My Investment advice for 2006

Every year at this time, everyone and anyone who has a vested interest in selling stocks comes out and talks about how great a year its going to be in the stockmarket. Of course its all nonsense and bullshit. NO ONE knows what the market is going to do.

Not timers. Not technical charts. Not economists, Not brokerage Heads of Research, Not stock pickers. No one. If you watch CNBC, over the last few months they have taken to putting “experts” who disagree up against each other on stocks and topics. Instead of having carte blance to come across as an expert, they have to offer some support and take some criticism. Its a blast to watch because there rarely is a winner. Its so rare that they get questioned that they have lost the ability to support their own positions. So much for experts.

If its hard to find an expert who can support their investmen choices, what about mutual funds ?

According to an ad for one family of mutual funds, there are 17,000 mutual funds on the market for purchase. How amazing is that ? How in the world can there be 17,000 fund managers that are worth a damn ? There cant be. How many are good ? How many suck ? How many of the funds will close every year taking your money with them ? Are you completely confident in the fund that is taking money from your paycheck every 2 weeks ?

Then of course there are the brokerages. I swear that there are few things that turn my stomach on TV more than watching commercials for brokerages. The guy who gives the toast at the wedding, Paul McCartney, the guy from Law & Order, all trying to con people into thinking that any of their stockbrokers can take you to a financial promised land.

Well guess what, they cant. Yes there are good stockbrokers that are worth the commissions you pay them, but guess what ? Most of the good ones work with people who already have money, not ones with very little hoping to build a nest egg.

One fun little thing I like to do is to look at “The Favorites”. The list of the stocks held by he largest number of accounts at Merrill Lynch.These are the stocks that the largestbrokerage, with the largest number of consumer clients is being enticed , convinced or directed to invest in. These are the stocks that Merrill Lynch stockbrokers have had the most success selling. They are their favorite products.

Its interesting how well the names are performing, but also how the names have changed , or in some cases, not changed over the years. A look at the last list of 2005 doesnt inspire overwhelming confidence in the ability of Merrill to pick stocks. 7winners. 13 losers. Biggest winner was Exxon at 9.7pct. On the losing side, there were 7 stocks that lost 10 pct or more and 3 that lost 20pct or more. And these are the stocks that many wouldclassify as todays “widows and orphans” stocks.

Of coure they are completely different from the widows and orphans stocks of yesteryear. GM, Ford, Utilities….Just put them away and dont think about them. Now that was good advice wasnt it. And here is the list from Jan of 2002. You havent done so well if you took Merrills advice then, or now. To be fair , Merrill is not better or worse than any other full service brokerage. They just happen to publish their list of widely held stocks.

So what to do if you want to invest your money ? What to do if you want to end this year with more than you started with ?

Simple, avoid risk.

Risk is what Wall Street lies about every day. Risk is what they try to sweep under the covers knowing that we all are addicted to the dream of financial freedom. Risk is the poison that is masked by the commercials.

When you see a commercial for a brokerage, they are telling you in a very subtle way that they remove risk. Invest with them and the risks regarding investing that you have heard about will be reduced or eliminated because they are so smart. All of which they say beforethey rush through all the disclaimers that confirm that everything they just said is nonsense, that they cant really avoid risk.

You can however make the personal decision to avoid risk. Avoiding risk allows you to sleep at night. Avoiding risk allows you to have more at the end of the year than when you started.

Lots of people spent a lot of money on commissions this year. If you put your money in the bank, in a CD or in treasuries, you not only slept better than them, there is a very, very good chance you kicked their ass in total return. Your interest compounded, they probably paid interest on their investments.

I get emails every day asking me where people should invest. I tell them all the same thing, and I will say it here. Put your money ininterest earninginvestments.

For every stock you buy, there is someone selling you that stock. What is it that you know that they dont ? What is it that they know, that you dont ? Who has the edge ? If its not you. Chances are you are going to lose money on the deal.

If you want more info on how i feel about the stock market, here is another blog entry on the topic.

So here is my investment advice for anyone who doesn’t have enough saved to walk away from their job and retire…

1. If interest rates stay where they are or go higher, look at 5 year or shorter maturity vehicles. It doesnt matter if its a bank CD, a money market fund, a tax free fund, treasuries or combinations there of. Bottom line is this, 4plus percent taxed, or up to 6 plus percent tax free equivalent (depending on your tax bracket), is not a bad way to go. If rates go down, do the same thing, evenif you earn a lower rate. At the end of the year, you are guaranteed to have more than you started with.

2. Evaluate your lifestyle. People forget that sometimes the best investment they can make is in wisely buying things they know they will use. If you track what you use and consume, whether its gas vs bus fare, buying bulk quantities or other discretionary spending, you can save more and earn a far greater return than you could in the stock market. If you can save 10pct per month on a hundred dollar per month budget, thats 120 bucks you can put in the bank. Thats the equivalent of earning 12 pct on a 1k dollar investment. If you can cut 100 bucks per month off 1k dollar monthly budget, thats like earning 12 pct on 10k dollars. Thats pretty darn good. Spend smart, put your savings in risk averse, interest earning offerings.

3. Invest in yourself. Do the things that can get you closer to your goals and dreams. It wont come from a brokerage commercial. It will come from preparing yourself , working hard and standing apart from your competition. You Inc is the best stock you can ever buy…if you are willing to do the work.

