Today I managed to annoy two billionaires. It wasn’t my intention, it just happened. The first, we’ll save for a future discussion. The second was Mark Cuban.

In this morning’s discussion of sentiment (Celebs’ & Billionaires’ Economic Warnings ?) after dissecting the surprise economic warning from Tony Robbins, I also mentioned Mark Cuban’s “Put your money in a bank” comments.

Mark responded in a comment. He raises valid points I wanted to address, then clarify what I wrote, and respond to his challenge.

First, in the link provided, Cuban published his intro to the book The Number (The Stock Market, Apr 13th 2004).  I am not exaggerating when I say his introduction is marvelous, a devilishly accurate synopsis of the seamy underside of Wall Street. It portrays investing turned into short-term sport, having nothing to do with the fundamentals whatsoever. It is all the more powerful, given his personal experience as a founder of a company that went public, was taken over, etc. There is almost nothing in to I disagree with, other than noting “Ponzi scheme” is the wrong phrase — the “Greater Fool” theorem is more apt. Note that this 2004 discussion is not investment advice, but instead is a warning as to how corrupt the street is.

I can say the same thing about “My Investment advice for 2006” (Jan 2nd 2006). It is not investment advice at all, by rather, is a diatribe against a morally bankrupt Wall Street. We could even call it “anti-investment” advice. Again, I find my self disagreeing with none of it. He raises issues of corruption, under-performance, of self-dealing and of over-compensation. (I cover these in Bailout Nation).  The same can be said for “The Stock Market is for suckers” (Jan 3rd 2006). It is an extended argument against the ways of Wall Street; if you read it, you will find yourself hard pressed to disagree with any of it.

But it is not investment advice.

What I wrote this morning was about sentiment. When high profile people make broad economic or market proclamations, it is note worthy. When they “fall into the category of recession-porn,” that is worth considering too.

What I should have written this morning was the role of Bloomberg in picking up Cuban’s post. In fact, I should have emphasized it. THAT was what made this part of the zeitgeist. Missing that means I was painting with far too overbroad a brush.

I would suggest that Cuban has been remarkably consistent: He has (correctly, in my view) identified structural flaws in the stock market. He has noted repeatedly how the odds are stacked against individual investors, that it’s a sucker’s game. He has repeated that view over time.

This makes his “Put your cash in the bank” not news at all. He has repeated it over time. Hence, any media focus on yet more recession porn, more than what Mark had to say, is what makes this significant.

Beyond the media angle, there is one last issue: It is not my respect for Cuban the entrepreneur, or his execution as a CEO in selling Broadcast.com stock to Yahoo (suckers!), or his acumen as an investor collaring the YHOO shares near their highs. I love what he does running the Mavericks, and running HD Net.

My issue for Mark is:  “What is your edge today looking at markets or the economy?”

Consider Mark’s comments from January 2006:

“If you are going to trade stocks, you just have to follow one rule and remember one thing. That rule is always have a definite knowledge advantage about the company you are trading, and always remember that every stock transaction has a sucker, and you have to know whether its you or the person on the other side of the trade. No one buys a stock from your, or sells one to you knowing they are leaving money on the table.

The bottom line is that unless you plan on making it a full time job to do your research and put yourself in a position to have an advantage, you are going to get your ass kicked at some point by someone who does.”

Hence, this is precisely my point about sentiment: Does Cuban (or Robbins for that matter) have any special insight right now? Was their proclamation the result of this edge? Or was it merely repeating the dominant economic/sentiment meme of the moment?

Which brings me back to my original point: How much of what we hear today is late cycle momentum calls  and/or The Recency Effect? And how much is genuine informed insight?

What’s your edge?

Category: Bailout Nation, Markets, Psychology, Trading

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

29 Responses to “Economic Warning: Cuban Update”

  1. philipat says:

    The only equities I have are Gold Miners and EM/Asia, where I have lived for over 30 years and do know a thing or two about.

    I don’t like cash and Treasuries have done very nicely as an alternative YTD.

    But I didn’t think being in cash needed any edge?

  2. I understand that it wasn’t your intention in this morning’s post but from out here I read it as if these guys were just following the herd. Oops. So now that Mark has picked up 145k new readers that are interested in his perspective why don’t you ask him to do a guest post once in awhile?

  3. Simon says:

    We would all like to make 25% pa like Buffett and co. The reality is that mostly we wont and we would have been far better off staying safe and investing in you.inc just as Cuban suggests. However if one refuses to let the dream die then one must learn some serious analysis skills. If you learn the skills and apply them consistently then you to can do better than the market. This is all pretty old news however. One need look no further than Ben Graham “the intelligent investor” for a complete and concise analysis of the two main investing alternatives.

