I love going on CNBC. All day long all the so-called experts parade through the studio or satellite feeds and let fly
with their best sales pitch.
They may be selling a stock, the direction of the market (I’m so bullish or bearish), or themselves, but they all want you to buy something. Of course they offer the obligatory disclaimer of what they own, or who is paying them, as if it’s a bullshit enema. It doesn’t change reality. CNBC and its competitors have become shopping channels for stocks, bonds and mutual funds.
Which is exactly why I love to go on the network. I love to call bullshit on whoever is on there with me. I don’t have anything to sell. If I like a company, I will tell you. If I don’t like a company, the same. I make it clear however that I have no idea what direction the stock or bond will go. I also make it clear that neither does anyone else.
I mean look at the concept of price targets. Someone, analyst, mutual fund manager, whoever will come on and say, “I have a price target for this stock of XXX which is up 30pct from here.” I see it getting there over the next 6 months. Yeah right. When someone tells me they know where a stock is going, I can only laugh and ask them why they haven’t mortgaged the house and put it all in the stock. Of course I know the answer. They don’t want to put their money in the stock; they want YOU to put YOUR money in the stock so the price of the stock they own goes up.
Get long and get loud.
Why can’t we just admit they are pitching a stock and treat it like a trinket on QVC. Wouldn’t it be far more entertaining and honest if while the pitchman touted the product, they put up a Quantity Sold and an interview countdown?
We have sold 500k shares of TASR. Only 20 secs left of this fund manager spewing away, so get yours now while they are hot! And don’t forget if you place the trade with our sponsor, we will send you a CNBC trading calendar!
What gets me even worse are the big name guys who come on like all they have is an honest opinion to share. I remember sitting next to Mario Gabelli. I brought up my position that the “investment theme” of buy and hold is nothing more than a sales pitch and the best way for sales reps and brokers to get upset customers off the phone. “I know the fund is down 12 pct Mr. Doe, but that happens in a buy and hold strategy. Over the last 80 years…” What
nonsense.
Mr Gabelli disagreed. He responded with the omnipresent retort to all things stocks, “Warren Buffet buys stocks.” Yes. Mr. Gabelli, you are right. At that time he did. But he doesn’t buy 100 or 1k shares at a time as you have suggested the typical investor should consider doing, or should trust you to do for him or her. Mr Buffet buys enough shares to have influence and in many cases control. Can the average investor do that? Can the typical fund do
that?
To which Mr. Gabelli responded with the evil eye. Have you ever gotten the evil eye on national tv? I have. I liked it. It was one of those “watch me stare at you so hard,I thinkI can make you cry looks”…ooooh,I was scared.
No knock on Mr. Gabelli, that was his job and he does it well. He sells trust. He does a good job of it. It’s still all bullshit.
I have said it many times, I don’t think the average investor should be buying stocks. I don’t think the vast majority of fund managers are anything special either. Something my buddy Andy relayed to me a long time ago when I started buying and selling stocks has stuck with me, and I try to remind myself of beforeI make any investment. “When you sit at the business table you always look for the sucker or fool. If you don’t see one, it’s you.” The same concept applies whether you are buying or investing in a company, or buying a stock or bond. Most business deals are win win, but even then there is someone at a disadvantage. It’s worse in stocks.
There is always someone on the other side of the trade. Why are they taking that side? Do you know something they don’t, or do they know something you don’t? You go to work and check the stock prices during the day and when you get home. Maybe you call your broker at lunch. What does the person or company on the other side do? Do you have an edge, or do they?
Which leads to my investment philosophy and a point.
I have gotten to the point where I only buy stocks under several circumstances. First, is the company strategic tomy other companies. Second, can I buy enough to get the ear of the CEO. I’m not looking for information on what their numbers are, or where the stock price is going. I’m investing in this company because it matters to my other companies. Can I get enough stock where I consider myself to be a true owner of the company and can work with them to
create win win situations? Do I want the stock price to go up? Of course I do, but if it doesn’t, there is stillconsiderable value to me. Of the companies I have taken a 5 pct or greater position in, I have yet to sell a share of any of them. Ever.
Small investors don’t have this option. In fact small investors have no options other than buy or sell. People buystocks with their only hope that they go up. Sometimesthey do, sometimes they don’t. While they move up and down over time, one thing happens with almost everyone. They fall in and out of love with the stocks they own. The stocks become part of their family. Me and IBM have been together for years. I love this stock. I’m going to buy my
new house with this stock.
It’s stupid, it’s wrong, we all have done it. We fall in love with a stock. I swear people are more protective of their stocks than they are of family members. You can call a guy’s wife fat, but if you tell him that TASR is overvalued, watch out. Every ounce of venom comes out.
One of the things I used to love to do when I had the time was short stocks. It was a hedge to the stocks I owned. More importantly, I’m a firm believer that there are tons of bad companies out of the universe of public companies, and because so few people actually short stocks, its easier to find undiscovered shorts than undervalued long stocks. One of the stocks I shorted was Zixit.
The first time I went on CNBC and said that I was short Zixit was probably 4 years ago. I repeated that I was short when I went on last year. Since that last acknowledgement that I was short this company, I don’t think a day has gone by where I haven’t gotten AT LEAST one email telling me not so politely what a jerk I am, or how wrong I am. I get multi-page emails extolling the virtues of this company. I get links to message boards that suggest I am
consorting with the devil. It’s very entertaining.
I shorted this company because it had everyproblem with a company that I looked for in a short. It was continually raising money privately, diluting shareholders. It was continually touting this new deal or that new deal. When they did acquisitions, they paid enough that the selling company would commit to buy services from Zixit. More importantly, it was in an industry that I understood and had access to.
I know people in the secure messaging industry, particularly that work with hospitals. I could spend the time and learn about the business, talk to people in the business and get to where I felt I had enough information advantage at a moments notice that I could get an edge and keep it.
Then they switched to the Eprescription business.
Of course switching industries is flag #1 when shorting a stock, and I have a friend who is in that business, giving me some great info. Unfortunately, I no longerhave the time to read as many of the SEC docs, consulting reports and competitive information that I normally would. When I asked myself whether I was the informed investor at the table or the sucker, I couldn’t with confidence say I wasn’t the sucker. So today I covered it.
I can’t wait to get the emails when they read this.
I also want to offer one final note to all of you stock lovers. Shorts are your friends. If you own a company that you know is a good company, encourage people to short its stock. Shorts will push to keep the company honest. Shorts will let you know what could be wrong with the company. All companies have faults, shorts help you find them. Shorts also create a base of demand for the stock. Unless you made a royal mistake in evaluating the company and it becomes
near worthless, then at some point the shorts will have to buy stock. That is a good thing. Always.
If someone tells you that shorts are holding a company back, run away, the person is a stock idiot.
Investment in Stocks requires a lot of research and background work. For more details please visit
http://stocktobuy.blogspot.com/
Comment by harsh -
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Comment by shareinfoline -
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Comment by shareinfoline -
I am greatly impressed and interested in your knowledge not only in the computer side of your first business but the financial end as well. This post on stocks is an intriguing approach to back up your views on investing. I agree that stocks should never be the sole interest of investors, and should be avoided in most cases by the average investor. The stock market is difficult to avoid, nonetheless, with all of its glamour and hype. This is where the term “don’t put your eggs into one basket” comes into play that everyone learns during their first lesson in finance. In regards to your thoughts on the people in the market business, the “big name guys” that give their opinion are, similar to MLB and Sony, trying to make a buck promoting their product. Thanks for the tips on shorting and keep up the great entries.
Comment by Scott -
Okay…Maybe you did not get me on the real estate thing. An investor can hedge real estate by simply to mortgaging it to the max.
I am betting that Mark does shorting to protect his investments against the market’s volatility and erosion by inflation. If you have a large amount of money shorting stock works. Mark is implying to the comon investor that they would be better served shorting their mutual funds.
What I am saying is stay long-term and invest in real-estate. A person can effectively short the real estate market–and getting a capital gains tax break.
The 1997 tax law excludes from capital gains tax the first $500,000 of profit that an investors make on the sale of a home. (IF you are single, you only get a $250,000 exemption.) The tax write off can be claimed once every two years. So a productive home trader can accumulate a nice stack of untaxed profit.
I hope this makes more sense.
Comment by Sterling -
Great entry! Perusing through some of the comments gets laborious after some time. Realistically, when it comes to high risk investing everyone has their theories, and frankly I listen, but don’t pay attention to many of them. I listened once, and lost 10000 in stocks a few years back, and for me that’s big chunk of change…
I still cant get over the fact that Mark has time to write here. I love it! I find it very admirable… In the back of my head still have a theory that there is a room with 4 mark-type personalities, churning out the entries…
Either way, its great! keep it up!
Arash
Comment by Arash Mazloum -
Stock Shorting is when you borrow shares of a stock from a bank and sell them before you buy them. You want the stock to go down so you buy the stock back (to close your position) at a lower price than when you sold it. Thus it is Sell High, Buy Low. Its how investors and traders make money on stocks moving down or in Bear markets. Unlike buying stock (going Long), shorting stocks has unlimited risk because the stock can go up and up forever and ever. Whereas when you buy a stock you can only lose what you pay for the stock.
Comment by Aaron -
I have several years of experience in the stock market…as a trader not an advisor. I agree with Mark on pretty much everything he says including that the average person should not invest in the stock market. There are many other options for the average investor…the debt market and money market securities for example. However, anyone can make an excellent living trading stocks if they read the right material and understand how supply and demand works in the stock market. I’m not going to get into the strategies but I would agree that it would be nice to have a blog where people can share trading strategies but it could get risky if we put together a blog where people talk about what stocks they are buying…it is possible that we could all kick up enough demand and manipulate the stocks we buy…this is regulated by the SEC. Anyway, there are many tecnical indicators that allow you to predict what a stock is going to 60-70% of the time. Picking targets as they do on CNBC is a bunch of crap. Support and resistance levels are not exactly definite and they can be broken. What matters is maximizing your gains and minimizing your losses…things usually start off slow if you are entering the profession and it takes a long time and a lot of money (anywhere from 20K to 100K if not more) to get the hang of it (if you ever do). This is one reason so many people fail. But the statistic is that 3 out of 10 traders are able to consitantly make money (maybe not a killing, but a living) trading stocks…those 3 out of 10 are not just the luckiest people in the world, they are the ones with the patience, understanding, and resources necessary to succeed in that profession. Its interesting stuff and the knowledge of how other people trade is priceless. Look for some books on trading. The Day Traders Survival Guide by Farrell is a good book to teach you how supply and demand works and how Market Makers (the enemy) control (or at least try to) stock prices. Otherwise, there are a variety of technical analysis books available that show how graphical representations of a stock’s history can help define the near future of that stock…long term trades are more risky than short term. Real traders rarely hold a position for more than a day…many traders make hundreds of transactions a day. Good luck to anyone who wants to learn how to play the stock market.