77 thoughts on “My Investment advice for 2006

  1. Hello Mr. Cuban,

    I understand that you are willing to help people start their own business. I also understand that you produce movies. Right now, no one can think of a fresh idea for a Horror movie. They are all lame. I have a good idea for a horror movie. It is original and it will be really really scary. With the right, scriptwriter, director and cast, it has a potential to be a blockbuster.

    Thank you,

    Comment by Val Luanzon -

  2. Interesting comments and very useful for everyday life. The best investment a person can ever make is really an investment in their own ablities. Education must be near the top. I tend to focus on developing my skills; hopefully that will pay off.

    Comment by Stuart -

  3. Mark thanks for the great advice! It works for the average Jane like myself! I’ve never been a fan of brokerage firms and have opted to save money in an High-Yield Savings Account from a reputable internet based bank. I was amazed at the interest I earned in 2005!

    Comment by Hopluv -

  4. Good post. Seems like sound advice. Do you have an opinion on low cost index funds that track the S&P 500? They seem to offer a better return over a longer time horizon than CD’s?

    Comment by Random Blogger -

  5. Your closing paragraph opposes the idea behind those those commercials and the idea behind them, because people are enamored of the possibility of becoming rich without making sacrifices to do it… all the advertisements are out there to amp up folks’ desire to do exactly that, no matter how unrealistic the possibility.

    One of my former clients (with whom I still keep in touch) finds and places (senior) chip engineers with new employers – sometimes for contracts, sometimes in permanent positions – and he admitted that he likes making contract placements, because he gets what he calls “dump money.” In other words, he can be on the can, and he’s still making money.

    …This from a guy who works his ass off and has all of the accoutrements of success to show for that.

    In fact, it’s one of the few subjects that’ll put a s**t-eating grin on his face.

    If he’s not immune to the idea of free money, then who is?

    Comment by ben -

  6. Great advice, especially #3. Everyone is always looking for the next big hit rather than spending the time and energy investing in themselves and make the changes necessary to be successful.

    I recommend to people that in 2006 make it a priority to change or accept the things in your business and in your life that are holding you back, stressing you out, or you find incredibly annoying. I always tell people that door number three never opens. Door number one is to fix whatever the issue is. No whining, just do it. It might be difficult, challenging, stressful, and uncomfortable, but do it anyway. Door number two is to accept whatever it is the way it is. If it isn’t something you’re willing to fix, or is something you can’t change, then accept it and move on. No whining. It’s door number three that gets us in trouble. We’re not willing to go through door number one or door number two so we stand in front of door number three and moan, complain, criticize, feel sorry for ourselves, blame others, and on and on and on. Door number three never opens. Whatever it is, move over to door number one or two and get on with your business and your life.

    Comment by Doug Fleener -

  7. mark C writes: “NO ONE knows what the market is going to do. Not timers. Not technical charts. Not economists, Not brokerage Heads of Research, Not stock pickers. No one.”

    two words — bill miller.

    Comment by stock junky -

  8. Knowing what the market will do in the short run is not necessary to be a successful long term investor. Thinking you know the short term direction of the market or any stock is the sign you are a speculator, not an investor, and likely better off “investing” your monies down at the dog track.

    Comment by runescape money -

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  10. I have some questions on bank Cds. I don’t know much about cd’s and asked the banker today to explain it to me. The min is (500) and Dividend rate is 4.00% for 3 month. Now she said you take the amount invested (500) X 90days (3 months) divided by (365). This should give you a ruff estimate of how much you will make at the end of the three months. Is this correct? That would mean the total amount maid at the end of (3) months is $123. some thing ruffly. When I did the math this seemed like a lot to me. Right now my grandpa has a found for me I don’t know what kind but the mony is invested in a veriety of mutual founds. (3114) is what is in it right now and the statement said that I made 114 at the end of last year all together.

    Now in my head this seems to good to be true. If the cd is makeing 123 or so every (3) months then wouldnt that mean it is makeing more then the found? The only difference is that I can pull the money out of the found my grandpa made me any time I want as with a cd I can only take it out after the 3 months unless I want penalties. What is up with this? Why isnt every one doing this as an investment if it is makeing this much money?

    You could take 5000 dollars and be rollen in the money after a while right? That would be about 4500 for a year cd if you invested 5000 right? If dividend rates stayed even and didnt drop that would be like 38 years that would be 171000 dollars? Maybe I am over looking, over thinking, or just plain old money hungry? But I am trying to find an easy way in for investing for retirement and other things. If I did the math right wouldnt this be the best start out investment for me?

    I dunno im loosen sleep over this stupid crap

    Thanks a lot


    Comment by Michael -

  11. Good stuff, man. I’ve been budgeting a lot more closely and trimming my expenses however I can, to get out of debt. I recently found which is a really nice online budgeting application (free).

    I also am using ING Direct to take at least a little bit of money out of each paycheck automatically into savings.


    Comment by Jewelry Town -

  12. Nice blog here Mark,
    I’ve taken your advice #3 and invested in myself through my business since college. I now run the largest ghostwriting service in the US as a product of hard work and dedication. Yes, you can make money in the markets, but that should take a backseat to speculation.

