Asset Trip with Kenny Rose: Finding an Unlikely Investment in Franchises

Wow. That's really exciting. I think it's also fascinating, that whole journey of getting into franchising and then kind of flipping it into something people can actually invest in this passively. It's also really interesting how, because of this explosion in fractional investing platforms recently, you can invest in almost anything. But I had never seen a platform that lets you invest in franchises. It's a very unique asset class and new to a lot of everyday investors. So I'm curious, why franchises compared to all the other asset classes that investors now have access to?

Well, I wouldn't even say it's a compared to thing. It's in addition to, you know. You're supposed to diversify, it's kind of one of the number one rules of investing. Back when I was an advisor at Merrill Lynch, we would tell people that you should have 20% of your portfolio in alternatives. But especially back then, you could not get access to them. You had to be an accredited investor. So I don't see it as “should you do real estate or franchising or artwork.” Do a little bit of everything.

Do you see there being a particular type of investor who's more suited toward branching into these alternative asset classes? Or do you think it could fit into pretty much anyone's portfolio?

It's been really interesting because we relaunched our new website about two months ago. And part of that is when you sign up on the waitlist, you'll get asked some demographic questions. So we're seeing everything from your 18 to 24 year-olds who are just looking to try new things and want to invest 500 bucks to a couple grand all the way to your really savvy 55+ investor who want to invest a quarter of a million or $500,000. It's just really across the board because it's never been accessible before.

With all of these new fractional investing platforms and the access that people now have to all these new asset classes, how do you see this impacting the financial trajectories of your regular retail investors?

So I think one of the big things that, especially really savvy and experienced investors always know is that you're supposed to invest in things that earn cash flow in your portfolio. It's a way to just continuously add an income stream as well as produce cash that you can then invest into other things, without having to take the tax hit for cashing out. This is really giving investors access to being able to do that as part of their investment strategy. There's only two other ways that you typically get income into your fund or in your portfolio: dividend paying stocks, which are very hard to find and they don't pay a ton of dividends, and then real estate has always been the traditional one. And these days, everyone's investing in real estate, it's extremely expensive.

Ask anyone who's tried buying or selling a home in the last two years and they'll tell you. You're going to get an offer above asking, all cash. People are just kind of writing blank checks for it, which is not something you want to invest in. And I read somewhere recently one in seven single family homes is owned by institutional money now. When you're competing against that, things are kind of being priced out. So that's where franchising really comes in. We're not charging a premium. We're creating new assets for people.

That's huge. At FranShares, how do you go about the process of evaluating these franchises that you put on offer?

This is what I've been doing for almost 10 years now: helping people assess what the best franchises are. I've got partnerships with about 600 different franchises in about every industry you can imagine. I like to have a blend of everything, just like how you should diversify your alternatives and all their investments. You should think about the same with franchising.

I look at things like food on occasion and it has to be really good food. One of the first ones is called Teriyaki Madness. It's the fastest-growing food franchise, and one of the few that does Asian food in a quick setting, you know, other than Panda Express. They're a huge company and their CEO, Michael Hayes, is kind of a godfather of franchising.

Then I like looking at things that are also recession-resistant. Maybe they don't even have a storefront. Think service brands, haircare, automotive, fitness, where you don't have to spend a ton of money on inventory. There's not huge build-outs involved. The other side of our first fund, we're even doing waste management. So we try to look at things outside the box that aren't in super high competition, yet you get great profit margins because they're more about the service provided.

That makes a lot of sense. On the personal side of things, how do you invest? How do you allocate your assets? What's your strategy?

I do what I preach. I try and look at things in alternatives and to have part of my portfolio diversified there. I'm on the younger side, so will get more growth stocks. I don't typically go too much into bonds cause, at this point, I'm a wild entrepreneur, so I'm going to have my investing kind of reflect that. And then also real estate; again, it's a bit overpriced, but it's still a common staple. I like to diversify a lot, but also I like going after big hits and especially taking swings, things that people don't often think of.

I remember back in my Merrill days, American Airlines was merging (so this was like 2013 or 2014), and the government sued them for anti-monopoly. And it was like, man, they sue everyone for monopoly stuff. Also it was two really small airlines. I'm like, there's no way this thing's not getting through it. So I just kind of threw everything I had at it and it ended up blowing up after the lawsuit got dropped. So I try to look at things like that. Not necessarily going against the grain, but done with sound logic behind it.

Across all your various investments in stocks, real estate, franchises, is there a particular asset class that you have the most fun investing in?

I'm an entrepreneur. When I started my first company, it was like, I'm pulling everything out of the market and just investing in myself because I believe that I could turn it into more and it's going to grow quicker than the market. So that's my personal favorite. Outside of that, honestly the franchise world is really a fun one for me just cause people don't really think about it. It's something that people don't normally hear. So it's fun to talk about.

Do you happen to remember your very first investment or at least how you got started investing?

I can't remember my first investment to be honest, but I really got started during college. I interned at Merrill Lynch actually. And it was because I heard that there was an internship available and no one was going after it. I didn't know what a financial advisor was, so I was like, you know what, I'll go check it out. And I got there and I'm just grilling the advisor being like, tell me about everything you do. And I ended up changing my major to financial services after that and getting the internship there.

If you could hop in a time machine and go back to age 18 and give yourself one piece of investment advice, what would you tell your former self?

I mean, probably what everyone else says. I would go buy all the Bitcoin imaginable, probably pennies on the dollar or pennies on the hundreds of thousands of dollars.

Do you have any advice for other investors who maybe have their basics down, they're contributing to a 401k, they've got some retirement accounts, but they're looking to do a little bit more with their money.

There's really two different schools of thought. If you want to go consistent and good [enough], go listen to what everyone else is saying. Listen to the podcasts, read the guides, read everything you can and learn about it. If you want to make a lot of money, go deep into something that other people aren't thinking about. If everyone's talking about it, that usually means you're a little late to the party. I think that's the big thing: start seeing what interests you, what's really niche, and just start learning about it, start digging deep, and start studying.

Yeah. Good insight. And for our last question, I'm going to put you on the spot a little bit. I wonder if you could name your biggest investing win and your biggest investing loss?

My biggest investing win I would have to say is that American Airlines one. But biggest loss, there were two of them. One was when I was working at Merrill Lynch. One of the guys in there was talking about this thing called Bitcoin and we all just kind of laughed at him. Don't do that, that's silly. I was wrong.

And the other one was AMD. They do processors and stuff. And I remember one of the people I told about my American Airlines thing who made a bunch of money off of it, he's like, "Hey, one of the other advisors is telling me go all in on AMD." And so I'm looking at it in like 2013, it's like $2.50 a share. [I didn't go all in], and now it's going for $123 a share. But, you know, hindsight.

Take your own Asset Trip

If you're interested in investing like Kenny, you can check out these platforms:

• Franshares: FranShares allows you to invest in a diversified portfolio of recession-resistant franchises in multiple industries with no fees.
• Upside Avenue: Upside Avenue provides access to a professionally managed, diversified portfolio of income-producing multifamily real estate that was once only available to professional, high-net-worth investors.
• Public: Public makes the stock market social. Follow other investors, discover companies you believe in, invest with any amount of money.