Here’s Why Kevin O’Leary Says California Is Not an Investable State
Written by
Kellan Jansen
Edited by
Amber Barkley
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Most people think carefully before adding new assets to their portfolios. But have you ever made an investment decision based on the asset’s location? “Shark Tank” star Kevin O’Leary has.
In a recent Facebook Reel, O’Leary shared three reasons he never invests in Californian assets.
High Minimum Wage
First, O’Leary pointed to California’s $16 minimum wage. This is significantly higher than the federal minimum wage of $7.25. O’Leary said this has made reaching profitability difficult for businesses like restaurants, which primarily rely on low-cost workers.
When companies have to pay workers more, that eats into their margins. This can lead to higher prices for consumers and make corporate growth difficult. O’Leary may be trying to avoid issues like these by staying out of the California market. If he can invest in companies with similar upside in states with lower wages, there’s no reason for him to buy into California.
‘Prohibitive’ Regulatory Environment
Next, O’Leary called out California’s regulatory environment, which he described as “prohibitive.”
California’s tax rates are among the highest in the nation, and a 2015 Pacific Research Institute study ranked California as the state with the most prohibitive regulations in America.
Practically, this means it’s difficult for California businesses to be agile. When regulations are strict, it’s hard to make fast changes in evolving markets. That can provide a competitive advantage to companies based elsewhere. For people who think like O’Leary, this makes investing in California difficult.
Regulations also impact the cost of doing business. Higher taxes can increase supply chain costs and property values alike. Companies nowadays may end up having to pay more just for the sake of being headquartered in California.
Poor Leadership
Finally, O’Leary claimed California has poor leadership. He called out Governor Gavin Newsom directly, saying he’s a “bad manager.” That’s based on the state’s high business tax rates, for one. O’Leary pointed out that high corporate tax rates drive businesses out of the state, which he said has been bad for California and its people overall.
Takeaway
Whether you agree with O’Leary’s take or not, it is a good example of how to think about investing. O’Leary isn’t just looking at companies when he decides what to buy. He’s considering where they’re located and the financial conditions they’re operating under.
If you think through your money decisions with that kind of depth, you’ll probably end up in better shape.
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