How Hal Kellman Averages a 20% Return on the Market

Interview Transcript, How Hal Kellman Averages a 20% Return on the Market

Introduction to How Hal Averages a 20% Return on the Market

Alan
Welcome back. I’m here today with how Kelman the Cameron family office and how welcome to today’s show. Thank you. So hopefully the listeners, can you get the background of how you got where you are today. And let’s start way back at the beginning for you and your life.

Hal
Okay, so the beginning is when I was born, and I was born in the South Bronx. And as I found out later in life, I lived six blocks away from Colin Powell. And we both lived there in 1953, four and five. But the important thing is, when I was born, we only had one bedroom, one bathroom. And there were six of us. And I realized I wanted to do something more and different in life. And my grand father had come to this country in steerage in 1911, he worked in the garment industry, my father dropped out of high school, in 11th grade, he worked in the garment industry.

And they both said, Son, the Kelvins, do not go to college. And I said, I’m gonna go to college, and they said, We have no money for you. I said, Well, I’ll do it on my own. So that was the beginning. And I realized that I had to do things on my own. And so I’ve always liked entrepreneurs, and specifically, people who want to do something to change the world. And that’s my main theme. Doing something and doing it on your own.

Alan
You know, it’s a it’s amazing against all odds, you didn’t have the history and the support system, basically, from those ahead of you, but But in that inner drive, you were feeling something. Wait, where did you end up? You know, pursuing your college education?

Hal
Yeah, as it turns out, so the one thing I didn’t have his money, and I had a specific goal. And it wasn’t that hard. It was to have enough money for food, clothing, shelter, and a little fun. And so when I started out in life, I didn’t have that. And I decided that I wanted to do something on my own and not work for a big corporation, what my father did, he worked 40 years for a company. And they gave him a pension after 40 years of $10 a month for each year. So his pension, besides getting a crappy salary, his pension was only $400 a month, and it was fixed, and ended when he died.

So that was the other end of what happens with corporations. And that’s the part that I saw. So I didn’t like big corporations

Alan
that he took a degree in electrical engineer. So

Hal
okay, so here’s your here’s what I was. Okay. So it’s interesting, life is interesting. You never know what’s going to happen. But you can have long range goals. And my big thing is strategy. I feel most comfortable with long term strategy, usually looking at a decade and tactics to get there. So of my goal was to go to school in New York, you know, because it was free CCN why, and then work in the northeast, go to work for IBM. So New York had a promise New York City had a promise for every high school graduate with a B or better grade, you can go to CCNY for free.

And I said okay, that’s my way out.

So I had an 87 average, they did a numbers instead of averages. And I thought, okay, for years, I don’t have to pay for anything. That was my application. And my parents wouldn’t come down to support me. So I took my 15 cents token, went down to the office. And I told them and they said, Son, you didn’t file it on time, get out of here. So I didn’t know whether or not I would ever go to college. And every one I went to school with graduated in June, and I didn’t know what I was going to do.

Alan
So you as SSL. Fast forwarding now you ended up after your degree coming out to California. Okay,

Hal
so what so what happened was, so what happened was, there was one college in the country, Michigan College of Mining and Technology that had an August 31 application deadline. So I applied to them in July. I got a scholarship for undergraduate, and then went to University of Michigan for my MBA, so liberal engineering MBA, and I stayed in Ann Arbor for another 10 years. So I didn’t come to Silicon Valley until 1978.

Alan
And what finally drove you to come out here from Michigan?

Hal
I read Okay, so there I am in snowy, Ann Arbor, and I read electronic news all the time. And Ted Hoffler wrote a two part series about Silicon Valley and also, Intel had an advertisement about the 4004 family microprocessors, I saw that and I said, Wow, this is going to change the world. And everyone, including my wife said, I was crazy. And that was November 15 1971. And my wife, my wife’s family was in Detroit. And she wants to stay there. So I had to wait for them to the family to leave and, you know, go to Florida, like most people do, from New York or Detroit, when they retire.

