working. People view an admission that something isn’t working as a failure; that a person’s poor job performance or dislike for their role is a failure. The most likely reason is that it’s just not the right match. Trying over and over to make something work never ends well.
You are a person of great influence. If you could inspire a movement that would bring the most amount of good to the greatest amount of people, what would that be? You never know what your idea can trigger. 🙂
I want to open the world’s eyes to the health benefits of cannabis. We are definitely making progress, but there’s still a long way to go.
Thank you for the interview. We wish you continued success!