I’m going to simplify what I consider to be the best investment advice I have ever been given and share it with you.  Here you go:

1. If you have any credit card or other type of consumer debt on which you pay 5pct or more interest, pay it off.  Compound interest is your enemy.  The chances of you earning more on your money than you are paying in consumer interest rates are slim. Pay it off.

2.  Cash is King. Now that Madoff is in jail, no investment can offer returns with zero risk. If you don’t fully understand the risks of an investment you are contemplating, it’s ok to do nothing. In times of massive uncertainty like we are facing today, doing nothing is a valid and IMHO preferable investment strategy. Just put your money in the bank.

3. Cash Creates Transactional Returns.   What does this mean ? It means that you should analyze what you spend money on over the course of a year. You will get a better return on your money by being a smart shopper and taking advantage of  cash, quantity or other types of discounts than you will in the stock market.  Saving 15pct on the $1k dollars worth of items you know you will absolutely spend money on is a better return on your money than making 15pct in a year on a $1k investment  because you don’t pay taxes on it.

If you have under 100k dollars in liquid assets,  your net worth will be higher in one year if you follow this advice  than if you follow ANY other investment advice any broker or banker will give you this year.

I wrote a whole series of articles warning people about the stock market over the years. You can see them here. It’s gotten worse. So I thought i would write some more about why you should probably avoid putting any new money into the stock market…

If you haven’t noticed, individuals are avoiding the stock market in droves.  There has been an enormous exodus from equity based mutual funds. Why ? Because people buy stocks for only one reason, they want them to go up in price. If you don’t believe the market is going to go up. If you don’t believe you can find a greater fool to buy your stock, or the stock your funds own, why would you buy either ? You wouldn’t and people aren’t.

The amazing thing is that doing nothing in the market is the smartest approach to the market. It is pretty  much impossible for some man or woman or child who devotes a couple of hours per week to the market to outperform the professionals who spend 24×7 doing this for a living and when they are asleep, they have a workforce full of people doing more of the same.  In this day and age, none of us are smarter than the market.

I didn’t always think this way.  I didn’t ever think there was a truly efficient market until just recently.  What changed ? The availability of capital changed.  While we can argue about whether or not the market is efficient because everyone has access to the same information, I would always argue that they didn’t efficiently use that information and even if they did, capital was not always allocated correctly  to every market segment.

Capital found its way to where people/funds thought they were smarter than the rest. Some people thought they understood the tech markets better than others. Some thought they understood retail better, etc.  The belief that an individual/fund had an advantage  drove where capital was allocated.  People posted good performance or identified macro opportunities and put their own and others money to work.  Others saw the success and followed.  Like the saying goes “first there were the innovators, then the imitators, then the idiots”.    Fortunately for market participants over much of the history of the stock market, if you were  the innovator that was  smarter and faster than the other guys, you could make money on the long and / or short side of the market before the imitators and then the idiots flooded the market.

The door was open to opportunity in the past simply because capital was relatively expensive. It was expensive to raise, it was expensive to borrow.  High cost of capital creates scarcity of capital.  The more expensive the scarcer. The scarcer the capital, the more untapped opportunities just waiting for innovators to exploit and the longer it took the imitators and idiots to chase the same opportunities and close them. Which is why you found funds and smart people posting great returns over a long period of time.

But a not so funny thing happened on the way to and through the Great Recession. Capital became progressively cheaper.  It became the opposite of scarce. It became readily available. To anyone.

The innovators had put together unique mortgage programs. The imitators made it a little easier to partake.  Then the idiots took over. Capital was so easy and suckers and idiots so prevalent, everyone believed that there was always going to be a greater fool to buy their house and /or give them refinancing money. Until the idiots couldn’t collect on the mortgages they lent or pay the mortgages they took out.  That de-levered the system and we know what happened next to the banking, mortgage and housing industries and the entire economy.

In response to that great de-levering, the government stepped in and I truly believe they saved us.  Sure, they watched as the idiots dragged us into the mire. Sure they allowed all those mortgages to be guaranteed and that was a key culprit in the Great Recession.  Our government has never been very good at being proactive at anything. Reactive… thats another matter. That gets the votes.

So the government reacted and poured money into the system. They allowed just about any bank with a pulse to borrow money. To this very minute it is incredibly cheap to borrow short term capital. Particularly if you are in the business of trading/hacking the stock market.  If you are a big fund or investor, money is cheap.  Unfortunately for the stock market, it is cheap for everyone. In other words, capital is not longer expensive and it is no longer scarce.

When capital is so cheap that everyone with a pulse thinks they can make money once they borrow it, the stock market is in trouble.