Comment by Aaron -
FOR THE BIG INVESTOR
The U.S. is experiencing a significant demographic change. There has been a surge in the number of U.S. households without children. This group of so-called non-traditional households includes married couples, unmarried couples, divorcees and singles. These households are expected to make up as much as 70 percent of the total population by 2010. Because they do not have children, they are not going to want or need the same type of large single-family housing that has built in the United States for the past 50 years.
We are also going to see a continued rise in immigrant households. By 2020, an additional 25 million households will be formed in the United States, and of that number, nearly 12 million will be immigrant households, including 3 million Asian households.
New York, San Francisco, Los Angeles, and Chicago will always be favorite cities for immigrants; but they are also moving to many of our smaller cities, such as Orlando, Florida, and Greensboro, North Carolina, making these areas wonderfully diverse.
All these demographic changes, combined with our overall population growth, show that we need to be changing our development patterns in the United States. Our nation’s population is expected to grow by more than 60 million over the next 18 years, and most of this growth will occur in the Southeast and Southwest.
Compared with some parts of Asia, this population increase does not seem very high. Over the next three decades, the population of Asian cities is projected to increase more than 1 billion to more than 2.7 billion. By 2015, Asia is expected to have 18 megacities with populations exceeding 10 million. North America will have only two — Los Angeles and New York.
If you have money, Real Estate development is a great area to invest here and abroad in Asia.
YOUR RIGHT ABOUT THE BUBBLE
Between 1982 and 1997, the amount of land developed in the United States rose by 47 percent. During the same time, U.S. population grew by only 17 percent. On a regional basis, the contrast between population growth and land use is even greater. In the Midwest, the population grew 7 percent; yet the amount of land developed grew 32 percent. In the Northeast, the population rose 7 percent; the amount of land developed rose 39 percent.
In the South, the population rose 22 percent; but the amount of land developed rose 60 percent. The West experienced the largest population increase, 32 percent; and there, the amount of land developed rose 49 percent.
Out of 280 metro areas nationwide, 263 areas became less dense, meaning they used up a lot of land – arguably too much land — to accommodate the residents. Communities in America need to consider if this rapid consumption of land is what is best for the future.
WHY THE LITTLE GUY SHOULD BUY REAL ESTATE AND NOT STOCK
Say you have $15,000. What are you going to do with it?
Well, let’s say you plunk your windfall down as a down payment on a property. You have three ways to make money here. Rental income, mortgage reduction and appreciation on the full price if you sell the place at a profit.
If you stay conservative and match rental income to debt, you would buy an older 1 bedroom suite in – say New Westminster, Surrey, Langley, Abbotsford at a price of $65,000. Your $15,000 down payment leaves you a mortgage of $50,000.
After one year (assuming a small 7% increase in value -actually used condos all over the Lower Mainland rose by 9% in 2003 on average) your unit now clocks in at $69,550. Nice return 7%, right? Well, yes, but it is actually much better – you forgot leverage. Your $15,000 made you that $4,550 you are up 30%. Hello! Good stuff! Well, wait, it does not end there. You took out that mortgage we talked about earlier of $50,000 at say 6%. Your payment is $320, your strata fees are – say $60 as are your taxes. Total monthly costs $440. Your rental income is say $550. Cash flow monthly is $110. After one year you have a cash return of $1,320. Add that to your capital appreciation and you get to 39%. Not bad, you say! Well that’s not all either. There is also a mortgage reduction of about $800, bringing the total to a 44% return.
However let’s say you plunk it into a Mutual Fund that returns a conservative (although I do not know of any of late that have) 6 percent. That’s a $900 gain this year.
Of course these gains exclude Realtor fees, attorney fees, and other costs you’ll incur when it’s sold.
WHERE TO BUY FOR THE LITTLE GUY
Los Angeles ranked the worst, with the average annual delay being 136 hours. But traffic delays are on the rise everywhere, from Atlanta, Georgia to Seattle, Washington — both of which have annual traffic delays of 70 hours. All this wasted time and gas has resulted in a backlash against traffic congestion, and in many cases, a backlash against any type of additional growth.
But, as we all know, no growth is not realistic. What is realistic is better growth, growth that is more connected, more clustered around common space, and more dense. To better prepare for the future and stay competitive, our communities need to provide more choices for people who are looking for something different in their living and working arrangements.
CONCLUSION
PROTECT YOUR MONEY. Like Mark said, its better to have a controlling interest in your investment. With real estate you have that! You can make captial improvements on a home or investment property, rent it out. And deduct interest payments, which lower you into that next tax bracket hoepfully.
Be smart. Be patient. Be Picky. And Go Long.
Comment by Sterling -
Mark Cuban is dead right in his observation that CNBC and its competitors have become shopping channels for stock, bonds, and mutual funds.
I also agree with him that the average investor ought not be buying stocks.
For those of you who endeavor to invest successfully, here’s a thought:
The trick in investing successfully is to differentiate what you WANT to happen and what you KNOW would happen.
Guess what ? If you have done your homework and paid your dues your instinct and intuition know what will happen.
Comment by SCS123 -
Some people here imply that real estate is safe. I am not so sure. Property is quite volatile over longer periods of time. Stock market may go down and up in one year but a real estate takes a bit longer (usually it goes up and down one in 10 years or so).
I’m not 100% sure about USA but in Canada (USA is usually similar), house prices went up in the late 80’s but then collapsed around 1990 (or thereabouts). People who bought a house in the late 80’s lost hundreads of thousands of dollars. So real estate necessarily isn’t safe. Now, don’t get me wrong: I’m not saying stocks are safer; just consider everything.
Some people claim that property is overvalued in USA (and in other parts of rest of the world too). People are buying small houses for $400,000. According to these people (who obviously have a negative view at this point), those prices make no sense. Already house prices in Florida, California, and New York are supposedly beyond any meaningful value.
It would not surprise me if the real estate market collapses over the next 2 years or so. A lot of people bought houses with debt so when interest rates go up soon, these people may not be able to pay back these overvalued houses.
Some pessimists claim that USA is sitting on a massive asset bubble (due to massive consumer, goverment and corporate debt–all caused by low interest rates/zero percent financing deals/don’t pay for the next 1000 years 😉 deals). If the bubble bursts, real estate is probably the first one to go. Whether you believe this is up to you, but I’m kind of wary about real estate now. House prices are just too high IMO!
Comment by Sivaram Velauthapillai -
Shorting is when you bet that some instrument (say stock) is going to go down. Typically you do this by agreeing to sell a stock now (at higher price) without actually owning the stock, and then purchasing it back in the future (presumably when the price is lower). When you buy it back, you are “covering your shorts”.
In contrast, if you bet that a stock is going up, you are longing. So if you buy and hold, you are long.
Comment by Sivaram Velauthapillai -
DISCLAIMER: I am not rich, have never made money on the stock market, have no affiliations with it, and could care less whether people invest in stocks or not (I’m not a capitalist)
Part of what Mark Cuban is saying is correct; part of it is questionable.
What I agree
The part that Mark is right about is the activity peformed by financial advisors, financial television, books, and so forth. A lot of people, including most people who show up on tv, are just out there to make money for themselves. What this essentially means is that the small investor is disadvantaged.
What one should do, like in any other aspect of life, is to be INDEPENDENT and SPEND TIME thinking/studying/reading. In other words, investors need to do their homework. Don’t just walk up to a bank and accept their mutual funds, GICs, bank loans! Instead, compare across different banks, brokerages, etc. I think the mantra to keep in mind is that the person working for a corporation cares more about the corporate profits than your profits. This is not to say that they don’t care about you, but when the goals aren’t aligned well, the decisions may deviate.
Ideally, the small investor needs to know A LITTLE bit about investing. If you don’t know concepts like compounding, risk vs return tradeoff, asset classes (property vs bonds vs stocks vs gold, etc), and so on, it’s about time you spent some time reading up on these things.
It is ABSOLUTELY crucial that people understand the relationship between risk and return. In general, the more risk you take, the greater the potential return. What this means is that one cannot reasonably expect high returns without risk. I think most small investors don’t realize it or think about it. If you are investing in a stock with a 50% return or 100% return (doubles), you need to realize that you are taking on massive risk. In contrast, a stock that only moves 5% is less risky. What most people do is just to invest based on the potential return. If a stock has gone up 75% (or whatever) and seems like it can go up more, people just blindly invest in that without realizing that they are taking massive risk. If you are willing to take high risks, fine. But most people are not willing. Therefore, one should be more realistic and invest appropriately (depending on risk).
Secondly, if you just want to be safe with low returns but with little risk, people should be investing in index funds. These days, I think the best ones for small investors are arguably ETFs (exchanged traded funds). With these, you basically invest in an index consisting of a large number of stocks so the risk is lower (while the return is lower too). ETFs are much cheaper than mutual funds (lower MER) and are traded on the stock market like stocks (examples include QQQ (Nasdaq 100; very risky), SPY (S&P500), EEM (emerging markets), and so on).
Having said all this, I think we may be in a bear market. Therefore, I would watch what I’m investing in. I personally am staying on the sidelines for now.
My Disagreement with Mark
I think claiming that no one should invest in the stock market is just as questionable as claiming that everyone should invest in the stock market. Under capitalism, I think one SHOULD invest in the stock market. Under capitalism, that is the best way to extract profits from the economy.
If you look at historical data, you’ll find that the stock market is the asset class with the best return over long periods of time (note: we are not talking about one stock, or two, or 10, or even 50; rather, we are talking about hundreads, like that in an index). This doesn’t mean that the stock market is going to go up tomorrow. But it does mean that stocks outpeform bonds, real estate, cash, and precious metals (gold, silver, etc) over long periods of time. If you don’t believe me, check out the S&P500 return vs others over the last 50 years. I think we may be in a bear market so the stock market may go down this year, but over the next 10 (or whatever) years, stocks will outperform others.