And I also had a company, I started a little company. And in our room with $3,000, there were three of us. And we took $1,000 Each worked for a software company. And we built it up. I worked 1415 hours a day, seven days a week for 10 years, sold a company to three and moved out here. So that was the genesis. So I had to have my wife’s family move, and my company get bored.

Alan
So in, in your first company, it was basically a $3,000 investment in and the show is followed by a lot of entrepreneurs, inspiring people. And yeah, no one really knows the full history of your story yet, but I want to I want to go back to a $3,000 net worth investment in there. What What was your big break? How did you get this company off the ground?

Hal
Silicon Valley, Hewlett and Packard, they were great people. So there I was. The 3000 came from the three founders $1,000 each, and we needed to get computer equipment back then it was many computers. We had just gone from mainframes, the IBM mainframes to at different mini computer companies. And one of the newer ones was Hewlett Packard. So I came out here to try to get either Hewlett Packard 2114 and 21 sixteens or Verizon equipment. So my first stop in Palo Alto, luckily, both of them were here in Palo Alto, was Verizon.

And the first question, the guy from Varian asked me his son, how old are you? I said, 25 Second question, what’s your net worth? I said, $3,000 for the company, he says, Get out of here. So this Luckily, the second company I went to was Hewlett Packard down the road, and they just took out a purchase order. They said, How much equipment would you like I thought of the biggest number I could $100,000 worth of equipment, wrote that down. He said, How long do you want to pay?

I said 60 days because I knew we can program and 27 They gave us $100,000 worth of equipment 60 days to pay. And that’s why we’re successful for free because the Bill Hewlett and Dave Packard

Alan
you know, the dreams of Silicon Valley are we’re alive and well back then. But how I need to take a quick break. And when we get back after these messages I want to I want to jump into you know the your exit strategy on this first company then where you went from there. We’ll be right back after these messages.

Alan
welcome back. I’m visiting here today with how Kalman the Kalman family office and how before the break, we ended off with your first big win and the company was an order coming in from Silicon Valley, huge Hewlett Packard $100,000. You were able to use that as a scaling point for the company and then eventually, you sold out. How many years was it till you got to the point where where you went over to three M.

Hal
Okay, so we were I was independent, working for the company was isI interactive systems incorporated. So I built it with two other people from startup 3000 to 4 million in revenue 400,000 in earnings and then we sold the company to 3am because they wanted to get into factory automation.

Alan
And so and so bring us fast forward What year was this nice

Hal
was 1978 Okay, so as I sold the company, I moved out here

Alan
Yeah, that’s interesting. Seven years it’s still Silicon Valley was still just starting. You move out here though. Will you still with the company or did you take the exit strategy? I’m gonna go do something else now.

Hal
No, I didn’t know anyone. That’s the whole thing. I’ve always been an explorer. And people kidded me about that, my whole life and when I would tell people about Silicon Valley for the eight years of Though I lived in Michigan, and I was going to Silicon Valley for different conferences, they would always call me Marco Polo. And as it turns out, I have a private investment in a company. And I didn’t name it but the founder, co founder, did Marco Polo learning. So it’s funny some things in life are, you know, destined. So Marco Polo, the Explorer, doing different things.

So I knew no one in Silicon Valley came out here, and there were regional brokerage firms. And the two best were Robertson Stephens, and Hambrecht and Quist. I said, these are my type companies. And so I dealt with them. And again, still 1978 77 was the bad 70s. Hammerton Quist had only done two IPOs 78. They did seven, I bought five of them. I really liked it. And I said, where I found gold, and I bought a Vaughn tech, Colin at Evans Sutherland Paradine and Zeid, x five of their seven deals, and the worst one went up 10 times in value. I said, this is a this is this is my type of company. And

Alan
they found a knack for really getting in doing the research and evaluating value in companies the early

Hal
early. I should have been a venture capitalist, but I didn’t have the context. So essentially, I’ve been a public venture capitalist all my life, buying companies that are five or 10 million in revenue, which you could have done from 1969 When I started until 1999.

Alan
So how I understand it wasn’t just picking the stocks, but you also began to do some writing. And as an analyst for some magazines, and early Silicon Valley companies, how’d you get into that?