Remember the rule about first there are the innovators, then the imitators, then the idiots ?  It is why the stock market is truly in trouble.

There is SO MUCH CAPITAL available at so little cost to so many that the timeline from innovator to idiot is measured in days, hours and probably even milliseconds.  The guys who are actually smart and uncover new opportunities can’t even get in a position large enough to make it worth their while before the imitators and then idiots pile in right behind them.

Remember the Flash Crash and the discussion about how trades are made in milliseconds, what I called hacking the system ? I don’t know for certain, but Im willing to bet that those innovators that made money by trading in milliseconds, now have so many imitators and idiots that have piled in behind them , putting servers right next to theirs and hiring their algorithm  coders away from them,  that there is no longer any advantage, or not enough of one for any of the players to make any real money.

There is so much capital chasing so little return that big time players are getting out of the business.

So what does this mean for you ?

It means that I don’t know if the market will go up or down, or by how much.  My guess is that it stays in a trading range for a while. There isn’t much money coming in, but enough of that easy to come by capital has so  much ego attached to it, that the same people will get in and out of the market over and over again and trade amongst themselves.

Until something happens.  What that will be, I have no idea.

But I do know that I have continued to add to my cash balance or sovereign debt from around the world (that I have owned for a while now and has been profitable and is  very, very liquid.) The stocks I still own for the most part pay me a nice cash on cash return, or I have owned them for a long, long time and have  more in gains than I want to pay taxes on.  But in total, I have been a net seller of stocks for more than a year. The only investments I am making are small buys into private companies.  I want as much “powder dry ” as possible for when something happens.

I’m not saying you should get out of the stock market. What I am saying is that it is not a bad thing to accumulate cash right now.  Retention of capital is a good thing. Don’t go chasing stocks.  Something is going to give in this market. Like I said, I dont know what it is, but I want to have as much capital available as possible for when it happens.

Baron Rothschild said “the time to buy is when there is blood in the streets”, Warren Buffet said it differently when he said ” you pay a very high price in the stock market  for a cheery consensus”

This is the time to start saving for a “bloody day”.   There  will be a time when capital regains its scarcity. When it becomes more expensive. When it does , what do you want to have in as great an amount as possible ? Capital.

So save your money. Pay off your credit cards.  Put your money in the bank where it is insured.   Be patient.  Get a good nights sleep knowing that your money is not going any where  and just wait till your capital is in demand and you get paid for it. When everyone is complaining about the money they lost, you will be ready to step in and buy.

That is how fortunes are made. Having money when no one else does.  And you can take that to the bank !

I hit the like button on pages all the time.  I like your picture.  I like the fact you had fun on your vacation. It doesn’t mean I want to get into a long involved conversation or see all your vacation pictures.

I like the jeans you are selling on your website . I like them because I already own a pair.  I am not giving you permission to contact me and try to sell me something or to suggest to my friends that they should buy them because I like them.

I like the book you just read. I would like to buy a copy. It would save me time if by liking this book someone would contact me from Amazon with a link to quickly allow me to buy it.

“Liking” something can have any number of meanings.  Unless FB comes up with a solution for the problems caused by the misinterpretation of these meanings, the Like button will quickly become a nuisance.

So whats the solution ?

Colors.

Let us click on the Like button until the color and meaning we agree with shows up.

A green like button with the word (BUY) next to it would send a message to the website to send me a link to allow me to buy it now

A yellow like button with the word (Info) next to it would send a message to the website to send me general information

A red like button with the word (Stop) could send the message to leave me alone. I just wanted to say I liked it.

There are lots of colors that can offer lots of different action/non action suggestions.  Cycling through them when you click the like button would be easy. Sending the appropriate information to a monitoring program would be easy.

It’s the Like 2.o solution .

And while FB is at it, can we do the same thing for Poke…..

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First of all, nothing but the best for Chuck and Nolan.  I want the Rangers to win the World Series as much as any fan does and I think they have the right people on the field and off to help them do it.

So why did I go chasing the Rangers despite all the negative media attention ?  Because I believe  it was the right thing to do.

FIrst some background. This wasn’t a spur of the moment thing.  More than a year ago, before the current parties were involved (or at least I was told there weren’t others involved), I was contacted by someone  the team owed a lot of money to and asked if I would be interested in buying the team side by side with them.  I said yes.  Got information. Did some very preliminary homework and told the group I was interested. That fell through. They decided not to go forward.

Then I was contacted by the departing owner of the Rangers and asked if I would be interested in investing in the team . I said no, but to get in  touch if there was the opportunity to buy the team.  Not long after that, I was contacted and started the process of discussing a purchase of the team.  We had a few meetings and quite a few options were discussed. Most of the options required that I also purchase and take on expenses and assets/liabilities that I believed  were not core to the operation of the team and could in fact make things more difficult. I was not willing to do that.

