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Invest Like a Legend: David Chilton

Whether it’s helping millions of Canadians achieve personal financial success or investing in low-fat cookbooks, David Chilton has always had a knack for recognizing great ventures, a skill he proudly leverages as a “dragon” on CBC television’s #1 hit show, Dragons’ Den. Called “charming, unpretentious, and funny,” by The Chicago Sun-Times, David puts his business expertise and life experience to work in his informative and inspiring talks. Shirley Won, of The Globe and Mail, quizzed Dave on his investment practices and philosophies:

What’s the secret to getting your attention on Dragons’ Den?
Key is the ability to get “The Meeting” with a buyer like Loblaws or Home Hardware, or the best potential supplier. Do they have the tenacity, charisma and infectious energy to get in front of people? Secondly, I am a numbers guy. Too often, an idea seems good on the surface, but the numbers don’t work. Are the gross margins significant enough to allow for proper marketing? Can they stave off competition? You are not going to get perfect answers, but you try to draw on your own experiences to do the best you can. Typically, angel investing is really risky, and often not overly lucrative.

What has been your best investment from the show?
Steeped Tea has been spectacular. The company is in the high-end, loose-leaf tea business and sells its products through Tupperware-style parties. It was one of the first pitches I saw, when they had just gone through $1 million in sales. They were incredibly knowledgeable and persuasive. Jim Treliving and I put in $250,000 for 20%. A little over two years later, they are doing $20 million in sales, and it’s going to get a lot bigger. There was a lot of luck involved in that one. You are not going to get many investments where you catch a company just before it takes a steep growth curve.

What was your best public play?
More than 10 years ago, a colleague kept pushing me to invest in this oil company in Gabon—Pan-Ocean Energy. I was skeptical. I tended not to get involved in that kind of high-risk security. I examined the company closely, and it didn’t appear to be trading close to proper value. Despite the risks, I started buying Pan-Ocean at $5 to $11 a share. A couple years later, it was taken out at $58 a share. There was a lot of luck in that one, too.

What’s your worst investment?
Many years ago, I talked some friends into buying a standard-bred horse—18 guys putting in $2,500 each to buy a gorgeous, American horse named Dash. The first day we owned him, he broke a leg stomping his foot in the trailer. We eventually sold Dash to a fellow in Detroit who, I believe, used him for birthday parties. Don’t invest in anything that eats. It’s the old Billy Rose line, and it is bang on.

What advice would you give to the average investor?
Investors need to get better informed—it’s crucial. People have a perception that personal finance is exceptionally difficult to grasp. It isn’t. They can certainly understand the things that work—like paying down debt, building up an RRSP or a tax-free savings plan, and buying low-cost index funds. It’s the things that don’t work that are tricky, like options strategies, and trading in and out of futures markets. Secondly, people should be careful about investment costs. If you are buying products like funds that charge 200 or 300 basis points a year, it’s very difficult to overcome that drag and post superior performance over the longer term.

What’s your investing motto?
Pay yourself first, of course!

Shirley Won/Globe and Mail/January, 2015