In addition, diversification is the best way to go for small investors. Your get small returns but the risk is very low. It is much more preferable for the investor to get 5% to 8% return per year (historical return on S&P500) with low risk than it is to get 50% one year, 75% next year, -80% next year, 0% after that, and so forth. Small investors will get killed with such risk. Also, another reason to get consistent returns is to maximize compounding. It is absolutely imperative that someone not lose their money.
So to sum up, unless capitalism collapses, it is worthwhile to hold equities. You don’t have to have 100% stock but you SHOULD have SOME exposure.
Comment by Sivaram Velauthapillai -
Uh…….what is stock shorting?
Comment by stock dummy -
Alright I went to the website and read through the points the person makes. I am a firm believer in thinking for one’s self. The arguments that are presented on the website are, in my opinion, very weak. If anyone wants me to comment on them, I have no problem doing so, whether I agree or disagree, all I ask is to provide me with the specific arguments you would like my opinion on. There are a lot on there so it would take me a long time to write about all of them.
Comment by J Ware -
Two very good books that put the “Rich Dad Poor Dad” series to shame are
1)The Millionaire Next Door
2)The Millionaire Mind
(both by Thomas Stanley)
“Readers with an entrepreneurial turn of mind will devour The Millionaire Mind because it provides road maps on how millonaires found their niches” (back cover…USAToday quote)
BTW. I was just going to publish that link above (about Kiyosaki) by Larry L. Johnson…beet me by seconds.
Comment by greg -
I’ve read Rich Dad/Poor Dad and while I agree with the basic premise that Rich/Middle Class/Poor people all think about and treat money differently the rest of the book is very questionable at best. The book is very short on specifics and any information it does provide is questionable. Several references on how to invest your money are presented inaccurately. For example, setting up REIT (Real Estate Investment Trusts) which it makes sound easy to do for john doe investor but really aren’t.
A quick internet search will turn up sites refuting Kiyosaki and an excellent example is http://www.johntreed.com/Kiyosaki.html
I urge anyone reading the Rich Dad/Poor Dad series to do some research on your own to see how realistic the principles Kiyosaki preaches are.
Comment by Larry L Johnson, Jr. -
Alright all this talk about whether to get into stocks or not to. I think every person should the basic book on financial literacy, Rich Dad Poor Dad, which if you haven’t read it, go the library and do so as it spells out the differences between the rich and the poor/middle class. I am, by the way, not associated with this company at all. Anyways this book details the differences in thinking between the rich and those not rich. Read it.
Concerning stock plays, one strategy that no one has mentioned, perhaps out of not having any idea what it is, is writing covered calls. Substantial monthly cash flow can be generated using this method. It the one strategy that EVERYONE should learn about when looking to invest in the stock market. Many books can be found about this play. Read them and your view on the stock market and investing in it may change.
Comment by J Ware -
Okay, I agree with you, Mark. It’s the very reasons you state that I have been hesitant about investing in the market. However, I have a unique problem (and not complaining): I recently won my state’s lottery for 6mil (not a huge jackpot, but I should do alright with strategic financial planning) so far I’ve bought a nice house (1 and a quarter acre) and have several money market accounts, CDs and an IRA. Most of these can be liquidated quickly if a nice real estate investment deal comes along. I still don’t feel that these are the wisest venues for the money (I took the cash option–2.8mil) but as with most lottery winners, I have no real experience with investing. Any advice? (I won’t hold anyone responsible for bad advice!!)
Comment by Che' -
wow, mark’s piece is really an eye-opener. He told us How to buy stock: buy it if you want to own the business, never sell; How to short stock: when you know the business and detect a trouble balance sheet.
On the stock market, think of it as a ecosystem. All players have a position in the food chain. All the big shots are the top predators. Small investor could easily fall prey to them. The only chance you can win in this game is cut your loss short. Think of it like choosing between feeding your finger to lions or feeding your whole arms or legs, even your whole torso. If and ONLY if you can survive the game of “cut loss short”, can you patiently find a chance to pounce the table when times comes. How many people do you think can they survive this brutal game? not many, I guess. That is why mark urge you to stay away from investing in stock.
Comment by Alex Zhan -
I have worked on the derivative floor of the PCX as a market maker. In my experience, the average Joe should not invest in stocks. You buy a few thousand shares and pray, while the big banks come in and literally move the stock price. If your name is not Goldman Sachs or Morgan Stanley, you should stick with mutual/index funds. The big funds allow all the average Joes to become a big player.
If you think you are smarter than the market because you hedge with same industry stock or same stock options, then you are in fantasy land. If you don’t believe me, then check the prices on a call option and also the underlying stock. Now go long any in the money call and short the stock. Do you see the money you lost?
The best analogy I can think of is this: The exchanges are like vegas, and the house is the exchange and the ibanks/uber-rich. The gamblers are the investors. The house always wins.
Comment by Steven -
Mark, you are very convincing, but I disagree with you. I have many clients who are going to retire very comfortably based upon the returns they received in equities which I managed. Continue to post your opinions,I like your ruthlessly honest viewpoint. I welcome any opportunity to meet you in person.
Comment by Roger Fuller -
“No knock on Mr. Gabelli, that was his job and he does it well. He sells trust. He does a good job of it.
It?s still all bullshit.”
I have met Gabelli a couple of times. He is one of he good guys!
He may sell trust but he lives on performance.
Does he know the truth about “The Street”- of course he does.
I Spent about 17 years in the market,all I know is that most people are full of shit.
What are you going to say if HDNET or another company you are with goes public?
“Hey guys I know you are all idiots but we are going public and …..?”
Joey Crawford as SEC Commisioner!
Comment by Deep T -
Thanks for a great read!!! Keep it coming
Comment by JRIZZO -
Funny Cramer Animation
http://www.swingtradingonline.com/JimInTheBox.html
Comment by H -
Anyone who gets investment advice from Cramer needs to have his head examined. He is the king of self promotion.
He loves to tout that he has a real time portfolio but that portfolio is up less than 10% since inception. He has added funds to the model portfolio twice and restarted it once so the advertised performance is a bit skewed(in his favor of course).
Comment by Henry -
I am sorry I really thought about. The small investor should embrace the idea of “buy-and-hold”. If small investors do their homework and pick good companies, they remain profitabl.
I don’t treat it as some sort of religion — I as tempted as the next guy to throw a little money at a high-flying biotech Google type stocks. It’s really more of a practical matter. Unless you’ve got a lot of experience and interest, it’s simply unrealistic to expect that you’ll be able to “time” the market’s short-term swings by jumping in and out of stocks. That’s best left to the professionals — or the fools.
If people are going to invest the should pick companies with strong or improving finances, and great products. Then, they should spread their money out over several good companies.
It is less risky than shorts or long-term stratgies that are heavily weighted toward few type of assets.
Comment by Sterling -
Justin, I can tell you what Mark thinks about CHTR, he likes it he owns it, but like the rest of the investors who own chtr I would bet he is cursing the stock cause it goes down on a regular basis. Frankly, I don’t know why Cuban doesn’t GET LOUD about CHTR the stock needs someone to say and for that matter DO something good. Heck Paul Allen should be out there putting some money in this stock or issuing a press release just saying he is going to support this disgusting peice of paper. Heck, Cuban and Allen should be thanking Cramer for defending this stock, it’s just too bad that you have to pay a fee to see what Cramer says about, so once again the wealthy win. Cuban stated earlier that when he owns a position in a stock he likes to be in contact with the management etc etc. HEY MARK CALL ALLEN HECK CALL VOGEL HECK CALL SOMEONE, and tell them you guys better do something to get this stock up and capitulate these shorts PRONTO, cause I don’t know if you have checked or not, THE SHORTS ARE WINNING. All that being said, I must say now is probally a good time to consider CHTR for a buy or heck maybe a sell I am not giving my advice away here… Charter has refinanced it’s long term debt out until 2009, they actually had a decent quarter and the company is adding digital subscribers, I hope and pray they buy Adelphia, and HECK issue a secondary that hopefully ALLEN and even CUBAN could take place in. Mark was saying how shorts are good, well I hate to break the news, but the shorts aren’t good in CHTR cause they are minipulating the heck outta the price, and none of our so called experts besides CRAMER says a dam thing about it. Makes one wonder.. Oh and on the market in general I have figured out a way that would keep every investor from losing money and keep them happy. If you hire someone to invest for you, and frankly I don’t care if it’s a broker or a money manager or whatever, and that person doesn’t make you money, FIRE THEMMMMMMMMMMMM!!!! Yes you heard me, if they don’t make you money, FIRE THEM. I love these crooks who go out there charge people commissions and still can’t make a single person a dime. It just amazes me, and I recently came to this revulation, wallstreet is the only industry in the world that I can think of that people pay other people many times up front with a commission or whatever TO LOSE THEM MONEY!! THEN they send them more money so they can lose them somemore money!! People please wake the hell up!! Buy and Hold is the biggest myth ever created in modern times. Pay someone on preformance just like you would in any other industry..
Comment by roberto pedone -
Save your money and invest in yourself. Buying stock makes no sense. Remember, either protect your money or save your money to generate solid cashflow.
For get buy long or short.
Comment by Sterling -
what do you think of jim kramer of kudlow and kramer? i think hes one of the few honest and educated market watchers around
Comment by edward -
Mark,
I do not think the sky is falling.
Of course for every buyer who wants to buy something there is a seller who is also anxious to sell. With your logic, we really shouldn’t buy anything at all because somebody else doesn’t want to own it.
What I am afraid of is that the little guy does not have any method in approaching investments. I do believe it is wise to sell stocks that have lost money for you. In other words sell your losers quickly and your winners slowly.
Also, as you wish to think of yourself as an owner of an equity by having a large position, the little investor must also think as a possible owner. Find companies that are growing their revenue, growing their earnings, spinning off free cash flow, have a decent balance sheet, and have reasonable valuation.
Everything else is speculation.
That is what I try to do. Sounds like common sense to me, but very few people actually do that. Maybe that is why the little guy does not do very well in the market.
Just a thought.
Bob
Comment by Robert Freedland -
Let me ask you this.. How many stocks/bonds/funds do you recommend that you dont make commissions on? I’ve talked to a number of CFP’s and my experience is always the same..
Maybe you can show your clients a positive ROI.. and thats great, but your commissions have the appearance of a tainted viewpoint.
disclosed or not..
enough said on my part.. peace.
Comment by Mike Verinder -
Mr. Cuban – tell me what you think of Charter Communications?
Comment by Justin -
I see the entry was cleaned up a bit. 🙂 Cool.