    Comment by Sandy Resnick -

  13. Disagree with the one size fit’s all approach of the advise for 2006.

    First, understand that this investing in CD’s & treasuries is really “parking”…not investing.

    Second, investing is better defined as with a style, say the contrarian style of Warren Buffett for example. That’s proven to be far superior in returns over time..just ask any of his shareholders.

    Third, 2006 so far has been very unfriendly to your fixed income recommendation. You might, after tax and inflation, have a negative rate of return this year. If one were to buy income in a lower rate environment (like in Jan and earlier), TIPS would have been a much better suggestion.

    Finally, standard deviation is a much better way to express risk. Like a basketball players free throw percentage, it gives a historical perspective, but is not guaranteed to predict exact returns.

    Comment by Ron Pellegrino -

  14. I like this entry Mark. For the purposes of mental sanity it is totally accurate. The way to sleep at night and make money is to do your job, do it well, and invest in treasury bills. I work as a financial advisor in New York City and the clients who truly sleep the best are those that continuously roll over Treasury bills and add “risk” to their portfolio with tax-free municipal bonds.

    That being said, I’ve studied history and understand that adding a certain element of risk to a portfolio does give it an edge. I like to put at least a small percentage of money into an index fund for a chance at some growth. I agree that the mutual fund market is way overdone and that a trend back to indexes is inevitable.

    Your best advice is to invest in yourself. That’s the one invesetment that you truly understand.


    Comment by Russell Bailyn -

  15. Interest-bearing investments such as bonds are not so good for an inflationary environment. In a high inflationary environment, you would rather own some physical assets than getting paid with more paper money. Just my two cents.

    Comment by 1stMillionAt33 -

  16. This point is the best I think:
    Invest in yourself first.
    Prepare yourself, work hard and you will grow as a person, then, with the lapse of time, you will be sagacious enough to buy the right stocks and grow in financial sense together with them.

    Comment by Alexander -

  17. While this is “oh so sound” advice, let’s get real. Sure, avoiding risk is sound for everyone (unless you have money to burn without feeling it!). However, while “Interest-earning investments” are fine and dandy and yes, safe, most investors don’t have a billion dollars to put in such piddly-earning accounts. 4% or less interest won’t let you retire if your savings is $200,000, $300,000, or even more. Now, naturally, if you made a billion dollars (NOT in simple interest earning investments, but before the interest rates fell beneath the floor and of course before the bubble burst), and if you were smart/lucky enough to keep that money like Mark Cuban, a 4% annual return is still a fantastic amount of money to live on.

    Truth is, while many interest-bearing investments are safe they return so little for the average person that they just aren’t enough. Kim’s method, while not risk-free, is still very LOW risk, and strikes a good balance while returning enough to retire on! Thanks Serg.

    Comment by Serg -

  18. Dear Mark,
    I am afraid that You are both correct and totally wrong at the same time. Stock market investing is about accepting some level of risk to permit a higher return over the long-run. However, instead of all-or-nothing propositions in stock selection investment I have adopted certain trading strategies that I believe reduce risk. Time will tell if this approach will work in a truly devastating bear market.

    First of all, stock selection is critical in developing a successful portfolio. While some may say that the safest investment is one that is the best value, my experience has led me to trust my investment decisions to consistency in earnings and revenue growth as well as growing free cash.

    Selling strategy is also a key to reducing risk while investing in the market. In general, it is easy to see that selling declining stocks quickly and completely while selling gaining stock slowly and partially would make sense in dealing with stock price changes.

    Finally, developing a system of moving from cash to equities and back again successfully in response to market/portfolio activity may be helpful to the individual investor. Personally, I have implememented a strategy to avoid compounding losses by reinvesting in stocks sold on ‘bad news’ by “sitting on my hands” and not replacing that holding. Instead, I add a new position, if I am under my ‘maximum’ number of holdings, only when I am selling a portion of one of my holdings at a targeted gain level. This, in a very awkward way perhaps, slowly moves my investments to cash in the face of a declining market while adding exposure to equities in an appreciating market environment.

    These are just a few of my thoughts for your readers. It is not adequate for those without large amounts of money to invest, to depend on interest-paying vehicles to grow our assets

    Regards BSVC

    Comment by My Dir -

  19. Good point about investing first in yourself, but the idea of not investing in stocks at all is madness.

    The problem is with churning. The stock market has shown very good long term returns.

    J. Paul Getty’s advice (How to be Rich), “Buy low, sell high.” (i.e. buy when the market has fallen substantially, sell when the market is booming). Also buy quality stocks and hold.

    Much better than the advice above.

    The zero-sum comment simply isn’t true.

    Comment by LVV SEO -

  20. BTW Mark, perhaps you have the next great reality show attempt here. And its cool if you Simon Cowell me on this, I wont mind.

    Comment by Rob -

  21. Ahhh… The world wide web has once again sucked me into yet another portal and means of communication. I have to start by saying that even though I have been ‘online’ since my first 300 baud modem in the 80s I have not taken the chance of posting to a blog until now. With that said lets get down to business here.