Hal
Again, nothing is easy. There was a new magazine that was started in 1989, called upside magazine. And the people who started it were from Stanford. So the first person who did what I wanted to do was from Stanford. Luckily, he was so bad that I got a call from the co founder of upside, Tony Perkins. And he said, How I saw a couple of your, your articles that you’ve written for Detroit discovery. Do you think you can do this for our new magazine? And the companies I’d written up for Detroit discovery, when I was still in Michigan went up an average 70% Oh, my

Alan
God. For seven zero? Yeah. Hey, you were at you must had a pretty good following by that time.

Hal
So the interesting thing is it was Michigan and all my clients in Michigan were either doctors, dentists, or osteo pas. And they drove me crazy. And so I realized that in order for me to do my own thing, I have to have my own way of looking at it and I can’t do what everyone else did. And the thing that changed was 7374 When everyone went down, and I had my first double digit loss, and I said this is crazy. If I’m going to continue I want to do it my way and I changed my

Alan
approach, how I need to take a quick break visit here today with Hal Kelman he of the Coleman family office and when we get back I want to talk about when you look at companies and how do you assess undervalued underperforming or companies that are ready to take off so we’ll be right back after these messages.

Alan
Welcome back and busy here today with how kalmanovic Countless family office and how you know that for the listeners you have you know, I’ll just say this, you have a pretty good reputation for picking good stocks and good investments over the years but but yeah, how did you come about those Is it is it is you got some type of system or process where you’re saying this is this is how I know you know I want to be with this company or what do you look at the criteria

Hal
okay. So the two main areas I focus in is what I know because I studied it or was interested in it. So initially because of electrical engineering, I really know hardware and software and it used to be IBM and the Seven Dwarfs and I always look for companies that can become the next big success and if something is already know On, it’s followed by 40 analysts, I’m not interested in that. So I try to find something, usually because of technology. It’s either misunderstood or early or groundbreaking. And it’s the cutting edge technology

Alan
that’s basically yours, you’re able to predict those trends and follow through. What has your philosophy stayed the same? Or is it changed over the years as this technology has evolved?

Hal
Basically, it’s the same thing, but it’s evolved because the world changes. So it’s always been for the last 25 years 40% of what I do is technology, hardware and software, the companies change 20% Is healthcare because I’m interested in that. And the other 40% is still miscellaneous. And I tried to get it down to a system, but it’s still a personal type thing, where you just can’t have a formula. I do have formulas, but that’s only one club in my in my golf bag there. I don’t play golf. So I’m trying to figure out an analogy is one club.

Alan
Well, I’m gonna jump into healthcare a little bit, because obviously a lot in the news with the Affordable Care Act. revamping, you saw the Theranos has been over there, the the blow up of, you know, the business model over valuation, but wouldn’t you know, and then there’s a lot of companies are coming out saying, well, the new solutions is wellness is, you know, rather than reactive medicine, it’s preventing things up front, what do you see the trend really going? Is it do you see wellness as a something alive?

And well, that will be because we’re obviously trying to disrupt the current system and move on? Or what’s your thoughts on that?

Hal
Well, more generally, I my emphasis is on genomics. And it wasn’t until we cracked the genome, and it took $3 billion and more than a decade to just get the first science. And then the same thing in technology, it takes 1520 years to understand the science and then over the course of time you get the companies. So okay, so if you were the first person to get your genome tested, it would have cost $3 billion.

Then it went down to 100,000. When it broke 10,000, I was one of the first 5000 people to get my own whole genome tested, and is a company in San Diego that did that Illumina I went down there, and they made sure you talk to a doctor for an hour before they would do the test. Because if you had some serious disease, they didn’t want you to go off and kill yourself or do something stupid. So the good news is, I got tested for 1200 diseases, and I have no extra chance of getting any of the 12 just average or better. So I should live to be 89.

Alan
So when you look at a person wanting to jump into the investment industry today, what advice would you give them?