What I was willing to do was to  make a significant enough of an investment that would catch the team up on all of their debt and provide some working capital (it would require the creditors to make some adjustments, but early discussions suggested that it would not be a problem). I was willing to go forward if i got control of the team. I want to win Championships and in my mind there was hope of winning a World Series with the Rangers

At that point we also had some preliminary discussions with MLB who were on board because it would avoid what appeared in my and others opinion  to be inevitable, bankruptcy.  I thought I was on my way to buying the Rangers.  At that point we signed some paperwork so we could have further meetings. It was at this point I also spend 2mm dollars on bonds in the Rangers holding company in order to get access to information about the Rangers, and also the Stars (because they are my co-tenant at the AAC). Why get the information that way ?… Trust but verify. It gave me a way to confirm what i was being told.

Unfortunately,  in our further discussions, I was not able to get anywhere close to doing a deal that did not have those obligations I was not willing to take.  They were deal killers for me.

Fast forward to December, Chuck and Nolan get exclusive rights to negotiate for the team. Which IMHO was great.I knew Chuck from back in Pittsburgh and he was coming to Mavs games and schmoozing his way through Dallas in impressive fashion. Like I knew he would.   Then the next month there was the discussion of bankruptcy. Then in  May,  the team is put  into bankruptcy. Then June. .Then  Chuck and Nolan sign their deal. Then mid July, the Rangers go to auction.

Around  the 2nd week in July, I got asked by someone who was considering bidding in the auction if i wanted to partner with them.  I told them that i doubted it , but I would take a look.  From that first look, it appeared to me that all those obligations that I didn’t like were still in the deal. But I was soon informed that  because of the bankruptcy auction, they could be removed.  That got my attention.

In my opinion if those operational issues could be removed, there would be more operating cash flow for the team. That’s a good thing.  In addition, as everyone told me time and again,  the Rangers TV deal ran out in 4 years.  Combine that with the Mavs TV deal running out just a few years later and it could either form a foundation for a new sports network, or preferably cause Fox to pay an ungodly amount of money to keep the teams on FSN.  Fox had more to lose from a competitive sports network being formed, particularly in Texas,  than a new network had to gain from being created. So the leverage of owning both teams was enormous.

That was a financial win for both teams.  The ability to earn more money from TV revenues for both teams meant more money could be put on the field/court.  It was a unique situation.

But I still had not committed to bid on the Rangers, either on my own or with someone else.  I wanted to contact Chuck first. In my mind, the ability to move Chuck /Nolan and their investors to a new group would accomplish two important things, it would get them out from under the bad obligations and it would allow them to use the leverage of the Mavs to their benefit as well. Of course I realized there were going to be huge legal bills involved in trying to figure out how to make it all work, but that came with the territory. It was the next day i made the comment to a radio station that I was trying to help and act as a backstop.

I got in touch with Chuck and briefly described all this. He thanked me and said that he would check into it. He quickly got back to me and said he had to keep things as they were. Which I completely understood.

While I understood it, to me it was a lost opportunity.  The economics got too good once the external stuff and TV were considered.  So I started looking in parallel at doing a bid myself or working with the initial folks who contacted me.  Going forward at that time meant to me that there were 3 basic outcomes:

1. The GRE group refuses to remove those 3rd party costs and obligations. At which point I/we win the auction and  go to Chuck and Nolan and and their  investors ask them to join our group.  Now why would they join our group ?  I couldn’t see any way on this earth that Nolan Ryan would ever leave his players and team behind.  He loves this team too much.  He has been around the league long enough to know that owners come and go, but the commitment to the guys you go to war with comes first. So i truly wasn’t concerned about him not coming. Chuck may have been more difficult. It would have been my job to convince him.  There aren’t enough hours in the day for me to run both teams like i do the Mavs. Chuck had already proven he could do the job. I would have worked hard to convince him. For Chuck/Nolan and all their investors, without the garbage expenses, the team was in a much better place.

I realize a lot of “commentators”  were villian-izing me. Suggesting I was trying to break things up.  They were of the opinion that there was no way Chuck or Nolan would ever come on board. I obviously thought they were wrong. And I didnt care what they said.  What I have learned in 11 years in the sports business is that the dumbest guys in the room are always the media guys. Some do a decent job of reporting, most just spew opinions.  And those opinions change more often than they brush their teeth. So what the media was saying was of zero impact or influence on what i was going to do. Listening to the media only increases your odds of failing at whatever you are doing.  So I ignore them.