    For starters most people cant tell you whether they want to invest or trade. Heck do they even know the difference? Do they know and/or understand what the difference of bonds, options, futures, stocks, or a variety of other avenues for investments are? People are continuously looking for the answers and no matter to how or where they obtain them. I do agree in the ‘invest in You Inc.’ theory, makes perfect sense to me. Only problem is the answers thing. You refer to the commercials with the guy giving the toast at the wedding making you sick. Well thats cool, they must have just missed on that marketing campaign aimed at baby boomers since the vast majority of Gen-Xers hate the series of commercials. And as for the Law & Order guy, again missing the Gen-X vote. The harsh reality is that most people who had any amount of money in a money market fund or their homes, have been led to withdraw those funds and spend them on things like furniture, cars, and one of my favorites buying in bulk. Now they shall pay the price because they have to play catch up. Too bad for them huh? The debt rate of the US consumer is retardedly high, as is the debt rate of the government. Its a great idea to tell people to avoid as much risk as possible and put their money in interest bearing accounts/products. In fact, its such a great idea that it should warrant a commercial starring maybe an actor from one of the dozen or so CSI series. There are reasons that the likes of Warren Buffett are shorting the US Dollar.

    Its funny, I keep going back through all the follow ups and re reading comments that everyone has made. One that strikes me as funny is confusing a stockbroker with a financial planner. Great idea there, lets pay someone to tell us to ‘buy term, invest the rest’ and they merely need a state insurance license to offer up such great investment planning advise. Or maybe we could look at any one of the many people who just want signals? Another great idea, lets just wait to see what someone tells us to do and then we have someone to blame when it turns south. People who are paying for signals from newsletters are more than likely buying a top. There is a guy who was kind enough to place his url at the bottom to show us just what it is that he does. Doesnt seem like he does too much but he likes to write about whats going on. Its real easy to see whats going on after the fact so thanks for those updates George. Also loved the added website to jump on the Foreign Exchange bandwagon. Looks like you have a real handle on what all the banks are doing which by the way they are doing it with your money.

    Plain and simple, people need to stand up, figure out what the hell they want from life and get to work on obtaining ‘it’ sooner than later. We could listen to Suze Orman mental midget of the decade and do some dumb stuff based on her lack of overall knowledge of how life works. If you want to watch these shows on CNBC or whatever your source for financial info is, plan on seeing a very biased set of viewpoints and enjoy getting caught in the hype.

    Overall I think people see guys and girls in suits talking about the market and think they should know what they are talking about since they have a suit, are clean cut and done up right. Would you trust your money in the hands of some guy with a mohawk, Elvis-like sideburns, and 8 peircings who wears nothing but jeans and flip flops? Probably not…. but maybe you should.

    The winners will almost always be contrarians and the ones who are out on a limb when they make calls. They are the ones that are looking for value based on opportunity. They are the ones who are looking for the best entries and exits. They are not fighting for the price they want. They are forward looking and ready with anticipation of what is coming next. When they see the signs, they act not react. So the answer stands, can you as an individual do this?

    Investing is done, the goose is cooked so to speak. There are just too many options available today for taking control of your money to ignore. Not saying that you should not invest some money, let some sit for that raining day when you go belly up.

    Comment by Rob -

  22. Mark, I agree with you that people should invest in fixed instruments like CDs but one other way to invest in You Inc. is to get out of debt. Interest on debt (especially revolving credit card debt) is a drain on productivity. We are enticed by financial institutions to believe that we just have to have everything and have it NOW. And we can, just by signing on the dotted line. With one swipe of the pen we are transformed into a piece of collateral and put in bondage to someone else. We have, as a nation, lost the concept of deferred gratification that our grandparents had. Our government is leading by example. We have a president that has never met a spending bill he didn’t love. We, along with the Brits and Australians, are intoxicated with debt. Like a drunken bash, it won’t go on forever. Start by paying off the credit card, then go to the car, and then the house. By paying off the car you can begin saving (and earning interest) toward the next car and save thousands of dollars by paying cash for it. You only have to get ahead of that car payment once. After that just continue making that car payment into your own bank account until you have enough to buy the next one. Sure you may have to drive your car a few years longer than the guy who borrows but you only have to do it once until you get ahead of the payment. Don’t worry that you lose your interest deduction by paying off your home. It will be yours if things turn south. You will gain piece of mind and a sense of freedom.

    Comment by Steve W -

  23. To me offered it is borrowed by the exchange tenders. But has refused. You correctly speak, that who cannot supervise the market. Here I also was frightened of it. It is possible to be ruined simply!

    Comment by whales -

  24. I believe that you need to get a service for signaling when the market internals indicate enough erosion to get out. The service should be run by a 25 year plus veteran with a track record documented by independents.

    Comment by Dennis Stoll -

  25. Mr. Cuban,

    I am going to call you out.

    You’re dead wrong.

    Your money advice is actually ridiculous. And somewhat hypocritical.

    If taken, your advice condemns investors to low, or no, gains for a lifetime. Gee, thanks Mark.

    It is a historical fact that stocks have returned FAR more than interest-bearing investments. Slam dunk.

    So you yourself don’t believe in stocks, Mark?

    But you yourself exchanged the shares of a lame company for Yahoo stocks. It is the entire basis of your own wealth.

    The Apprentice remains a far more interesting show than The Benefactor because it is instructive and useful in everyday life. A successful businessperson sets, and achieves goals. I learned nothing from Benefactor.

