Some time ago I was watching some interviews and articles on Mark Cuban‘s advice on investing. He has unconventional advice, which I actually agree wholeheartedly with.
One main point is that he holds cash and only deploys it when he has an advantage. This resonates with Warren Buffett’s style of investing of waiting and preparing for the fat pitch. Here are some relevant quotes from Buffett:
- I call investing the greatest business in the world… because you never have to swing. You stand at the plate, the pitcher throws you General Motors at 47! U.S. Steel at 39! and nobody calls a strike on you. There’s no penalty except opportunity lost. All day you wait for the pitch you like; then when the fielders are asleep, you step up and hit it.
- We don’t get paid for activity, just for being right. As to how long we’ll wait, we’ll wait indefinitely.
- Our stay-put behavior reflects our view that the stock market serves as a relocation center at which money is moved from the active to the patient.
- The one thing I will tell you is the worst investment you can have is cash… Cash is going to become worth less over time. But good businesses are going to become worth more over time. And you don’t want to pay too much for them so you have to have some discipline about what you pay. But the thing to do is find a good business and stick with it.
- We always keep enough cash around so I feel very comfortable and don’t worry about sleeping at night. But it’s not because I like cash as an investment. Cash is a bad investment over time. But you always want to have enough so that nobody else can determine your future essentially.
- We have $16 billion in cash not because of any predictions [about a market decline], but because we can’t find anything that makes us want to part with that cash. We’re not positioning ourselves. We just try to do smart things every day, and if there’s nothing smart, then we sit on cash.
A quick summary Mark Cuban’s points below.
Pay Off Debt
- You are better off paying off any debt you have because that’s a guaranteed return [i.e. the return = the interest rate on your debt].
Create Transactional Value from Cash
- Cash has transactional value
- It is ridiculous to say that “if you just put your money in the bank, you are going to fall behind inflation”.
- Unless you know something specific, put your money in cash.
- In 2008, 2009, Cuban did his homework and piled into MLPs, M-REITS, and Australian Bonds (as a play on China).
- In 2011, Cuban felt there was going to be a lot of volatility, so bought out-of-the-money calls (on SPY and DIA) when the market cratered, and bought out-of-the-money puts when the market went up.
- Having that dry powder available when the market goes down and you see an opportunity, then you are ready to take it.
- Never put your money in something where you don’t have an information advantage.
- Take advantage of economic crises
- Every five years or so there is a bubble bursting or amazing deals available because of a change in the economy. Anyone who just kept their cash in the bank rather than in stocks over the past five to 10 years could be buying the home of their dreams for half price in most of the country.
- Buy in bulk
- If you offer to pay in cash, you can often get a discount, or you can save by buying in bulk.
- I look at my annual budgets for everything and anything, and I look to see where I can save the most money on those items. Saving 30% to 50% buying in bulk – replenishable items from toothpaste to soup, or whatever I use a lot of – is the best guaranteed return on investment you can get anywhere.
- Sleep well at night
- Cash is king – and works far better than Ambien when you want a good night’s sleep every night.
Buy and Hold is a Suckers Game
- Right at the very moment when cash creates unbelievable opportunity, those who followed the buy and hold strategy have no cash. they can’t or won’t sell into markets this low, that kills the entire point of buy and hold.
Diversification is for Idiots
- You can’t diversify enough to know what you are doing.
Invest in Yourself
- Invest your time in yourself and becoming knowledgeable about the business of something you really love to do.
- You are going to get a far better return investing in your own skill set than you are taking a chance at the stock market.
Take Advantage of Times of Uncertainty
- Booms are when the smart people sell. Busts are when rich people started on their path to wealth.
- You will know when that time is here for you because you will know your business inside and out. You will be ready because you will have been saving up for this moment in time.
What to Look for in a Startup
- A unique product
- A motivated and educated team
- Knowledge of the market
- A demonstration that the big dream can work in practice