2.  The GRE group gives up those 3rd party costs and obligations and we have an auction . If they win, which is what happened, they no longer have those obligations and as best I can tell are now in a better financial position.  Their stated purchase price before the auction was $575mm.  It ended up being around $600mm. So for 5pct they got rid of the costs and obligations. If we win, we still try to bring on Chuck and Nolan as investors and operators and we change nothing. Absolutely nothing … On the baseball side. On the business side, we start marketing hard and leverage all the success of the Rangers and we work towards increasing our media revenues by playing off Fox against starting a new network.

3. Someone else comes in and blows away both GRE and me in the auction and its over. In this case, at least we both gave it a shot and someone just beat us.

I could live with any of the 3 options.

As it turns out , I wasn’t in a position to go after this myself. Why ? Two reasons. First, despite what people think, I don’t keep hundreds of millions of dollars in a checking account. I prefer that it earn money doing things for me.  It is not easy to get liquid to the point of $400mm dollars or more in just a few weeks.  And in those few short weeks, its not easy to go to the banks and get a loan for a baseball team. Lots of reasons.  Some I don’t like, but it’s not.  Second, I didn’t have enough time to do all the due diligence my folks needed to do.  You don’t read every contract and get people to run numbers and advise you on what all the implications of a bankruptcy auction are in a couple weeks. I was paying people to work round the clock. I was killing my General Counsel Robert Hart to the point of exhaustion. There wasn’t enough time.

So a meeting was set up with Jim Crane. I liked him. He had been working on the Rangers for several years. He had all the due diligence in place. His people had scoured the contracts , etc. He had smart people around him and he had his money ready to go as well. Plus he had a relationship with the existing creditors who were willing to loan us money in order to facilitate a competitive auction. Of course the creditors were very self serving. If lending us money helped us, it helped them potentially earn more money from the auction. Together we could put together a bid.  As it turns out we could afford a purchase price up to about $600mm dollars. (Right where we left the bidding last night/this morning.)

From then until the auction date it was really about looking for gotchas.  What were the things that could hurt our bid in the Auction.  Most were elements that applied dealing with the bankruptcy court and the auction process.  There was a ton of paperwork that had to be in by the day before the auction and we had to figure out what went on it.

Along the way of course things always get interesting.  Last friday one of the parties tried to stop the auction and do a side deal. We had to shut that down. Same thing on tuesday night.

Fastforward to this past Tues.  We turned in our  purchase agreement with all our numbers and all the documentation saying what we would pay  for, what we wanted excluded (all those 3rd party costs) and the information required to qualify for the bid. Everyone got their copies that night.

The morning of the auction, Im up early. We get to the courthouse about 8am to meet. The first thing we have to do is meet with the debtors. The people who owed the money to the creditors. They are of course squeezing to include every penny they can and to exclude every type of liability. Then we have to fight over how to evaluate all that stuff.  That takes hours. It’s also why you heard GRE complain about not having our bid.  The people who owed all the money were fighting us to protect themselves. IMHO, to the negative of the people who were owed the money. We just wanted to be able to bid. GRE just wanted to know what our starting bid was.

We got to the courtroom and all the screaming and shouting started. There were enough blogs that tweeted and covered all that, im not going to.  It’s never fun watching how the sausage is made. And Im not a bankruptcy lawyer so I couldnt begin to explain all of it.

But some how the auction went on.  I have to honestly tell you there were more than a few times I thought we had the thing won. They were arguing about everything and anything to knock down our bid. I thought it was because they were out of it. As it turns out, they obviously were not. They beat us fair and square. As a result , I think they are in a better position than when they started the auction . But thats my opinion.

Now lets talk about MLB.  It seems to be a fun media sport to talk about how there is no way i will ever get approved  buy MLB to buy a team.  At the hearing yesterday it was mentioned that our group only had a 50/50 chance of ever being approved.  I tend to never look at the glass as being half empty or half full. I look to see who is pouring the water and to deal with them. Not the media.  I am pretty confident we would have been approved.

Finally lets talk about finances. Lets talk about the bonds I own. I have been getting a bunch of emails from reporters asking how much money I made on the bonds I own. Suggesting that I bid up the price of the Rangers in order to increase the value of the $2mm i spent on bonds. To all of you I offer a lesson in economics.

It is NEVER a good idea to risk hundreds of millions of dollars on the purchase of a team AND to spend what could come to more than a $1million in professional fees in order to increase the value of the $2mm you bought in bonds. I know its something for the media to talk about. But if any of you out there think it through, I dont want you to think i was stupid enough to do something that stupid.