    Comment by Daniel Taylor -

  26. Great advice!

    Comment by Ann -

  27. Mark, You are one of my heros in business for sure. I just hope your comments don’t “turn off” the average person to the help of a truly qualified financial planner (CFP as an ex.) I fully agree there is no money to be made in the game of “Trading” stocks. However, a great advisor can do so much more for a family.
    1) Help families save effectively for college costs.
    2) Help them lower risk by properly allocating their invested assets
    3) Help them lower their yearly tax bill by managing their investments
    4) Keeping thier money in their own family through proper Estate Planning
    I could go on. But, I just hope your readers realize that while a “stockbroker” may not be able to offer very much expertise, a honest financial advisor can be quite valuable to a family.

    Comment by Jeff Fitzgerald -

  28. I was thinking about investing in a couple of pelican drawers to better organize my things.


    Comment by Barry -

  29. finally…

    someone out there shares the same theories I do. I mean honestly… if these stock experts are so good, why aren’t they all millionaires?

    Comment by doug -

  30. Yes Mike, this is sound investment advice for the masses. Very wise advice indeed.

    The share market is a zero sum game. No money is created or lost. It is simply an exchange of money from one buyer to the seller. There are always losers in the market.

    The market is risky. And for those who are risk adverse, it is best to avoid the markets.

    But for people like me who like to play with their money and “trade” the market movements – well that’s another story.

    Some people may seem to take my activities as “risky” and I assure you for those uninitiated is VERY risky. Professional trading is a skill to be learned is is not for the light hearted.

    Again, if you like to invest in something and you can’t bear to risk losing any of your money use a long term cash deposit.

    Comment by George Polizogopoulos -

  31. Invest in Online Advertising companies such as ValueClick, AskJeeves and google. They will all see growth as online advertising has risen to the point of maturity after years of floundering at its Mothers’ teet. I have been in online ads since 2000, just about when the bubble burst in sales and never before has their actually been a strong market. Most arbitrage oppt’s in online ads are over. An example: Between 1994 and 2003, you could generate a lead of a consumer that filled out a form online for a mortgage loan for between $1-12 and these leads would convert at rates between 8-20% into sales. Even at $12 it would cost at most $150 in marketing to originate a loan. Nowadays, the cost to generate a lead is around $40 and the conversion rates average around 4-8% which results in a cost of about $500-1000 per loan. This is in lead generation cost, generally the lead generator then resells the leads. This lends to a final cost to a mortgage broker of between $1000-2500 per loan, which is an unsustainable number. Arbitrage gone. I see mortgage companies going down, housing stocks down, credit card companies will be going up and monoline technology company will be completely gone from growth lists and become like any old stock and lose their last touch of enhanced P/E…Am I right? mabye…if I’m wrong, please rub it in…

    Rich Hecker
    AIM: Holdon2seconds (coming soon)

    Comment by Richie Hecker -

  32. This is a great site!
    We would be honored if we could be added to this great investment blog. We are from the World Business for sale is the leading independent businesses for sale listing service

    Good work keeps it up!

    Comment by World business for sale -

  33. I like the idea of investing in what you believe in as a product, and then taking a look at the business practices to see how “dark” they go as far as changing business implentations toward feeble trends (aka wanting to make the instant buck or standing by practices that have made them on the market).

    It is usually very transparent on the surface and if that fails you, then try using gnostic imagery and see if there is something in the company that has a power symbol of ancient history, more so anything releating to Egypt or Atlantis and looking 21 years ago to see if a similar concept has failed or succeded.

    Comment by Byron Smart -

  34. In reference to some of the comments above about being amazed at the interest you earned, WHAT PER CENT AMAZES YOU? WHAT DID YOU HAVE LEFT AFTER SUBTRACTING THE INFLATION AMOUNT? WHAT DID YOU HAVE LEFT AFTER YOU WERE TAXED ON THAT INTEREST?

    Would 18.5% amaze you? That is $18.50 for every $100 invested. Did you MAKE THAT ON INTEREST?

    Well I did on my $40, 000 that I invested about this time last year in a BASKET OF MUTUAL FUNDS! Does that AMAZE YOU? I would say almost $8000 makes me feel good but some of the funds in the basket GAINED 19%, 20.9%, 24.1%. DOES THAT AMAZE YOU? Or are you amazed at 1 – 6%?
    And just because a guy is cute and has a website and owns a team DOES NOT MEAN HE KNOWS ANYTHING ABOUT INVESTING!
    Try for a guy that knows about investing!

    Charles Pedley

    Comment by Charles Pedley -

  35. I am sorry I cannot agree with the author of this website.
    He says put your money in interest-bearing securities like CD’S and treasuries. So what did they pay? More than the rate of inflation? Because if they did not beat the rate of inflation you have created ANOTHER RISK; THE RISK OF GETTING NOTHING!

    If you invest in a CD which gives you 4% interest and the rate of inflation is 4% what have you earned? NADA! ZIP! NOTHING! IN FACT LESS THAN NOTHING SINCE YOU NOW PAY TAXES ON THE 4% YOU EARNED (at least in Canada where I am). SO YOU HAVE EARNED LESS THAN NOTHING!!! PUT IT UNDER YOUR MATTRESS = SAME EFFECT.

    There is also another risk as shown above not often talked about that must be REDUCED; THAT IS THE RISK OF GETTING NO RETURN OR LESS!

    So how do you do that?