I agree though on falling in love with stocks. We all do it and its dangerous. Easy to lose money.
Comment by Patrick O'Keefe -
Wait a secong though, when mark sold Microsolution he walked away with 2 million after taxes. That was to be his nest egg and he interviewed different financial planners and decided on a guy in his late 20’s, Raleigh Ralls, but didn’t he call them crook and don’t trust these people with your $$. Just curious.
Comment by John -
Great comments. I am an attorney (no booing 🙂 ) and attorneys often get a bad rap. I try to do my job with the highest ethical standards and yet people give more credence to investment “experts”, realtors, etc. than to attorneys in general. I get really tired of having an elderly couple come into my office that has seen an investment broker who has really hurt their finances so that he gets a larger commission. Happens at least in 60% of all cases I see…keep calling them out!
Comment by Michael S. -
Your strategy does make sense. But, its better for the common investor to go long. But, before they go long they should pay close attention the the company’s fiancials.
Most people should invest long if they pay attention to the following steps.
(1) If the product does not make sense to you, then don’t buy the stock. Talk with potential customers of the product to find out if they provide clear value so the customer’s decision is easy. If you get a bunch of hesitations, then stay away from investing in the stock. Remember successful companies usuallly have strong differentiation points when it comes to products. At least the growing ones (lets stay away from those brandnames, no big rips to made).
(2) Although it is true that the company that fails its customers fail, the company that fails to properly manage its cashflow, especially debt, fails. Pay close attention to companies with quick sinking debt. The secret to being a good investor is to look for companies with strong financial management and great products.
The REASONING
When investing your money scrutinize the companies product development strategy. Have a solid idea of what their products and services offer now, and where they could possibly go.
Understand how the company describes their target customer. How are they going to save their target customer money? Understand that the majoirty of successful companies offer products that save customers time and money.
When investing long-term stay away from companies that target a wide but nonspecific niche. Shop for companies that target a distinctive segments.
Also remember to stay away from companies that make price the first differentiator (except for Wal-Mart). These companies, unless transportation companies, are not going to be successful. What happens when margins grow tight.
WHAT SMALL INVESTORS SHOULD DO IS INVEST IN THEMSELVES AND WHAT THEY KNOW
Invest in yourself. Start your own business. It is a lot less risky than picking a stock, unless you are already a multi-million.
Small businesses employ 54% of the U.S. workforce. Roughly 66 million out of 120 million people are employed by small and medium businesses-companies with less than 1,000 employees.
The majority of businesses survive their first years. No, 9 out of 10 businesses do not fail. That is a myth. Rather, most business close successfully, meaning that they are porfitable when the close or tranfer ownership.
Of the 5.6 million small businesses operating in the U.S., 89% have less than 20 employees. Of the remaining 11%, 9% employ less than 99 people, and just 2% employ between 100 and 1000.
And interestingly enough, the study also showed that small and medium businesses make up 99.8% of all employer firms in the United States. Why do businesses fail? Most don’t. But those that do fail are because of poor financing, poor products, and/or bad management.
People create a small business because they are good at something, love it in fact, and want to do that thing full time. The chef opens a restaurant or the artist starts a graphic design studio, that sort of thing. While others, start small business because they wanted to provide a stable financial future for their families (i.e. immigrants and gas stations, dry cleaners, etc). Find what you are good at and learn more about. Then start a business.
The fundamental core of a small business is to provide a cost effective service or good that serves a customers needs. Successful small business owners focus on cutting prices, providing quality goods and/or service, profit pools, and tax friendly investment vehicles. And truly lucky small business owners of companies Broadcast.com and Google ponder how to get around Securities and Exchange Commission’s rules require that companies with more than 500 employees holding stock options and more than $10 million in assets to publicly disclose some of their financial information.
CONCLUSION
Like any investor, I hate risk, because the concept of investing in stock is already so risky that what I do is take the majority of my resources and keep them in real estate and T-bills.
You will never get rich playing it long or short. You will never get rich by investing in other people’s ideas and companies. You might as well go play craps the Casino. That is exactly what you are doing. Would you give some your rent money and tell them to bet it on a horse. That is what the average investor is doing with their retirement fund. Don’t trust your broker. Make our own decisions. Manage your own money, and invest in yourself.
THE AMERICAN DREAM
“The Business of America,” President Coolidge once remarked, “is business.” More pointed, achieving the American Dreams means owning a small business.
Before moving forward, it is necessary to define what the American Dream exactly is. The American dream is not making millions a year; it is achieving the ability to accumulate connections and assets to allow one’s self and family the ability to make decisions. Your fate= Opportunity+ Your Decisions+Other People’s Decisions. Simply stated, being able to have a profound effect on one’s future and their families future is the American Dream.
Subsequently, in order to achieve the American Dream means that one’s current value of all assets (bank accounts, investments, business value house, cars, etc.) must exceed the current value of all liabilities (credit card balances, lines of credit, car loans, mortgage etc.). Once one has no debt, they are able to live the American Dream.
CONCLUSION
YOU CAN GET RICH IN AMERICA. You have to invest in YOURSELF.
Remember it is your money and to invest it wisely. Do not rush to decisions or take stock tips based on heresay. So, if someone tells you to invest in say, EADS.NV long-term, do your homework first.
Comment by Sterling -
Mike,
CFP is widely regarded as a very respectable degree. Your implication that CFP’s are somehow crooked because they work in the financial services industry is the joke.
I am always very upfront with my clients about how I am paid. There are no kickbacks or secret deals. And if they don’t want to pay my fee, they can go somewhere else.
If you’re savvy enough not to need help, then perhaps you don’t any assistance. Cest la vie.
Comment by Matt -
I agree also with the above comment..
I never short…anymore… used too..then learned very quickly.. my “bottom” didnt always mean THE bottom..
Now most of my stocks are in mid-high prieced high dividend stocks. GE, IBM… but i do have some a smaller percent in high risk telecom though…as well as bonds.
Comment by Mike Verinder -
Mark, while I typically enjoy and agree with 95% of what you write, I disagree with your statement:
“I have said it many times, I don’t think the average investor should be buying stocks”
The only real reccommendation you have made after this statement is for the small investor to short stocks. This is horrible advice.
If you look at any successful ‘small’ investor, you’ll be hard pressed to find a single one that made a fortune shorting stocks. You know why? Because your upside is quite limited and your transaction costs dillute many of your gains.
Long positions typically appreciate due to growth in the company, but many also enjoy dividends, corporate actions and acquisitions that contribute to the long term appreciation that one can retire on.
Short positions require you to pay not only the transaction fees (which add up when you short numerous stocks) but also interest since you’re borrowing, and for the small investor these “loans” can be recalled at any time, causing a lack of control over large losses. This is a great deal of risk to assume given the same vagueness of price expectations for a given company you alluded to earlier.
There certainly is a time and a place to short companies for hedging purposes, but I’d respectfully suggest you limit your advice to topics that apply to your successes, and leave the investing advice for the small investor to somebody with a bit more expertise.
Comment by RazorSheldon -
it’s funny to me that all the retorts that contrast mark’s position are obviously “industry” involved…
Comment by theory -
Isn’t it amazing at how many people out there are constantly looking for instant riches with minimal effort and little thinking? Chasing pipe dreams, looking for short-cuts, hoping and fantasizing. It really doesn’t get you anywhere. Here’s a quote worth remembering:
“The secret to success without hard work and good choices is still a secret.”
Comment by DraXon -
Mark, of course, is correct in his observations about corruption in the investment banking and media markets — but he’s throwing the baby out with the bath water when it comes to the equity markets. Yes, it would be nice if we could all accumulate 5% positions in companies we liked and then call up the CEO and gently guide him to a better strategy, but most of us don’t have the financial wherewithal to do that.
Stocks and bonds are not just trinkets that should be marketed and sold on QVC. They do actually represent ownership in something — companies that produce goods or services. Companies that we work for. (It’s like the perception that “The Government is wrong!” No, you idiot, the Government is us.) The economy is us. Stocks and bonds represent our stake in our economy. Wall Street and Main Street are inextricably intertwined. There is no Wall Street without Main Street. There is no Main Street without Wall Street. Over time, as we all go to work and produce goods and services, the economy grows. Our stake in the economy grows, too.
So how does the little guy do it? Here’s where I agree with Mark: unless you’re a professional investor and have the time and inclination to read SEC filings, listen in on management calls, read analysts reports (some actually say interesting and informative things), and read financial news — you should NOT be buying individual stocks. (If you like the thrill of gambling, go to Vegas.) Instead — and here’s the boring part — buy low-cost index funds tracking the S&P with between half and three quarters of your portfolio and buy a broad-based, low-cost bond fund with the rest. (Forget about getting fancy with international funds, tech funds, etc., etc.) Scott Burns, who writes for the Dallas Morning News, has shown that a passive investment strategy betting on the whole market, with no trading expenses, beats just about any professional money manager out there (other than Warren Buffett — but, as Mark points out, Warren invests actively, not passively).
It’s not fun or sexy (and shouldn’t be — go to sporting events and movies if you want to be entertained), but it IS GUARANTEED to make you money over the long haul.
Comment by Ray Balestri -
Mark: Great blog. Sage advice.
If you don’t have an edge and a plan, you have no business investing your hard earned money in the stock market. It’ll eat you alive and spit you right out.
The only people who do succeed in the markets are the ones who are either intimately knowledgeable in their field of expertise or the ones who are willing to work extremely hard to find an edge that they can exploit.
Money management also plays an extremely important role here. DO NOT risk money that you cannot afford to lose. And even if it’s money that you’re willing to part with, I would suggest to bet a very small percentage of your equity on any one stock. 0.5% to 2% MAX!
“There old traders and there are bold traders, but there are very few old, bold traders.” -Ed Seykota
Comment by DraXon -
What??? Above comment said hire a CFP.. your freakin nuts man.. those guys are crooks big time.. what do you think they will recommend??? answer.. funds that they make money on.. werent you reading marks post??? “the institution” is the problem. not the answer. unfortunately mark didnt really give us any answers either though…
BTW.. I’d love to buy into HDnet…..
Comment by Mike Verinder -
First of all, CNBC is a total crock. I work as an investment manager/advisor and planner and the first thing I tell my clients is: Turn off CNBC and put down that Janus ad.
But for you to say that “A buy and hold strategy is nonsense” is a total crock. Look, there are only three ways for the average person to make enough money to retire: 1) own your own successful small business, 2) Buy real estate and 3) invest in stocks. That’s it.
