The story of Ryan Cohen who sold his company for more than $ 3 billion and bet his entire fortune on the shares of just two companies

Who Is Ryan Cohen

Ryan Cohen is 34 years old and has a lifestyle that contradicts that of most billionaires: he has only one house and has been driving the same car for years

When Ryan Cohen sold the pet retailer he co-founded for $ 3.35 billion in 2017, he had a clear idea of ​​what he would do with his share of the revenue.

He placed everything (refuses to specify the amount) in just two actions: Apple Inc. and Wells Fargo & Co . This is exactly the kind of thing that financial advisers say should never be done. Cohen , 34, doesn’t care about that. ” It is very difficult to find, at least for me, what I consider great ideas, ” he says. ” When I find things in which I have a lot of conviction, I go with everything .”

He says he has no real estate, beyond the Florida home he lives in, and zero participations in hedge funds, private equity, or venture capital funds. He has no municipal bonds, nor any, for that matter. He says he has never made a private investment agreement. He has been driving the same car for years and has lived on the same property since 2013 .

” I try to keep my life as simple as possible, so I’m not really a family office person, ” he says, referring to the private companies that the ultra-wealthy often set up to manage their investments and personal affairs. That’s bad news for wealth managers who have made big profits selling products to the young, wealthy, and tech hordes generated by Silicon Valley in recent years. Those with a lot of money and vision but little experience beyond the frenzy of launching their startups . The types that might be willing to allow a bank to shape its investment portfolios and philosophies.

If Cohen had met with a financial advisor, he would surely have tried to move him away from his total allocation, towards a diversified portfolio and perhaps an index fund. ” These are underlying facts ,” says William Bernstein , director of Efficient Frontier Advisors . ” There is almost no evidence of skill in security selection .” Their research shows that 70% of the companies that make up the S&P 500 will underperform. Most of the average performance is due to the top quartile of performers.With a highly concentrated equity portfolio, the odds are 70-80% that you will underperform .

Then once again, if you do, you will probably do it by a wide margin, he says. In essence, it is a dice roll . It’s something that young entrepreneurs who have had early success may be more willing to accept. ” Luck is not a cure for trust, ” says Bernstein . ” It exacerbates it .”

The savings of a typical investor could be decimated if they had only two companies and one received a big hit . Cohen’s wealth may give him more leeway, but Wells Fargo’s performance shows how much volatility it has taken. When its position in the bank increased in the second quarter of 2017, the shares were trading at an average of around $ 54. Cohen says its average cost is $ 46 . Today they are worth around $ 32 , dragged down by the sales scandal involving employees who established millions of fake customer accounts and then by the pandemic.

Fortunately for Cohen , the value of his Apple stock has risen 120% over the same time period. Based on the price performance of those two stocks, the total value of his portfolio would have barely budged since he sold Chewy two years ago, while the S&P 500 index has risen by more than a quarter. Cohen says his portfolio, when it includes dividends and some other stock holdings, has returned more than 40% in the past 3 years, outperforming the market . Meanwhile, the pet retailer he sold was made public last year by the private equity firm that bought it and now has a market value of nearly $ 20 billion..

Cohen uses the word ” conviction ” a lot . He says it’s something he learned from his father, who ran a glassware import business in Montreal , where Cohen grew up . ” It taught me how to block out noise from the masses, ” says Cohen . ” Have a point of view and have conviction and not hesitate .”

Cohen never went to college or had what he calls ” a real job .” His father was his closest mentor and advisor while building Chewy and taught him the principles of stock analysis, which he took very seriously in selecting his stock. In early 2017, Cohen was gathering the documents to go public with Chewy, while considering the offers . Then his father had a heart attack. “It put things in perspective, ” he says. He filed the initial public offering plans and sold the business. He resigned as CEO of Chewy in 2018 to spend as much time as possible with his father .

Her father died suddenly in December, and the past few months have been difficult. Cohen says he is not eager to start something new. He’s doing what few high-octane entrepreneurs do: take a break.

He frequently quotes famous investor Warren Buffett , which may not come as a surprise, given that Wells Fargo and Apple are Buffett’s top stakes . Cohen says he likes Apple because its products have strong customer loyalty, and he believes the iPhone has irreversibly taken root in society. (” I’m not sure it’s fully appreciated, ” he says. ” We live our lives with this product. “) Defending Wells Fargo is further proof of its self-proclaimed contrary inclinations. It is a minor part of your holdings: your bet onApple is approximately 60% larger in value. But he sees the bank as disciplined with its capital and likes it to be a conservative loan underwriter. It is also ” a long-term gamble on the US economy .” He declined to comment on the bank’s 2018 sales scandal in addition to saying he believes Wells Fargo will eventually strengthen itself because of it.

Cohen sees both companies as consumer businesses, a type of industry that he understands by building Chewy . The online retailer is famous for his exaggerated gestures as surprising customers with birthday cards or personalized portraits of his pets. He compares his obsessive focus on building Chewy to his approach to stock selection. ” I don’t want to swing, ” he says.

However, I would not recommend your investment approach to everyone. ” You need to have the temperament to block out the noise, ” he says. ” Sometimes it feels like a roller coaster .” For most investors, a low-cost index fund is more prudent. But Cohen says he is committed to his stock picks and has no regrets. Well, maybe one: ” Amazon’s execution is just phenomenal, ” he says. At Chewy , ” we couldn’t have gone for a bigger competitor if we had tried .”

Cohen thought about buying shares? “It should. I wish I had . ”

Culled From Bloomberg