    Forget stocks. Put it in low cost mutual funds which have at least a 3 – 5 year and current history of getting returns above 10% AND have the same manager as when they got good returns.

    1) Buying mutual funds mitigates risk because you may have 50 stocks in a fund which although some may go down, with wise investment most should go up at a good rate if you heed the above advice. (Ever heard, “Don’t put all your eggs in one basket? One basket = stock.)
    2) Picking a fund with a good track record and same manager reduces risk because with the same manager, what are the chances of the fund doing well again if he/she has for 5 years?
    3) Make sure your funds are generally in the 1st or second quartile in performance. See or .ca (Canada).
    4)The more diversified your funds are in geographic area and industry the less risk.

    There are many other factors but this gives you a good start.

    And the other piece of advice is pick a financial advisor not with the most letters after his name but one that teaches you what you should do to increase your financial independence and reduce your debt. If you cannot understand the advisor, ask questions. If that doesn’t work pick one with ‘letters’ that you understand when he speaks!

    -Charles Pedley
    Sales Representative

    Comment by Charles Pedley -


    Comment by Rhonda Shirley -

  37. You are so right about investing in yourself. But what do you have to offer those who are not in your financial bracket? Where can they begin to create the kind of income you are talking about being able to invest? In the words of Rich Dad (Robert Kiyosaki) when you find yourself wanting to help people who do not have the income stream that you do yet have the desire to play with the big dogs what do you tell them? His advice and mine would be the same; consider a network marketing company and purchase a personal franchise. Yes they are a lot of hard work but what is’nt about earning 6-7 figures and dealing with people has always been difficult but where the money is.It don’t come easy. You need to be careful in choosing a company and be sure of two primary things that are essential in becoming successful. You must get involved with a company with tenure, a proven infrastructure and successful marketing plan, training in the skills of dealing with people and where there is no profit enless you begin earning and be sure all meetings are held in a professional setting not in homes or at Denny’s. These are the key components of a network marketing company that can help you become financially independant in as short of time as 5 years. Giving you the passive income to be able to invest in anything you are passionate about. Then your friends and associates can talk your language and have the funds to play in your league.

    Comment by Rhonda Shirley -

  38. While I agree with Mark’s advice for the individual that is uneducated about the stock market, I disagree that you can’t perform reasonably well with equities.

    Study the Intelligent Investor (Ben Graham), especially chapters 8 & 20. Graham was Buffett’s teacher; I’ve learned a tremendous amount by studying Graham & Buffett.

    A person with average intelligence and the proper temperament can learn value investing principles that will bear fruit over many years.

    Comment by Art -

  39. Mark,

    Good old school advice. What i like about it is that it is genuine without a hidden agenda. Not only do the commercials for these funds make me sick but I also want to puke when many of the news stories are bought and sold as well. It’s really pathetic.

    When I was young I read Peter Lynch’s books several times. What I learned was that I didn’t have the time to do the research on specific companies that would be required to make good picks. I have to work too! Work at having my own business seemed to be the best way for me to make money. The start of the internet made this easier to make better picks until saavy businesses learned how to skew the numbers and info to encourage investment in their notes. Regardless of the truth.

    My interest now is where the risk takers will put their money and create the next bubble. Money flowed from the internet stock bubble to the housing bubble. My thoughts are that with fear of increasing rates and inflation will flood this money into gold and create a new bubble. Regarless of it’s actual value. I know this is a stock blog but hey what do you all think?

    Comment by Ken -

  40. Fact is, when there’s inflation savers at interest pay the substantial tax. Consider that a $10,000/30 year bond purchased in 1972 would have purchased 4 Volkswagens with plenty of money left over to travel all over North America. 30 years later when the bond matures your 10 grand will make a substantial downpayment on one VW. Some deal, huh? Better to buy a great dividend-paying stock like UST.
    Here’s a quote by Jon Turley from USA Today for youse to think about:
    This country is facing one of the most serious constitutional crises in its history. President Bush has claimed virtually absolute authority to act in contradiction of federal and international law. In the recently disclosed National Security Agency operation, he has claimed the right to order surveillance that may be a crime under federal law. Last week, it was disclosed that when Bush signed a prohibition on torture he had long opposed, he reserved the right to violate it if he deemed it in the nation’s interests.

    The Framers gave our nation three branches in a system of checks and balances to prevent the concentration of power. The Republican-controlled Congress has remained largely passive in the face of these extreme assertions of power, leaving only the judicial branch as a check. Over the past five years, many federal judges — including Republican appointees — have stood against some of the president’s most extreme actions.

    Comment by Marty -

  41. Mark,
    With the U.S. Average annual income around $50k per year anyone who knows basic investing 101 knows that you can’t pay your bills and grow the balance with CD’s or any other fixed income vehicle. Investing in large cap growth stocks or an S&P fund would have been better advise. You should stick with what you know best….and it isn’t having to live on $50…or even $100K per year…HUH?

    Comment by You're Ridiculous -

  42. Great! I love this blog!

    Comment by Mike Jr -

  43. Mark, I agree 100% with you on your perception of the stock market/fees etc. Your advice (3) specifically, is right on target, invest in your business (You are in control of your destiny) work hard, watch & stay ahead of your competition, and you can’t go wrong.