The things that hurt the small investor most are turnover (trading) and sales expenses and more importantly, lack of strategy. In the end, a lot of small investors make decisions based on fear, and oftentimes these investors sell when the market ebbs, creating real losses and turning them from investors into market-timers.
The stock market’s direction is fundamentally unknowable IN THE SHORT TERM. The stock market’s direction is fundamentally unknowable IN THE INTERMEDIATE TERM. In the long term, it is not only knowable, but predictable.
What to do?
1) Hire a financial planner (CFP) to create a plan.
2) Hire good mutual fund companies with low turnover and sales expenses.
3) Stick to that plan through dollar cost averaging.
4) Do not sell when the market ebbs. In fact, add more money, if you have it.
For more, read Stocks For the Long Run by Jeremy Siegel.
Comment by Matt -
Mark, what are all the companies you are invested in?
You know what I would like to see?
I would like to invest in a mutual fund that invests only in companies Mark Cuban invests in and in the same percentage he has holdings in.
Set up a fund that allows people that trust your financial opinion to invest into; that will invest into the same companies you hold. It would give us the opportunity to have managed holdings in companies that you have information advantage in that we can not.
MFFL
Comment by WM -
wow! thanks for sharing your trading rules, now we can all get rich. but you forgot “buy low, sell high.” if we all do that it’s NBA teams for everybody.
Seriously though, the person who recommended index funds had the best advice. Unless you have an edge to beat the market, and trust me people 99% of you don’t, you should be in an index fund.
Comment by CJ -
Mark,
I don’t know if I agree totally with your idea of the average investor not buying stock. The problem with the average investor is they don’t buy intelligently. They follow someone else’s advice or they buy and sell on what’s hot instead of looking at fundamentals of a company (i.e. is it well run? does it have a significant portion of the market? etc) Market pricing of stocks is based more on emotion than intellect. Company XYZ didn’t make the numbers the market wanted them to make so the stock price goes down or vice versa.
But, for the sake of arguement I’ll buy your premise. Why don’t you suggest what the average person should do? Not necessarily to get rich but just to improve their lot in life. Get out of the working for a paycheck treadmill. If the average person shouldn’t buy stocks and we all can’t become entrepreneurs. Then what’s a normal guy to do?
Comment by Larry L Johnson, Jr. -
The trading rules that I live by are:
1. The trend is your friend until it bends.
2. Cut your losses if it’s not working out.
2. Ride the winners.
3. Keep your bets small.
4. Follow the rules without question.
Comment by DraXon -
I couldn’t agree more that the average individual investor has no business fooling with individual stocks or managed funds. I’ve read that if you have a few million to invest you can buy honest advice but that doesn’t help most of us. My question for you is, what about index funds? If the economy at large holds up, an index fund will provide a decent return, better than bonds or other obligations. There is some risk but it’s spread across the whole market and there’s very little management expense. So if you don’t have millions, I think the thing to do is put your portfolio into a total-market domestic index and maybe a global index and a TIPS fund to hedge against inflation. Adjust according to risk tolerance and you’re done. It ain’t perfect but really, unless you want to lose it all opening your dream restaurant/golf business/hunting lodge or whatever, what else can the individual investor do?
Comment by john clark -
Great blog!! I would be curious your position about technical stock pickers and would love to see a blog about your experience with them.
I peronally think most of them are BS artists and have no clue where the stock market is heading and better off reading the stars or your horoscope.
Comment by Larry Ludwig -
A few years back, everyone at Al’s Donuts was talkin’ “stocks”. Now barely a word is mentioned. What happened?.. They all took a bath!!!..My theory is come up with a new product nobody has thought of yet!.. Then get a serious utility patent, and get to “work”.. A No Brainer!.. Oh how I love that John Deere tractor, they payed me $7.50 an hour to mow the lawn, but all the time I was thinkin’ of (Why didn’t I think of THATS)!.. Now, if I could only put it in Mark’s hands and let him dribble the idea!..Har!..Mark I’ll sell you the future patent rights for a dollar, all I want is a buck for everyone sold!.. Didn’t Gates do something like that once?.. The River Kid- Out..P.S.— We’ll make it a movie and sell millions the day after!.. Make me an offer!..Plus, we give a percentage to the Jimmy V Found., St. Jude Children’s Hosp., and Juvenile Diabetes.. Those St. Jude Kids need our help Mark, next time you get fined, if you could, send a little their way. It cost over 1 million dollars a day to run that hospital, my idea is going to “Help” them…. keepTHINKING!
Comment by ShadNet -
Mark,
You are really starting to piss off an entire industry. They want you to go away.
Too bad.
What you are doing here is standing up for the little guys who used to blindly listen to the wealthy financial “experts” tell them where to put hard earned money. It fed an industry. I saw my dad get burned hardcore with his trading. I certainly hope your ideas get more attention. More importantly, continue to encourage people to think for themselves and not even take what you say as truth. I’m sure there are tons of people out here looking at you saying how easy it is to “view” the financial world from your point of view. They say things (I have read them on these pages) like “yeah, Mark got lucky” or “yeah, he got out before the crash”. It is time for those bitter people to be quiet, listen to devil’s advocate Cuban, and think for themselves too.
Mark, keep putting financial “expert” advisors out of work. And thanks for the recommendation of The Number. Great read so far. Actually, it has been just as eye-opening as your blogs.
Comment by greg -
“You can call a guy’s wife fat, but if you tell him that TASR is overvalued, watch out. Every ounce of venom comes out.” [Unfortunately this has too many analogous applications in peoples lives… but thanks for putting a huge smile on my face!]
In my limited experience with such things (investing money) I’m inclined to agree with the last guy…
“Small investors should think of alernative ways to invest. Real estate is an excellent long term strategy.”
Until I’m in a position to have an influence with my stock purchase or a vested interest in the company I’ll spend my money elsewhere.
Comment by Michael Gavlak -
Mark,
I totally agree with your argument. Small investors should think of alernative ways to invest. Real estate is an excellent long term strategy. Your analogy of CNBC to QVC is totally accurate. To the anal punctuation guy: please do not waste readers’ time with trivial comments. I would rather read feedback on the content rather than the format.
Comment by Don -
I’m only 27 so I have alot to learn, but I remember a very wealthy person tell me once. He said “Buy when everyone else is selling and sell when everyone else is buying”
Comment by John -
Mark.
I agree somewhat with what you stated. Whats the small investor to do? 80k isnt enough to really invest in a business… of course i dont really feel comfortable with that in stock either.. but options are somewhat limited..diversify? of course i got bonds etc.. but still … no easy answer on this one.. so in all Stocks are the only small investor option.
Comment by Mike Verinder -
My husband and I are living proof that the average Joe shouldn’t buy stocks. We have had several so called financial advisors who have caused us to lose a lot of money on stocks that went down, down, down instead of up as they “thought.” If we had that money back, we could retire… The only person, I personally know, who got wealthy off of stocks is an officer in a company!
Comment by Ida -
Mark,
These entries are great… My only complaint is that you don’t post enough! 🙂 Keep ’em coming!
– Brad
Comment by Brad -
A tad nit picky and all in all unimportant, I know… but what happened to your typing skills? Not really consistent with your previous entries. Lack of punctuation, odd spaces, misc. other problems, etc. Maybe a bit too late to blog. 😉
Comment by Patrick O'Keefe -
Mark pretty good article. But, I don’t agree with everything you have said my friend, I hope it’s alright I called you my friend. First of all, yes most investors shouldn’t buy stocks, not because they don’t have an information advantage, although I do agree with you that is a solid thing to have, but because they don’t know enough about how to hedge using shorts and options and also how to preserve capital and cut loses. Listen, you can’t go out there and just tell everyone to not own stocks and simply say it’s because they aren’t a billionaire yet and have the contacts. Mark, we all want to be billionaires or better off then yesterday, and buying and selling stocks can make one extremely rich. Having said that, a person should understand how to read the technicals of the market and understand how to manage RISK. I don’t care what information advantage you have, if you don’t understand the supply and demand of your equity situation then you will never be able to figure out when the fear is either priced in or priced out. Do you know how much money could have been saved during the bubble if people would have just understood to cut loses? We are talking trillions of dollars. Now, I know that i am talking another language to most of your readers, but my point is yes alot of money can be made buying and selling stocks and options and learning to hedge as well, and an investor doesn’t need an information advantage to do it. Also, I would say if you don’t have information go out and seek it. I email people like Jim Cramer and others all the time seeking there info, heck sometimes I lie and say I have certain info just to squeeze them for there info. Do what it takes, learn to manage risk, and learn how to cut loses and how to play with the houses money and anyone, yes anyone can make money in stocks. And if you don’t have the time to do this, then hire someone who can, but don’t just throw your money into a fund and think your getting a proffesional service, cause I will strongly agree with you that most fund managers don’t know the first thing about what they are doing. Also, Mark and I will make an assumption here, I bet you invest in hedgefunds, and if you don’t you should cause they use all the strategies I have mentioned in this response. Mark, again I challenge you to start a stock picking blog, maybe I am going to do it myself and let’s see who can pick em!!
Comment by roberto pedone -
I don’t think Mark is recommending shorting to anyone. I think he is just saying what he does. Shorting is too risky for small investors since it has infinite risk. For the newbies out there, you can invest/short $1,000 and lose $10,000 (yes, you can lose more than you invest when you short).
Having said that, what I described is the worst case (uncovered shorts). Typically, the experts would cover their shorts before things get out of hand. However, I still would be wary of it.
If you really are interested in shorting and don’t want too much risk, just go and buy ‘put options’. These have limited downside risk (you only lose what you invest) and are equivalent to shorting a stock. The only difference is that the these are ‘options’ (a different type of instrument and fits into what are called derivatives–google for it) and they cost more. Options are totally different from stocks (although they are somewhat interlinked) so if you are going that route, you should read up more.
Comment by Sivaram Velauthapillai -
Aaron may be right in the long term but daytrading is NOT for the small investor! I would stay away from that as much as possible.
Comment by Sivaram Velauthapillai -
In contrast, a stock that only moves 5% is less risky. What most people do is just to invest based on the potential return. If a stock has gone up 75% (or whatever) and seems like it can go up more, people just blindly invest in that without realizing that they are taking massive risk. If you are willing to take high risks, fine. But most people are not willing. Therefore, one should be more realistic and invest appropriately (depending on risk).