Hal
I would tell him, you know, the interesting thing is it hasn’t changed that much in 300 years and people care about Jack Ma when he talks about Forrest Gump. My hero is Benjamin Franklin 300 years ago, he was America’s first entrepreneur 1706 He only had two years of formal education didn’t have any money. He essentially ran away from his family. He lived in the number one population, city and went to the number to Philadelphia to make his own way. And he did a whole bunch of things, entrepreneurial things, and spent the first 42 years of his life making money.

And then the last 42 giving it away. But he had so many things that he did. I’ve read different accounts of him and I had to read several accounts to get the full story. But one of the greatest things was that’s the first time I understood the miracle of compound growth. By listening to Ben Franklin story, he willed 1000 pounds to each of his cities, Philadelphia and Boston with the proviso that none of the money could be spent for 200 years. So the first city they rent lawyers always get involved in screw things up. They reinterpreted and they opened it up in 100 years that only made $2 million.

The other one was the full 200 years 9090 was 5 million. So from 1000 pounds to 2 million, 5 million miracle compound growth and that that is underestimated. People talk about it but they don’t realize compound growth for 1015 20 years. Anyone today He could get rich. This

Alan
shows his brilliance to and foresight. So if, if you’re looking back at courses that you enjoyed the most college or you know, what would that be where your was your passion for learning,

Hal
as it turns out my passion besides electrical engineering and finance, it was really history, I the best courses I took, were at the University of Michigan. But it was not in the finance, I took two history courses. One was the entrepreneur in history. And the other one was in economic history, the United States. And they had 24 specialized libraries. And I went back the each of the 24 libraries that had different parts of things I was interested in. And I realized most of the history books are wrong, because they’re written by people after the event, and they reconstruct it.

So what I learned was, most of the entrepreneurs were really self taught and dropped out at that time of high school, and now they drop out of college or graduate school. So there’s a certain entrepreneur personality that I learned to follow. And my biggest successes have been by investing in those type people.

Alan
You know, how when you look at the history books, if you could choose any time to live in, in the era of time, when would that be?

Hal
My ideal time would be 1450 to 1525. And living in Florence, Italy, with the Medici family, because they financed, you know, so many great things with the Renaissance, and had newest had great dinner conversations with Leonardo da Vinci, and Rembrandt and we’ll all the great people Copernicus around the dinner table,

Alan
how we’re out of time today, but I appreciate you being on today’s show. And been busy here today with how Kalman of a Kalman family office. Thanks for being with us. Thank you. And we’ll be right back after these messages. Welcome back. Yeah, over the break, I was visiting with Hal and there was hell, Kelman and there was a little app called Marco Polo, how that you mentioned, I want to hold this over the last segment, because I think it’d be a gradient just to the, to the listeners out there. But it tell you about this app is one of your first software.

Hal
This was my first private investment. And essentially, there are 2 million apps in the App Store. And so you think you know, that app, you know, what chance do you have, but this is an early childhood education. And, and the person who developed it is a great entrepreneur. And it got picked up by Apple. And featured a year ago, as the App of the Week, we got 3 million downloads, wow. And as we speak, now, we’ve got 5 million people who have purchased it. It is the number one early childhood education program in the world.

And we just got the what purportedly is the richest man in Hong Kong and the second richest man in Asia, I owe what I know is he’s worth more than $30 billion. And that’s horizon ventures. And he just put in money into company. So he thinks we can do great things. And we’re going to do more things. Besides apps, we’re going to have Marco Polo Academy. And we’re going to have a half hour programs that we’re going to be sold to one of the early childhood education channels,

Alan
and this is all in in early childhood development. Videos are what what did they get with the app there?

Hal
Okay, it’s there. It’s learning different areas. And essentially, there are 4 million kids in the world who don’t have access to early childhood education. And that’s one of my passions to give people equal access and have an opportunity if you’re not born into the right family or zip code. And so, as it turns out, all over the world, people are buying that because you don’t even have to know English. We do have it in eight different languages. But little kids start playing with it and grandparents buy this for their grandchildren.

