Often controversial and always entertaining, self-made billionaire Mark Cuban is not shy in his opinions, especially when it comes to money — and that’s good news for budding investors. Mark Cuban, after all, is rich and famous. He owns a jet and a basketball team. He’s a reality TV star who millions tune in to watch on “Shark Tank.” If you don’t listen to a guy who created one of the world’s greatest fortunes out of nothing, who do you listen to?
It wasn’t always that way. Cuban famously lived for years on the budget of a broke college student, driving lousy cars, eating lousy food and saving, saving, saving. A serial entrepreneur, forward-thinking investor and notorious taker of calculated risks, Cuban’s seed money is now fueling startups all over the country in all kinds of industries.
In a 2018 interview with MarketWatch, Cuban laid down some indisputable arithmetic that explains why paying off debt before you invest might just deliver the biggest returns of all.
“The best investment you can make is paying off your credit cards, paying off whatever debt you have. If you have a student loan with a 7% interest rate, if you pay off that loan, you’re making 7%, that’s your immediate return, which is a lot safer than picking a stock, or trying to pick real estate, or whatever it may be,” Cuban said.
Just like you should never gamble if you absolutely have to win, Cuban insists that the same rules apply to investing as a remedy for financial trouble.
“If you are buying because you need the price to go up and solve a financial hole you are in, that is the EXACT WRONG time to trade,” Cuban tweeted on Feb. 3. “And we all have to respect people who choose to sell because they need to. Bills don't care what the market does [sic]. Get right and come back later.”
Cuban had some harsh words for what most investors think of as capitalism’s greatest wealth-generation machine — the stock market. In 2007, he used his blog to offer some advice to young people who aren’t sure what to do with their money.
He wrote: “Put it in the bank. The idiots that tell you to put your money in the market because eventually it will go up need to tell you that because they are trying to sell you something. The stock market is probably the worst investment vehicle out there. If you won’t put your money in the bank, NEVER put your money in something where you don’t have an information advantage. Why invest your money in something because a broker told you to? If the broker had a clue, he/she wouldn’t be a broker, they would be on a beach somewhere.”
Not everyone is going to build a successful software startup from scratch, and they don’t necessarily want to be called “idiots” for investing in the stock market. Fine, but Cuban at least wants them to avoid picking their own stocks or buying into expensive mutual funds. His advice mirrors that which fellow billionaire investor Warren Buffett has long offered, as well — buy an index fund.
In an interview with Hayman Capital Management founder Kyle Bass, Cuban said, “for those investors not too knowledgeable about markets, the best bet is a cheap S&P 500 fund,” according to MarketWatch.
Cuban told Time’s Money magazine how much he was influenced by a book called “Cashing in on the American Dream: How to Retire by the Age of 35.”
“The whole premise of the book was if you could save up to $1 million and live like a student, you could retire. But you would have to have the discipline of saving and how you spent your money once you got there. I did things like have five roommates and live off of macaroni and cheese and really was very, very frugal. I had the worst possible car.”
Buy a Stock You Believe In and Hold on for Dear Life
When the Reddit and GameStop trading frenzy went down, Cuban was able to offer some insightful advice as most of the investing world was struggling just to understand what was even going on.
On a Reddit AMA (Ask Me Anything), Cuban responded to a Redditor’s call for advice with this comparison to Bitcoin.“Many bought at the highs in 2017 and watched it fall by ⅔ or more. But they held on because they believe in the asset ... When I buy a stock, I make sure I know why I['m] buying it. Then I HODL until … I learn that something has changed," using text-slang acronym for “hold on for dear life.”
Without risk, there can be no reward, and the bigger the risk, the bigger the potential payout. Cuban wants investors to go for broke and swing for the fences — but only with a sliver of their investments.
“If you're a true adventurer and you really want to throw the hail Mary, you might take 10% and put it in Bitcoin or Ethereum, but if you do that, you've got to pretend you've already lost your money. It's like collecting art, it's like collecting baseball cards, it's like collecting shoes. It's a flyer, but I'd limit it to 10%," Cuban told Vanity Fair.
If One of Those Risks Is Crypto, Stick With the Big Boys
If you’re considering jumping on the cryptocurrency bandwagon, you’d be wise to place your bets on the biggest names in the game because Cuban sees way too many similarities to 1999 for comfort.
On Jan. 11, he tweeted: “Watching the cryptos trade, it’s EXACTLY like the internet stock bubble. EXACTLY. I think btc, eth, a few others will be analogous to those that were built during the dot-com era, survived the bubble bursting and thrived, like AMZN, EBay, and Priceline. Many won’t.”
Cuban has crossed philosophical paths with Warren Buffett more than once when it comes to investing fundamentals. Like Buffett, Cuban warns against investing in things you don’t understand.
In 2010, Cuban wrote on his blog, “If you don’t fully understand the risks of an investment you are contemplating, it’s okay to do nothing.” More recently, he confirmed that position by stating even more emphatically, “No. 1 rule of investing: When you don’t know what to do, do nothing.”
The best way to avoid investing in something you don’t understand is to understand whatever you’re invested in. Cuban wrote on his blog about the power of what he calls the “knowledge advantage” and what he gained from it in his early years as a budding entrepreneur.
In 2007, he wrote: “At MicroSolutions it gave me a huge advantage. A guy with little computer background could compete with far more experienced guys just because I put in the time to learn all I could. I read every book and magazine I could. Heck, three bucks for a magazine, 20 bucks for a book. One good idea that led to a customer or solution paid for itself many times over.”