Comment by wow powerleveling -
There are a few more benefits that I can’t remember. In fact, shorting helps the market so much that some people/institutions will NOT enter a market without shorters.
So to sum up, shorting is a part of markets. It makes no sense to say shorting is bad anymore than saying that longing is bad.
Comment by runescape money -
Great comments.
So where is the june market headed? UP or down? Should I invest more into stocks this June? Is the current stock slide a trend?
Thanks guys.
Comment by Stock slide or June crash? -
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Comment by rishi -
I have 3 words for you stock investors: Indexing, Indexing and Indexing. You will do much better by creating a diversified portfolio of low cost (Vanguard???) index funds or ETF’s. For more info, please do google search on “Lazy Portfolios” or “coffeehouse portfolios” or Paul Farrell. Rebalance every year, and get on with the more important things in your life – like spending time with your families, skiing, hiking, or whatever else makes you happy. For the most part, most financial advisors and “active” mutual fund mgrs cannot consistently beat the index. You will never be able to predict who this years hot mgr is. Although, the Legg Mason guy (Bill Miller) has a teriffic track record.
Comment by Brad Cole -
It is interesting that Mr. Gabelli was mentioned today on CNBC and WSJ in the lawsuit that was filed in 2001 on behalf of the Govt. by a private US citizen. This private citizen could share 25% of the payout with his lawyers if the Govt. joins the suit. Some estimate a $480 million pay out. The Govt. so far has refused to get involved. The suit alleges that Mr. Gabelli used a friends and family scheme to partake in radio spectrum auctions geared towards small entrepreneurs. The FCC initially allocated the discounted bids towards minorities and women and later increased the definition to include “active entrepreneurs”.
Ok, there is a moral issue of taking advantage of a scheme that is meant to help less privileged folks. However I really do not think Mr. Gabelli did any thing wrong here (legally). Then again I am not a lawyer. He found some real life arbitrage profits and ran with it. The FCC erred by failing to do the necessary due diligence in its screening or even coming up with the ridiculous discounted system that is hard to enforce in practice. That’s my 2 cents.
On the small guy in the market issue: I think you argument that the small guy always gets killed in the market contradicts your advice that one can gain knowledge by reading a lot every day. I think it is possible to do well in the market by reading extensively and doing your own research etc. Its hard to beat the market but not impossible for the average Joe in my humble opinion
Compliments of the season!
Comment by Charminggent -
Have u Prescribed for medicine before buy?
Comment by buy drugs -
Talk to Your friends and acquaintances about generic cialis
Comment by generic cialis -
I’ve basically been doing nothing worth mentioning. I can’t be bothered with anything recently. Not much on my mind to speak of, but I guess it doesn’t bother me.
http://www.phonebell.net/
Comment by calling cards -
Would like to know if i pick stocks that in red for the consecutive 3 or 4 days, can i make 5% a day. Fooltrade.com gives you the ability to track stocks and perform a search based on patterns such as 3 day red, 4 day red and etc.
Comment by Venkatesh -
Shorts are absolutely an ethical side of the business. The price of a stock at a given moment is the markets “best guess” as to the value of the future earnings power of the company, related to that of competing investments.
Shorting is an essential check-and-balance that helps keep the market honest.
The only ethical issue IMO is that smaller companies can be manipulated with aggressive shorting…and of course this is why you cannot short most smaller public companies.
Martin Tibbitts
Comment by Martin Tibbitts -
Mark,
I enjoy your blog and your articles. Kee it coming
Comment by Medical Billing Services -
Hi Mark. Great post. Short term buying/selling seems to be the whole crux of this other site I’ve been reading: http://www.philtown.typepad.com. He also has a post I just read about the danger falling in love with stocks so much that you get attached and can’t get out. I guess that’s a particular problem when you invest according to personal values and faith in a company. Anyway here’s that link:
http://philtown.typepad.com/phil_towns_blog/2005/06/do_your_homewor.html#comment-6308236
Thanks,
JJ
Comment by JJ Butler -
Che’
My first piece of advice would be to sock most of it into treasury bills and go get educated in finance and accounting. Your assets will now produce more than most jobs pay annually, so your most lucrative job will be managing them well. Invest in yourself so you can do that, as no one else can hold your interest at the same level you do.
Don’t worry about a degree or credentials, you just need the knowledge. Go ahead and audit the classes (or take them for no credits), but make that the main focus of the next few years. Without the knowledge base, you will be much less likely to successfully manage your assets.
If you don’t want to follow that advice you will probably want to outsource the investment process to an expert. The tricky part is choosing the correct expert. I can’t give you much good advice here.
Finally, the cheapest advice is to subscribe to the Economist and read the quarterly PM survey (its in the back statistical section). They survey private bankers at most of the european banks for weights in (cash, US equities, British Equities, EuroZone equities, Asian Eqities, and Pound, Euro, Dollar, and Yen bonds). Replicating that portfolio with cheap index funds and ETFs, and rebalancing quarterly would probably provide more stable income than any other ideas I have. Reply if you want help finding the prober funds.
Comment by nelsonal -
Mark, I agree with the major points of your article. In fact, short-term stock buying and selling is a good way to put yourself in the red really quick. People that say that they can predict the short-term ups and downs of the market and individual stocks are really just guessing.
For a sensible portfolio plan, check out my SMP Valuation Model at my blog, http://www.stockmarketplus.com
Thanks ~
Comment by Scott -
Don’t buy the market. Buy stocks.
Comment by George Schlieben -
I agree you should slam CNBC Marc!
Comment by Webpagefx -
Stocks can make you crazy if you are into them.
Comment by buy Cialis -
I like you Marc. The article you wrote on whether or not individuals should own stock had some strong language and opinions in it. So I ask – Will you step up and slam CNBC properly now.
I have CNBC on all day – what they did yesterday to you on squawk box was bullshit, and I can’t believe Marc Cuban didn’t just give up the Trump side of the argument and instead come on and ask what the F#%! CNBC is doing airing Trump smashing your show. Well, we both know why they did it, (Apprentice – CNBC alignment), but you should expose CNBC for it.
You call it absolutely right with the QVCNBC analogy. You have the ability to do something about it, and you should go on their show and slam them for it.
Dan Rather just got busted for showing his real views by starting with his premise that Bush must go and then going out to find “fact” to support his premise.
CNBC is guilty of the same thing. It’s a big boys world and kicking some ass is required here.
Now you may think I am defending The Benefactor – I am not. I was disappointed with the show, but I will continue watching for improvement. I love the Apprentice and you do too, or you would never have made an offshoot of it. Yes, the Benefactor needs help – how about designing an episode that exposes the subtle bias that exists in the media. You could assign it for the shows participants to each come up with their own examples of media bias that misleads the general public. You could end the show with a slam of CNBC for letting Trump have a platform and then not allowing you to respond.
Either way – You gotta open a can on them.
Mike Johnson
DowTheory.blogs.com
Comment by Mike Johnson -
But if we didn’t have tulip buyers of stocks, then Yahoo wouldn’t of acheived tulip valuation status and they wouldn’t of been able to give you stock worth a billion for a company that was worth a hell of of alot less. If people don’t buy insider’s inflated tuna how are guys like you going to get richer?
Comment by george -
Listen to and act on what Mark has to say about being an entrepreneur because that is how he has made is money. Listen and act on Warren Buffett’s strategies in stockpicking because that is how he has made his money. I don’t go to the jewelers to buy milk. The stock market is risky for those that don’t know what they are doing. Diversification is a hedge against not knowing what you are doing. People should only enter into the stock market if they can allocate enough research time to call it a second full-time job. Warren Buffett was not always able to buy power positions in companies. He has more wealth than Mark and has done it ONLY with the tools available via the stock market. If I ever invent a widget I will then listen intuitively to what Mark has to say because he is one of the best regarding that issue, but until then, I will keep buying my milk at the grocery store.
Comment by Nate -
Mark, where to start …
Awesome article. Still laughing, because people just don’t get it. That is what the Stock Market is SUPPOSED to be all about. Great to see someone talk about it without all the bullshit. Pump and Dump fits so many of the companies today – OTC through NYSE. My favourite come on from idiots on stock boards is, “Rumor has it that Warren Buffet is interested in buying this company.” Run buddy, run for the nearest exit.
Enjoyable reading. Thank-you, sir.
Comment by David Crandall -
HI MARK,
MY NAME IS ARTHUR R. VENEZIA, EXECUTIVE PRODUCER OF THE NEW COUNTRY MUSIC VARIETY SHOW, “NASHVILLE COUNTRY CONNECTION”. WE HAVE PRODUCED 8 GREAT SHOWS WITH VERY GOOD REVIEWS FROM PEOPLE IN THE TV INDUSTRY. WE NEED HELP IN GETTING THIS SHOW TO THE NEXT LEVEL AND NOT JUST WITH MONEY. I UNDERSTAND YOU OWN A TV STATION I WOULD LIKE TO REVIEW A SHOW OR TWO FOR YOUR OPINION AND COMMENTS. AS ALSO A CPA I TRULY CAN APPRECIATE WHAT YOU HAVE ACCOMPLISHED IN BUSINESS AND WOULD LOVE TO SHARE SOME OF YOUR WISDOM AND SUGGESTIONS. PLEASE EMAIL ME WITH AN ADDRESS TO SEND THE SHOWS TO.
THANK YOU IN ADVANCE
ARTHUR R. VENEZIA
Comment by ARTHUR R. VENEZIA -
After reading a few more posts, I see that this is quite the high brow blog (my apologies to Mark). Sorry about blogging-without-a-spell-check, but I do have SOME work to do, so you folks got the ckehlses vresoin wehre tnhigs jtus dno’t look rgiht.
(it’s odd how you all still understood that isn’t it?…….funny tricks I learned through spam)
joshua
Comment by Joshua -
I came to this site via sugarmrpoon.com and after reading the first few posts and skimming the rest, I find it very interesting that there was no mention of stocks that pay dividends (remember those). If the “regular guy” happens to be over 60, then he’s probably getting a decent return from his dividends on some mature companies. I would guess that half of these posts are from children of the 80’s and the rest are from 20 somethings trying to own the Nets or Knicks. I myself, am a farm kid and nothing teaches you not to rely on the market like soybean futures and the below cost price of wheat (yet everyone keeps eating bread…..go figure)
At any rate, If the little guy would stop trying to play like a big boy then maybe they would have better luck, stop trying to out guess professionals and insiders and stick with what you know. Look at a five year trend and if the price right now is on the high side then look for something else and make a note to check back in a few months. For instance, I’m talking a loss on Ford right now, but they pay a dividend so that loss is smaller and smaller each quarter, soon the price will be back up a couple dollars and in the meantime, I’ve actually made some money. If this whole hybrid SUV thing takes off them BONUS, otherwise, they aren’t going anywhere (more than likely). On the flip side, I live in the city with Best Buy’s HQ, when I see that go down a bit, I pick it up if I can, when I start to meet more and more people that hate working there or have been let go, then I’ll look at selling (ref. Honeywell and Xcel energy).