And you learn about ocean. You learn about weather, and recall. And then as a newer app, I forget the name. So we got four apps now that are selling, but we’re going to expand and use the best characters from this into the TV program called the Polos

Alan
and how many languages this is sin.

Hal
Last time I checked with Justin Sue it was in it was in eight different languages. And it’s worldwide.

Alan
So to finally go to the App Store.

Hal
Marco Marco Polo Learning. Okay, yeah.

Alan
And is there is there an initial trial period? I mean, you have two phases, a trial app, and then

Hal
it’s only like $2.99. Plus, I think they have a three pack. If you buy the three, you get a little a little discount.

Alan
Uh huh. Yeah, it’s amazing with technology that, you know, what is what it is doing is is driving learning down to earlier ages and making it you know, available, where, where it wasn’t before with this technology and and giving kids the opportunity to right before

Hal
it was CD ROMs. And when I was running for upside, I wrote up two learning companies that sold CD ROMs. You may remember, we’re in the world is Carmen Sandiego. Yeah. Westward wagons. So one, one of the companies was learning company, and the other one was brought up and both of them were bought by the by the guy who was on Shark Tank. Mr. Wonderful, Larry. There were a couple 100 million dollars he bought it and he sold it to Mattel for 4 billion.

Alan
That guy that’s his I used to play that wagon. My kids my kids actually

Hal
did the pretesting learning company was in Fremont. They would give them Cola, which my wife didn’t like cola and pizza, and they test all those things when they’re a small little company in Fremont. We’ll have fun.

 

Conclusion of How Hal Averages a 20% Return on the Market

Alan
Well, we’re out of time. But it’s been a real pleasure having you on today’s show. Any final words for the listeners?

Hal
From probably if I had to buy one book, I wouldn’t buy any of the new books. filled a fisher. He actually was the originator along with tiro price of growth stocks. And in 1958, he wrote on common values and common stocks. And I read that when I was in business school, and it’s more than 50 years later, the only thing I would change is unit trust to mutual fund. And he was a great growth stock investor and told people how to do it,

Alan
then isn’t here today with how Kelman of the Kalman family office. Thanks for being with us.

 

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Hal Kellman on Alan Olsen's American Dreams Radio
Hal Kellman

Hal Kellman was born into what some may deem under privileged circumstances but that didn’t stop him from being the first in his family to go to college. Today he’s the Principal at the Kellman Family Office where privately manages investments for a handful of lucky clients. The remarkable thing about it all is that he’s averaged a 20% return over the past few decades for his clients.

As a child, Hal grew up sharing a one bedroom apartment with six other people in the Bronx. Neither of his parents went to college nor did they support him in his decision when he announced it. He attended Michigan Technology University where he obtained his Bachelor’s in Electrical Engineering. He also received an MBA in Finance from the University of Michigan.

Hal has always been fascinated with technology and uses his passion to help him identify up and coming companies that would make great growth stock investments. He even built his own computer grid system to help him narrow down 17,000 stocks to a mere 35 to help him focus his attention on companies he deems to have the biggest growth potential. During his career, Hal has averaged a 20% return on his investments.

Alan Olsen on Alan Olsen's American Dreams Radio
Alan Olsen

Alan is managing partner at Greenstein, Rogoff, Olsen & Co., LLP, (GROCO) and is a respected leader in his field. He is also the radio show host to American Dreams. Alan’s CPA firm resides in the San Francisco Bay Area and serves some of the most influential Venture Capitalist in the world. GROCO’s affluent CPA core competency is advising High Net Worth individual clients in tax and financial strategies. Alan is a current member of the Stanford Institute for Economic Policy Research (S.I.E.P.R.) SIEPR’s goal is to improve long-term economic policy. Alan has more than 25 years of experience in public accounting and develops innovative financial strategies for business enterprises. Alan also serves on President Kim Clark’s BYU-Idaho Advancement council. (President Clark lead the Harvard Business School programs for 30 years prior to joining BYU-idaho. As a specialist in income tax, Alan frequently lectures and writes articles about tax issues for professional organizations and community groups. He also teaches accounting as a member of the adjunct faculty at Ohlone College.

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