  4. Efficientish says:

    Mark Cuban calling the markets a “sucker’s game” before the crash of ’08 reminds me of Al Capone calling the markets a “racket” before the crash of ’29. I think that’s probably a complement.

    Anyhow, to answer your question – I starting doing semi-regular blogging about the market several months back – mostly as a means to force myself to avoid hindsight-bias. As a result of my desire to not look publicly stupid, I’ve found myself generally paying more attention to media echo chamber than I used to.

    My opinion is that the media is really only useful as a means to seek out contrary opinions to test my own convictions.

    In terms of using the media as a contrary indicator – I’ve found it to be effectively useless either way.

    My guess is that if you took a survey of the articles published in major market publications and gave it a “bull or bear” stamp – you would find that overall they are simply a reflection of the recent past and completely useful is predict the near-term future.

  5. Efficientish says:

    Err.. “completely useless to predict the near-term future”

  6. goldfinger says:

    Add Mark Levin. He folded his hand today as he reported on his broadcast.

    I believe Marc Cuban and Tony Robbins are egomaniacs. They likely pontificate on lots of subjects, about most of which we don’t give a hoot therefore we don’t hear about it.

  7. Nishant says:

    Hi, Barry. Just registered on your site after reading it for almost 4 months now.
    Just want to add my bit to the discussion. I think one of the problems with this herd thing is that we get to hear mostly what the media is showing. As Cuban’s 2006 post shows there are always people who would be saying the contrarian thing, but we don’t get to hear them much (unless we are reading their blog) as the media decides what to show.
    But then we can’t completely blame the media as they are in a pig’s game (you have to get dirty to win). The goods ones get wiped out unless they show what the people want to hear (which is determined by the mood of the time; something similar to politics). One of the reasons why people like Buffet make money: they don’t watch CNBC.

  8. Ilya says:

    Really nice save, Barry…

    Cuban is a parvenue with a little boy’s need for adulation. He is a smart slick but a couple of $Bil in the bank hardly qualifies him as an investment guru. He seems more like a one note trumpet player in a philharmonic. No disrespect but my poodle Sharik pisses on the same trees every day also.

    Tony Robbins is still alive? Psychobabble augmented with teeth whitener and ManTan. Disney studios couldn’t make up these people. Or perhaps they will someday as cartoons.

    Investment acumen is as subtle and nuanced as a Shakespearean play. You possess it and you know it. You can recognize ‘ a hawk from a handsaw. ‘

  9. Chief Tomahawk says:

    In 2004, ESPN named the Chicago Blackhawks the worst franchise in professional sports. Knowing Mark’s passion for pro athletics (Mavs), I e-mailed and pleaded for him to go on a drunken bender and just mutter he had an interest in revivng the Blackhawks. Never heard back. Now who’s the top dog?

    Not long later 16:9 HDTV rolled out en mass, joining home surround sound systems, and I believe I wrote Mark again suggesting he bankroll a remake of “King Kong vs. Godzilla” to produce the ultimate summer guy movie. [Now with 3D, maybe it's time to pitch Mark the same idea yet again? and Lord knows, Japan needs an economic boom -- think of all the models required for a Kong vs. 'zilla remake...*] Imagine the marketing potential during stoppage at an NFL stadium: flicker the lights, have Godzilla roar through the speakers on one side and King Kong on the other. After a 25 second dose, scroll the movie graphic on the stadium screen to complete the ad. Every guy would want a Blu-ray copy come Christmas/Hanukkah/Kwanzaa time! (or maybe just the portion that watches sports entertainment.)

    P.S. ABC News Nightline ran a segment tonight on housing due to today’s horrid numbers. One thing covered was ‘home tending’, where a tenant pays a minimal rent (in the story $650 per month) and is charged with the upkeep of the home while it awaits purchase. In the story, the home looked to be around 2,000 sq. ft. and probably built in the last 5 years. I bet Mark’s got more than one house — I wonder if he’d take $650 a month from someone found on a message board to live in one and keep it up?

    * No CGIs for the models — use of such would be akin to astroturf in baseball!!!

  10. The Window Washer says:

    Barry,
    Oh Snap,
    Love ya when someone makes you clarify.

    You do a lot of good short posts. Why not start a back and forth post series for the weekend? Once in a while go back and forth with someone durring the week in private then post it all on the weekend. Insult Mark’s home sound system and see if you can keep it going.

    I second giving Marky Mark posting privileges if he’s a good boy, and buys us all a beer.

  11. auden5 says:

    Mr. Ritholtz, I think you’ve missed the big picture :-P

    Mr. Cuban has always maintained two overall themes: 1) the stock market has morphed into a casino and away from its original purpose, which was to help entrepreneurs expand their businesses; and 2) financial advisors and Wall Street have so many conflicts of interest, they are inherently dishonest and no longer look out for retail investors’ interests. (Quite frankly, both of Mr. Cuban’s main themes are 100% correct.)