    Comment by Doug Spann -

  44. Hmm. I agree that we all need to take risks in life and business (from time to time) but dumping all of your money in the stock market (as opposed to CDs or bonds) and saving up some money on the side to start a business fall into completely different catagories. When you save money to start a business you are investing in yourself… not in a manager or business 1,500 miles away. My point is that punching a clock or starting a business fall into catagory ‘A’… while investing the results of those efforts falls into catagory ‘B’. And catagory ‘B’ is what the article was speaking about.

    Comment by Dan -

  45. With all due respect, advising people to simply invest in CDs and/or putting their money in the bank is not the way to get wealthy. Did you do that? No. You took risks, started your own company and sold to Yahoo at the perfect time. Then you used a collar to protect the value of your investment – this was provided by one of the brokerages/investment banks that you criticize in your posting. If I had $1.3 Billion, I would probably avoid risk and buy CDs. To get to $1.3 Billion requires risk-taking.

    My 2 cents.

    Comment by david -

  46. Wow. Did some snooping and discovered that you can earn 6.73% (compounded semi-annually) on US Govt Series I Bonds. They are meant to be held 5 years but you can cash them early. You just lose the last 3 months interest. No big deal. And if your bonds are lost or stolen you can still get your money if you register the bonds in your name. CDs are cool but I Bonds sure look like a sweeter deal to me.

    Comment by Dan -

  47. Wow. Did some snooping and discovered that you can earn 6.73% (compounded semi-annually) on US Govt Series I Bonds. They are meant to be held 5 years but you can cash them early. You just lose the last 3 months interest. No big deal. And if your bonds are lost or stolen you can still get your money if you register the bonds in your name. CDs are cool but I Bonds sure look like a sweeter deal to me.

    Comment by Dan -

  48. Great advice. A steady 4% a year, cutting expenses, and trying to earn more by improving yourself is old school. And old school works. Do what works. The BIG LIE is that a person much take risks to become wealthy. Nothing could be further from the truth. Have people become wealthy taking risks? Sure. But it’s the EXCEPTION… not the rule. At the end of the race it’s the patient turtle that nearly always wins, not the spastic rabbit.

    Comment by Dan -

  49. Great advice. A steady 4% a year, cutting expenses, and trying to earn more by improving yourself is old school. And old school works. Do what works. The BIG LIE is that a person much take risks to become wealthy. Nothing could be further from the truth. Have people become wealthy taking risks? Sure. But it’s the EXCEPTION… not the rule. At the end of the race it’s the patient turtle that nearly always wins, not the spastic rabbit.

    Comment by Dan -

  50. Mark,

    Your advise is ridiculous to those looking and in need of growth. The S&P is a very good steady growth vehicle whos performance trounces cd’s. You of all people should know about taking some risk and reaping what thee sows. This was bad advice Mark. It was good advice if you are retired and have the funds and then want to protect them for retirement.

    Comment by Paul -

  51. Well for the most part i agree with your take on the market. There is a fund right here in dallas that takes a different approach and can also help the little guy. The Hodges Fund. WE have a very good history. We pick stocks. We do not listen to the noise on wall street. Look for us on the cover of SMART MONEY MAGAZINE THIS MONTH. Mark you should come see us. We are right on maple avenue.

    Comment by Clark Hodges -

  52. “mark C writes: “NO ONE knows what the market is going to do. Not timers. Not technical charts. Not economists, Not brokerage Heads of Research, Not stock pickers. No one.”

    two words — bill miller.”

    Bill Miller would tell you that he doesn’t know what the market is going to do. Warren Buffett would say the same, as would Peter Lynch.

    Knowing what the market will do in the short run is not necessary to be a successful long term investor. Thinking you know the short term direction of the market or any stock is the sign you are a speculator, not an investor, and likely better off “investing” your monies down at the dog track.

    Let me add my voice to the others who mentioned index funds. Any money that you expect to invest for more than 5 years is likely best off in an index fund. You won’t beat the market, but you won’t trail it either. You’ll pay wall street the absolute minimum in fees.

    If you invest all of your retirement savings in bonds, you’ll end up with a much poorer retirement than index funds can provide.

    Comment by Randy Hill -

  53. Actually the worst thing you can do is to avoid risk if you ever dream of being wealthy or rich. (And yes Mark stated avoid risk since he talks of CDs and savings account.)

    The people with the greatest gains created their own business(es); real estate; stocks (accredited investing) etc…; All of those involve risk; the more knowledge you have the less risk :-).

    Though “Invest in yourself” is by far the most important (and agreeable) of his advice. This can help minimize risk later on.

    Comment by Shawn McKenna -

  54. I don’t know if it’s “amazing” that there are 17,000 funds; basic mathematical reasoning would conclude that there will be far more ways to combine stocks than there are individual stocks. Of course you’re right that it makes no sense to do so.

    Comment by Dan McKinley -

  55. There’s no way that mere interest beats the overall stock market’s return over the long haul. If your investment horizon is only 5 years, perhaps interest is fine. For 20+ years (or wherever the statistical tradeoff is; I’ll bet it’s less than that), a low-fee index fund beats interest (and 80+% of actively managed mutual funds). But, don’t trust me or Mark (for all his expertise in other areas); do a little research to get the facts.

    Comment by Scott Lawton -

  56. Mark, while I can appreciate the honesty of your opinion in your advice I do think that you may be potentially steering people the wrong way. Certainly trading stocks (and especially at high fee brokerage houses) is not a path to riches.