Well, have fun with tearing this post apart, but before I go I want to turn you all onto the best reason to own a TV – Frontline on PBS.
http://www.pbs.org/wgbh/pages/frontline/view/
I recomend, for this blog, “Dot Con” “Bigger than Enron” “The Wall street Fix” and “Tax me if you can”. Very educational and the average guy will learn more about the market than anything on CNBC, or this blog.
People don’t need to learn how to make money, they have to first learn how to stop losing it.
Comment by Joshua -
Sivaram,
Thanks for the post. I don’t think shorting is unethical. I was questioning Mark’s suggestion to tell people to short stocks that you like in order to provide support for them.
Comment by rick -
Great article. I like to add to that the “MarkUp” Strategy the big dudes have. Imagine Big Dude Doe having a lot on money invested at 12 on a certain Stock. Stock is now 11. Big Dude Doe will now buy ALL the sell positions up to 13 and spend a lot of money doing that. However, and because there is much more money at 12, it was worth while doing this, suckers will be driven in and Big Dude Doe can start dumping to the “fools on the table”.
Comment by Jose Augusto -
Just a simple question…if shorts are an investor’s friends, why aren’t they subjected to the same transparency as longs?
Comment by Larry Irons -
I’ll stick up for those of us in “the industry” here. Its like were the freakin’ evil empire…que the darth vadar music. First off, we make no commissions. Fee only. I have absolutely zero incentive to use one firm’s manager or funds over another. We make money as a percentage of assets. Can it be expensive? Absolutely on a dollar basis. I have a retired client who told me the other day that he and his wife could live off of what he pays in fees annually. His returns are decent for his goals. He’s getting about 6% over the past 10 years. Pretty conservative. He has stocks, bonds, money markets and hedge funds. So why use us? Because its a full time job to manage your money. Whether its in stocks, real estate, hedge funds…whatever! He says he would have no time to tend to his garden if he did it himself. He’d rather do what he enjoys and let us figure out the rest. I just don’t see how encouraging the average investor to abandon all capital markets and their advisors will help them. Most folks just would throw up their hands. I see the skeptisism in our industry though. I’ve seen a lot of guys out there that I wonder…”who would give them their money”. My advice is to do your homework and find a good advisor. They are out there.
And surely Mark, you have a few bucks in hedge fund or two out there right? Talk about those incentive issues…what about their performance fees? Wouldn’t that counter all of your points above? And the variable forward sale on the Yahoo stock? (I believe I’ve read that’s the hedging strategy you used) It seems to me the average guy who sells his business and receives shares might need a little help putting together things like that. For a price of course. Was it worth it on Yahoo?
You’re dead right on a few of your comments but for the average joe out there, they need help. Abandoning all capital markets just isn’t the answer.
Comment by Matt -
A few years ago I was asked to attend a Merrill Lynch awards event in my city. (I was basically doing a woman friend of mine a favor.) In any event, I’m glad I went. I learned a lot about the industry. I’m not picking just on ML, because I believe the mind-set that I experienced is rampant among the industry. These people could care less whether they make or break you. The underlings…the new peons…take it seriously, but the fat cats just don’t give a rip if they lost $100 or $1,000,000 dollars of your money.
At my table one of the partners asked what stocks I owned. I told them, “don’t own any”. You can imagine the uproar this caused. Suddenly everyone started grilling me as to why I didn’t own any stock. I basically said, “Look…you want me to pay you for what is basically your best guess on how a stock will perform. There is no science behind your method. When it all comes down to it, it’s a guess.” Feather’s started to ruffle followed by condemnation. I got a bunch of, “you don’t know what you’re talking about” and so forth. “Fine”, I said. “I’ll make you this offer. I’ll give you $10,000 to start with. I’ll give you 90% of whatever profits you can make with that money. But, you’ll also have to cover 90% of the losses on your end should you fail.” Forks started to drop on plates. Wine glasses began to tip. “That’s just nonsense. No one will do that!” yelled the partner. “Yes, I agree” I said. “And do you know why?” Silence. “Because you’re not willing to bet on your own pseudo-science. If you’re held accountable, then you won’t step up to the plate. Why would I give my money to someone who bears no responsibility, but will make money no matter what the results are?” No answer. Silence. A change of topic was suggested by another member of the firm.
Comment by Dave -
Gee Mark, I specificially remember your being on CNBC and hawking Lions Gate Film and Charter…hmmm….do only your ideas count? I agree that CNBC is bubbblevision but I find you to a shameless self promoter of your own “stock” and the MAVS. You and Donal Trump deserve your own shows…egotists like yourselves love the world focused on them. Oh, by the way, you didn’t seem to mind stock promotion when you sold Bcom at the top…Admit it dude, you are the biggest promoter of them all as long as it benefits you financially. You are a god…in your own distorted world..no one has a better idea than you…look who is calling the kettle a different color!
Comment by Jim -
Rick,
I’m not a capitalist but I don’t think shorting is unethical. In fact, there have been several academic studies which have basically said that shorting helps the market. I don’t remember the exact conclusions of the study but from I recall, shorting helps the market by:
1. keeping prices reasonable. Without shorting stocks/bonds/whatever will go up more than they should. Ultimately, this will result in VERY HIGH valuations and consequently massive crashes (drops) when people realize that the valuation makes no sense.
2. Shorting improves liquidity. If no one shorted, it will be more difficult to buy (since everyone would be buying and very few would sell). This is similar to the academic conclusion that speculators help the markets (without speculators, no one would take hte opposite position. For example, if all the media/public/etc thinks something is going to go up, who will sell?)
There are a few more benefits that I can’t remember. In fact, shorting helps the market so much that some people/institutions will NOT enter a market without shorters.
So to sum up, shorting is a part of markets. It makes no sense to say shorting is bad anymore than saying that longing is bad.
I think the reason people hate shorting is for two reasons:
(i) The general public find it easier to go long than short. To go long, you just buy the stock and hold it (anyone can do this) but to short it is a little bit more complicated (not everyone can do it). Because of this, the majority of small investors (in particular) do not short. Therefore, shorters are their enemies/opponents.
(ii) Most shorters are experts and ruthless (partially due to reason (i)). Most shorters are wealthy people or institutions, whereas pretty much all small investors go long. Shorters destroy others and their livelihoods. Small investors basically invest their whole wealth (or at least a huge chunk of it) in the stock market. So if they lose, they get hit big time. In contrast, wealthy people and institutions (and hence shorters) won’t be out on the street if they lose. Shorters, since they are experts and wealthy, can have big impact on lower class person. For instance, there have been many cases where shorters basically attack currencies of poor countries and drive the country into the ground*, or where a stock price declines due to shorters, and so forth.
Overall, shorters are no more evil than people who go long. However, since most small investors only go long, shorters are their enemies. I think people will think less negatively of shorters when the general public can short as easily as they go long (right now, that’s not the case).
(* From a capitalist point of view, this is ok. After all, whatever that can happen in the market is “right”.)
Comment by Sivaram Velauthapillai -
Sterling, just be careful man. Like I said, I think real estate property values are too high. I think they will collapse as interest rates go up (as they are expected to). USA might be like Japan in the early 90’s (where real estate declined for like 7(??) years in a row).
Just be careful…
Comment by Sivaram Velauthapillai -
If you have to ask you are not ready. The first thing to do is to find out what you are good at. Then, become great at it. Secondly, you need to calculate the total cost it will take to produce the product or service that you plan to offer.
Before offering that service, you need to talk with potential customers and put together a focus group for feedback.
Next, figure out what your competition prices his or her services for so that you don’t underprice yourself.
Then, only spend money on things that create ROI. IF you have to lease a space, The create quarterly rent payments. Try not to create any bills. Stretch out bills that you create. If you don’t need it, don’t buy it.
Cashflow is the most important factor in a business next to the product or services that are being offered. If you proficiently manage these two areas you will succeed. ( out of 10 businesses don’t fail within the first year. The majority of businesses make it through their first 4 years. And, those that do close usually close successfully, (meaning they are still solvent and profitable).
It also might be helpful to figure out what you need to pay yourself in order to keep keep up with your bills. Pay yourself as little as possible in the beginning.
Make sure to incorporate yourself. I like S-Corporations because they have a corporate shield and they allow a pass-through. A pass-through allows you record all profits or loses on your taxes. You avoid social security tax, which is a plus. But, your health benefits are taxable.
Realize that you don’t get rich over night building a business. If you REALLY want to do it plan on working 80+ hours per week. Plan on mopping your own floors, vacuuming, and doing the accounting.
THIS PART IS GETTING AHEAD OF MYSELF
There are many perks. To lower your your income, you might want to start a 401K for small business. As a business owner your company can pay up to 40,000 annually along with your contributions. This builds your networh and usually lowers your taxes.
Comment by Sterling -
The comment that buy and hold doesn’t work is ridiculous. Many people have owned stocks like Walgreen, Wal-Mart, GE, Pfizer, etc. and have done very well. You don’t have to be a genius to know whether a company’s sales and earnings are increasing year-over-year. If they are, its okay to hold. If they’re not, its probably time to sell.
I don’t quite understand the advice about shorting. Who are we supposed to tell to short the stocks that we like? Friends, relatives, business acquaintances? Doesn’t sound too ethical to me.
Comment by Rick -
If you invested in Yahoo at the begining you are wealthy now. If you traded Yahoo from the begining you are even more wealthy.
I don’t blame anyone for my stock losses OR gains but myself.
When I enter a position in the market I am a gladiator in the ring full of lions. Sometimes I slay the beasts but other times I get eaten alive.
* I haven’t heard M.C. pump MAMA. He doesn’t need to. The PPC business and search in general is burgeoning. Place your bets now with the companies building a brand behind solid management like MAMA and ASKJ and you will be rewarded. Not the next YHOO but what is?