    Your post seems to hold Mr. Cuban to a strange standard, i.e., If Cuban says you should be in cash, bonds, or CDs, what is his edge in giving this investment advice? Well, you don’t need an “edge” to be in cash–for most non-traders, the point of having a cash-heavy portfolio is to avoid volatile investments. The point Mr. Cuban was making is that absent an advantage, the average retail investor is at a disadvantage in the stock market, meaning s/he should be in cash or another investment that is not subject to the whims of Wall St bankers.

    Thus, criticizing Mr. Cuban for his lack of an investment “edge” seems nonsensical, because he’s not giving any investment advice–as you yourself point out. He’s just trying to guide people to a savings vehicle that doesn’t require an edge. Now, if you wanted to criticize Mr. Cuban in non-straw-man fashion, you could point out two things:

    1) in the absence of 8% money market accounts, bonds and CDs, most of us rely on stock market gains to fund our retirements, because most of us don’t have billions of dollars in the bank; in other words, after a certain financial point, there is no need to subject yourself to the whims of Wall St (I still remember Ted Turner saying he keeps all his money in Treasuries), but most people are not in Mr. Cuban’s position; and

    2) being in cash has been a terrible move over the long run (30+ years) due to inflation, and therefore Mr. Cuban’s advice is not helpful to most retail investors who lack billions of dollars for retirement. In other words, Mr. Cuban’s 10 year time horizon is too short and conveniently selective, because under Bogle’s, Graham’s and Buffett’s theories, investors should be prepared to hold stocks for 30+ years to smooth out returns.

    Mr. Ritholtz, perhaps you’re trying to start something with Mr. Cuban to get more readers. As an avid fan of both you and Mr. Cuban, I have no problems with your strategy.

  12. adeev says:

    I read Mr.Cuban’s original post and agree with his arguments. However, I cannot understand the position of Mr.Ritholtz’s summarized here “My issue for Mark is: “What is your edge today looking at markets or the economy?””

    When I read a scientific paper I consider the authors’ assumptions and arguments and not the fact whether they have a Nobel prize or not. If you have issues with Mr.Cuban’s post they should be with his arguments and conclusion and not with his “edge”.

  13. adeev says:

    To add to my previous post. I agree with Mr. Cuban that currently the stock market is for suckers. However, I disagree with his suggestion to invest in bonds. I believe currently the bond market is for suckers too as bonds guarantee the return of the capital only in nominal terms. Right now bonds offer one a very small gain vs. huge potential losses if we end up with hyperinflation. Cash is the king because it could be converted into commodities if stuff hits the fan.

  14. dead hobo says:

    BR sounded like a union steward:

    Hence, this is precisely my point about sentiment: Does Cuban (or Robbins for that matter) have any special insight right now? Was their proclamations the result of this edge? Or was it merely repeating the dominant economic/sentiment meme of the moment?

    reply:
    ————–
    Since when did Wall Street have a monopoly on financial opinions? Is this the equivalent of a grievance being filed? And I don’t even think he’s selling anything on commission or has any plans to enter the blogosphere. I suppose people who earn the cash with real jobs aren’t entitled to opinions like those who make it by working on Wall Street. I guess he will never get rich since he bypasses WS as a required stop on the way to understanding money.

    Also, Cuban owns HDNet? That’s one of my favorite stations. Buy more programming please and show it commercial free like your morning lineup. Great stuff but Enterprise getting a little repetitive. Torchwood w/o commercials in HD is like watching a different program completely.

  15. VennData says:

    There’s a third way between all cash and trading all day. It’s called Asset Allocation. Pick a reasonable Asset Allocation, use Vanguard ETFs, rebalance occasionally.

    Not exciting, but Mark Cuban’s advice regarding consumption and frugality isn’t exciting either.

    P.S. You lost over a third on your cash dollars from 2001-2008 vis-a-vis the Euro (Those glorious Bush years you all want to go back to.) Can it happen again? Maybe. Maybe the USD goes way up in value. But the nation that can’t get regulations to keep their eggs fresh, even though the rest of the world does, has got a problem with bending over backward to keep the mega corporations flush with the stuff… cash that is.

    Also of note: That Arizona convict escaped from a private prison. Those private education companies have student loan repayments under 35%. …and BP? Private.

  16. HEHEHE says:

    I like how Cuban traded his Mamma.com stock:)

    It’s not like either one of them has enlightened anybody about anything. I’ve told you the past year this “recovery” was nothing more than a government spending binge and would die once it ended; where’s my billion dollars.