Comment by Mike -
They still aren’t talkin’ about stocks at Al’s Do-Nuts. Mark one thing you are right about though, there is always someone out there trying to kick our asses. I have to change strategies now, lookin’ forward but watchin’ my backside. It’s killer instinct time and killer app-time.. Time to create my own little company. How did you do it in the beginning. More on the start-up?..Would be very interesting.
Comment by ShadNet -
I think in general stocks aren’t a good investment for people who have no clue about accounting standards like US GAAP and don’t realize that under this rules earnings are overrated since stock option for employees don’t have to be expensed. If this becomes a rule again, as I hope, earnings of Nasdaq Tech. Companies will cut in half and there Price Earnings Ratios will hit year 2000 levels again. If this improvement of US GAAP becomes accompanied by rising interest rates stocks won’t be a good investment for rich and informed people either guess why Warren Buffet is sitting on $ 20 billion in cash and can’t find opportunities in the stock market, he thinks average Price Earnings Ratios of 30 for Dow and S&P 500 and average dividend yields of 1,5 % are typical bubble indicators. People who aware of this might also be interestet in this websites http://www.investmentrarities.com and http://www.prudentbear.com/homepage.asp of people who share this opinion.
Comment by chrirose -
I tried buying and selling stocks, but went to mutual funds because the small investor can’t get reliable information. I buy either index funds or managed funds that beat the indexes. (There aren’t many of those).
I stick with funds because I believe they’ll beat the next best option, which is fixed-interest investments.
What surprises me is that people will invest in companies even when the basic information tells you to stay away. Lots of people were burned by buying Enron. When I checked it out, it was overpriced even for the stated earnings, which turned out to be a lie. I stayed away. Before then, though, I had bought into companies that I thought were promising, but were not justified by the numbers. Yahoo is a neat company, but not at a zillion times earnings.
The best return I got out of mp3.com was a class-action lawsuit settlement check.
Keep telling it like it is, Mr. Cuban!
Tim Wood
Comment by Tim Wood -
Mark, I thought I was alone with my views until I read your comment. BRILLIANT!!. I own some stocks to collect dividends. I expect theyw ill be in business for many years and I am not really too concerned about the price action. I have some shorts as well for some of the same reasons you do. You keep on standing up for what you believe in. One final note, you might want to read Bill Fleckenstein sometime, he is also brilliant and worth every penny.
Paul
Comment by Paul Daniell -
(Real Estate TO Sivaram Velauthapillai)
Posted May 13, 2004, 2:47 PM ET by Sterling
Yes. There is a bubble. And interest rates will rise. But, if you position yourself right, you can make a ton of cash.
With that said, don’t just buy anything. It has to be quality property (i.e. land or building). And yes many properities are overpriced (I.E. TRUMP TOWERS). In fact, I don’t thing his new building in Chicago will be successful. You might as will buy from a CONFIDENCE MAN.
I still don’t think the bubble will cause great depreciation in home values. The residential property market in the US grew +8% from 2.0 million units in 2003 to 2.2 million units in 2003. THis was created by increased demand for housing driven by low interest rates during the year.
The US residential property market is forecasted to grow approximately +16% over the next 5 years.
You don’t have to be a genius to find out where to build or buy your next home. Just follow the chains of Wal-Mart, Meijers, and Wegmans.
If you are following Safeway or Kmart, you had better slow down and rethink where you are buy.
In all seriousness, you are right. About the short-term bubble. But, stock and real estate are not the same. Stock has no guarantees in maintaining value, although , Mark’s staaregy works for the rich and wealthy (there is a difference).
You are hard pressed to find homes bought in the heartland of America or outside the big metro areas that decrease. Investing in metro area real estate is a bigger gamble.
But, Wal-Mart is planning to build 40+ Supercenters in California. I would think it would be of interest to people with extra cashflow to buy where they are building.
Comment by Sterling -
The biggest “games” are played by the specialists. The WSJ article on last year’s SEC investigation was just a taste of the abuse of the SEC rules that takes place on the floor of a stock exchange.
It should be stopped.
Untill then all investors are unknown participants of the easiest money, “without admitting guilt”, that has been ever made to the detriment of the investment public, institutions and trading firms.
No ads will erase that shamefull type of manipulation of the trust of the majority of investors.
Comment by B.B. insider -
Mark, your take on stocks makes sense and I agree with most of it but it’s a lot easier to say you can make money in stocks just like you made your billions- with a enough information and a tremendous amount of luck. Now go out work hard and make your luck happen!
Comment by big tex -
Your article is just brilliant! I couldn’t agree more. But how about understanding (deadly) Keynesianism first? Great insight is provided by the quote below and this is why we ought to get back to a monetary system that has an intrinsic value ASAP!
“By a continuous process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method, they not only confiscate, but they confiscate arbitrarily; and while the process impoverishes many, it actually enriches some….The process engages all of the hidden forces of economic law on the side of destruction, and does it in a manner that not one man in a million can diagnose.” –
John Maynard Keynes Economic Consequences of the Peace, 1920
Comment by SB Kayser -
T Mr. Cuban: I applaud your decision to enable comments after all. Signal:noise is a problem but the occasional comment by someone like Ray Balestri (whether it’s really him or not) makes it worthwhile in my opinion.
T Ray Balestri: I should have credited Scott Burns in my own comment. I am a big fan of his “Margarita portfolio”(one-third domestic total-market index, one-third global toatal-market, one-third TIPS). Why do you prefer the S&P index to a total-market approach?
Comment by john clark -
investors in the dotcom bubble. You can not claim the moral high ground because Yahoo was stupid enough to buy you crappy little fools-gold company. You sold in highs of the bubble. The fact your sale destroyed peoples retirement funds who were in Yahoo, make you no better than any of the other sellouts and scams.
Yes the investment bankers love you, but you act as if the public should too. Keep trying to give away back to the public, do your reality series, try to remold your image in one that can keep your Ego safe, your karma clean.
But you and I know the truth. The results of your stock sale hurt many, you just changed the names of the victums to make you feel innocent. Keep it going, keep on again about MAMA, create more fools for you to Milk.
Keep on selling out, but don’t think you are better, and don’t think your Billions are not soiled by the pain of those who lost so much in bubble
good night
Comment by stockWolf -
Mark, you hit the nail on the head every time. CNBC, or Crapvision, as we call it at the Stool, is the world’s longest running financial infomercial. What do you expect? It is the publicity ARM of GE Capital, one of the worlds largest banks. It is their job to distribute capital, and it is CNBC’s job to do the PR. It’s all about distribution. But the same is true of all financial media. The Wall Street Whorenal? Infomercial. SeeBS.Markethype? Infomercial. Bareuns? Infomercial. Investors Gimme Da Business Daily? Infomercial.
It’s all crap. Wall Street’s job is to manufacture, sell, and distribute stocks. It is nothing more than a marketing machine, and their tool is the Big Lie, like buy and hold for the long haul. Over the long haul, the truth is that the managed stock indexes do not beat the risk free rate of return. The long term nominal appreciation rate on managed stock indexes like the Dow Jokes Inflatables, and the Standand Be Poor is around 5%, not including mangement fees, commissions, or dividends, which tend to net out. Considering the opportunity costs, and the fact of grossly understated inflation of general price levels, the real return on stocks is negative.
Wall Street doesn’t tell you that, does it?
And as for the managed indexes, only one Dow stock has been around since the beginning, GE (CNBC). The S and Pee has enormous turnover as well. Think about it. If a stock is headed for zero, they just drop it from the index, and replace it with something early in its growth cycle. Where would all these indexes be if they left all the Enrons and the Worldcoms and the KMarts in the index at a zero basis? About where your portfolio would be.
Nowhere.
Comment by Dr. Stepan N. Stool -
How did Warren Buffet get controling interests in companies when he was starting investing? He didn’t. Don’t talk about Warren Buffet like that. He’s the best, many times richer than you’ll ever be. (feel free to disagree 🙂
Comment by Warren -
DISCLAIMER: Do not follow anything I say. I don’t know what I’m talking about 🙂
Sterling,
what you are saying is true but here is where I see problems:
The two things you described (increase in houses due to immigration/different family styles/etc vs asset bubble) happen in different time periods. The increases are a long term trend while the bubble is short term. I see that you are advocating long term investment into real estate so you may be immune to some degree but read my footnote to see where I have concern.
Do you agree with me that there is a bubble in the real estate sector? If yes, then, what’s to say that real estate won’t go down significantly (crash) in the next 2 or 3 years? I really have a bad feeling about house prices. They seem to be like Japan in the 90’s when prices were so expensive but crashed later on. I have a feeling most of USA is like that.
I just think real estate is very risky right now. If you know what you are doing (you seem to) then you may be able to find good property. However, most newbies (like me) would have a hard time finding undervalued property. My feeling is that house prices will plummet within 2 years and if someone buys now they may suffer in the short term.
Lastly, I am not saying real estate is bad per se. I do not discriminate against a particular asset class 🙂 I treat everything, whether stocks, bonds, currency, gold, or property, as equal. I am also not an expert and don’t really know what I”m talking about. Having said that, I feel very negative/bearish these days. I’m very bearish (negative) on practically everything including stocks, property/houses, US dollar (US$ will go up in the near term though), and bonds. THe only one I would consider bullish (positive) are gold and cash. Gold has been dropping for several months so I wouldn’t go into that anytime soon but if it seems to pick up then it may be worth considering. Cash is ok too. In fact, I would keep cash for now. US$ should go up if interest rates are increased as planned (but it’ll drop in the long term against other currencies IMO).
You give some good advice about property but I think it’s kind of risky now… because I believe property values are way above what they should be.
(*FOOTNOTE: I agree with you that long term real estate can be good. BUT–a big but–you are advocating leverage. What will happen if interest rates go up (as they will)? People are going to get killed when interest rates go up! A LOT of people are going to default on their houses. How about you? Can you handle interest rate hikes? For example, if interest rates go 2% higher by the end of next year, are you still ok? You know more than me about real estate so I’m just checking how stable you are. BTW, I wish you and anyone else reading this, the best in their investment endeavours 🙂 )
Lastly, for any newbies/small investors/casual investors/etc who managed to get to the end, always consider what everyone says. HOWEVER, do NOT blindly follow what they say–including me. Try to understand what people say and why. You can always gain insights. But don’t follow them until YOU have confidence that they are right. Read 10 different opinions but only follow the one that you believe is correct, or make up your choice!!!
Comment by Sivaram Velauthapillai -