  17. mark says:

    BR (inter alia) is a prime example of a variant of the recency effect. BR has consistently used post-WWII data and models to make arguments about today’s economic and investment climate. He continually makes the assumption that the current environment is best modeled by recent and nearby ones (post-WWII America). The facts though are clear (and most clearly articulated by the politically polarized but nevertheless in economic agreement Krugman and Rosenberg) – the economic and financial context has changed from anything seen in the US post-WWII and one must look to less recent times (1930′s, 1870′s – 1890′s) and far away places (Japan) to find similar context.

  18. rktbrkr says:

    BR, what do you think about Rosey’s scenario?

    http://www.cnbc.com/id/38831550

  19. Cuban’s one rule to remember, “always have a definite knowledge advantage,” does nothing to defend against human emotion, which essentially explains the great weak spot of quant funds.

    There is a difference between knowledge and wisdom.

    “I prefer the company of peasants because they have not been educated sufficiently to reason incorrectly.” ~ Michel de Montaigne

  20. Blunt Instrument says:

    “But it is not investment advice.”

    It is investment advice. Cuban just has a different opinion on relative quality of investments.
    His advice lacks one important element however: in order to accumulate wealth in a capitalist system, one must become a capitalist. Becoming a capitalist requires acquiring capital. Acquiring capital requires one of the following:

    1) Win the birth lottery and inherit capital.
    2) Win the marriage lottery and obtain capital.
    3) Win the actual lottery and use your winnings to purchase capital; or
    4) Spend less than you earn and use the balance to purchase capital.

    Cuban seems to endorse investing in only human capital or using cash as capital via lending. Human capital is an excellent investment but is fundamentally limited by our ability to work a maximum of 16 to 20ish hours a day. I would recommend supplementing with other forms.

  21. TennesseeCPA says:

    Just wondering… Do late cycle calls for “you can’t beat the market” sound a lot like “marriage sucks” just after you’ve had a fight with your wife, or “work sucks” just after you’ve screwed up something at the office, or “God doesn’t love me” just after something bad randomly happens to you. Why don’t I read calls for index investing when the Dow crosses another 1,000 milestone up?

    Hangin’ in there with investing principles I learned as an Apprenticed Investor and years of reading Jubak, Cramer, Ritholtz, et al. John Wooden would probably would be a better read than Mark Cuban in basketball or investing.

  22. philipat says:

    @Blunt Instrument

    5) Become a CEO of a US Corporation and steal money from shareholders via mega salaries and bonuses awarded by your mates on the Board.
    6) Work on Wall Street and get mega-bonuses for either screwing up the world financial system, then getting bailed out by taxpayers, then making more mega-bonuses by not lending the taxpayers money to the taxpayers and playing the steep yield curve provided by the taxpayers. The latter requires true genius and obviously justifies the payments.

    Is the US a great country or what?

  23. jdjed says:

    Mark Cuban is an asshat. He plays violent, R-rated movie trailers before G-rated movies for children at his Landmark Theaters. Cuban got lucky when Yahoo’s executive morons were caught up in the “irrational exuberance” of the .COM tech bubble.

  24. Shnaps says:

    I’ll take Kotok over Cuban every time, thanks.

    I gotta give Cuban some credit for proving recently that at least he isn’t dumb enough to pay $385 million for an MLB team that’s rarely able to sellout at home despite having one of the best records in the league.

  25. WaveCatcher says:

    Cuban’s a smart guy who got unusually lucky with his one big trade. Interesting to listen to, but no value to the readers here who are all looking for an edge. He has no value here except as a contrary indicator. And since he is a perma bear, even that value is questionable at best.

  26. broker1 says:

    Those saying Cuban had only one big trade with his sale of Broadcast.com are wrong. The genius was collaring his sale to protect his profits. Many former dot com millionaires missed that trade. In between the $2 million he netted from the Microsolutions sale he had a very impressive stock trading performance. Over five years he netted a 10X return on his money. Barry would be gleeful for such a stock picking record.

    You can read more about that in his interview with Paul Kedrosky here:

    http://www.kauffman.org/InfectiousTalk/Blog/June,-2010/Conversation-with-Mark-Cuban.aspx

  27. TripleSigma says:

    LOSERS consistently lose money in the market & they are also the ones who say “give up its a rigged game” I guess Mark Cuban is a LOSER, because he has failed at trying to make $ in the mkt. I have been doing fine and will continue to do so (as have the others I trade with)

    Mark and others– Dont tell others they cannot succeed just because you have failed at something. Get and edge, learn to trade, or get out.

  28. Andy T says:

    Yeah, wish I was a “loser” like Mark Cuban.

    And, yeah, making a billion bucks is all about “luck.”

    C’mon guys……

  29. dmlopr says:

    What’s your edge?
    I have two piggy banks. Play the casino with my money and play it safe with my wife’s money.
    She ‘s been doing better for a while now. ;-)