    But there is something to be said for someone with a long time horizon (30 years plus) holding stocks as a long term investment. I worry that people will see the endorsement for under 5 year fixed income products and conclude that this is right for them when they have many many years before they will be touching their savings. Even if you bought into the market in 1968 (when the Dow traded down and didn’t recover to the same level until 1980), you were still better off if you had 18 years on either side of that 12 year stint. Sometimes when things are the worst, for a long term investor dollar cost averging into the stock market makes sense.

    Also the tax treatment of capital gains and dividends associated with equities is at present superior to the taxation of taxable income from interest earning accounts like CDs.

    You of all people had some great insight and perhaps luck in making some significant timing decisions related to specific companies and specific sectors of the market. The market as a whole though either through low cost mutual funds, ETFs, or comparable buy and hold individual stock portfolios still may represent a solid long term strategy for many.

    Comment by Thomas Hawk -

  57. stocktalk usually gives me tired head, but i read on anyways and this blog was one of your best. when i daydream of making big bucks, one of the first things i will do is invest…into a savings account that will draw interest.

    Comment by Luis -

  58. Great Post Mark.

    One alternative you didn’t mention that is a great way to get investment advice that is cheaper than say a brokerage firm, Investment Newsletters provide a great way to get advice at a flat rate. If the advisor sucks you don’t subscribe anymore, which is much easier than transfering funds.

    I recommend this newsletter it has performed well over the past few years.

    Comment by Stephen Stull -

  59. Mark:

    Well said. Most folks understand less about the game called the stock market than they do the Texas Hold’em tournaments that are broadcast on TV. At least in the Hold’em game, you KNOW the other guys are trying to take your money…

    Comment by Paul Lambert -

  60. To Austin: actually, Mark is saying take the risk on YOURSELF, not on other people. Invest in your ability and take the risk in your ability to succeed.

    Great overall post, btw. Money TV turns my stomach…

    Comment by Taylor -

  61. Mark, what ever happened to “no balls, no babies”?

    CDs have nothing to do with balls…Plus someone still has to sell me a CD. What does he know that I don’t?

    Comment by Greg -

  62. I must say that you’re one hell of a logical thinker. Were you ever a part of my field (mathematics)? I really do understand why you’re so rich, but I just haven’t figured out the proper algorithm yet to catapult me there.

    Comment by Champ -

  63. Mark – good post. I needed someone to wake me to those funny commercials for brokerages. Those commercials also give viewers a feeling like they are wealthy already and can afford this pampering broker who will make money on your money.

    Comment by Mark Milligan -

  64. iBonds if you’re going to go the cash route.

    Dodge and Cox if you’re going to go the mutual fund route.

    Dividend paying stocks if you’re going the equities route (ETFs).

    Comment by Earvin Johsnon -

  65. EmmigrantDirect offers 4% interest on savings accounts and free wire transfers.

    Comment by Ryan -

  66. ring ..ring

    Adolf get me $400K of NiKKEi cash index.. no futures thanks anyway ,,, and SHort $400k of OSTK shares no options bye..

    cheers!!! 😉

    Comment by Ron D -

  67. 1) The fact that no-one knows *exactly* what the market is going to do doesn’t mean that *no-one has any idea* what the market is going to do and that all advisers are completely full of it; some opinion obviously has more validity than others.
    2) Avoiding risk tends to avoid return. Maybe that’s fine if you’re wealthy, but not if you’re relatively young and among those “hoping to build a nest egg.”
    3) Over time, if your only investments are money markets and CDs, *there’s actually a very good chance that you’re getting your ass kicked in real returns relative to stocks.*
    4) Treasuries?? If you already own a home, you probably have no business buying these since you’re already heavily exposed to higher rates. If anything, shorting bond futures reduces your overall risk.. by going long you are just levering-up.
    5) Not even going to mention gold, but if the message is really risk aversion, this would have a place there.

    (And yes.. the guy who gives the toast at the wedding turns my stomach!)

    Comment by Jason Ruspini -

  68. Mark,

    Patrick Byrne just released part 2 of his presentation on “naked shorting” which uses a SEC FOIA response as its basis for argument. The numbers don’t lie:

    Comment by Jimmy -

  69. Based on your sensible advice, you’d probably love the new book by David Swensen, Yale’s multi-decade investment manager. He has returned a 16.1-percent return over his long tenure. Fortune profiled him a few months ago, and his discipline, small staff, and lack of interest in excessive fees lead to a small number of trades, good diversification, and high returns.

    His book, Unconventional Success, is his attempt to distill his approach for individual investors. It’s a good read, and offers sensible ideas about how to meet (not beat) the market based on the idea that market returns over the long haul are the best you want with the least risk involved.

    Along the way, he has hilarious and long screeds against the mutual fund industry, excluding only TIAA-CREF (he’s on the board, he notes) and Vanguard (possibly the only not-for-profit fund company). Both TIAA-CREF and Vanguard have been under some criticism, too, since he wrote the book.

    Its ISBN is 0743228383.

    Comment by Glenn Fleishman -

  70. If you are going the conservative way. Consider Government issued I bonds. Presently paying 6.73%. Can buy up to $60K a year, $30K on line through the Treasury and $30K at your bank. No early withdrawal penalty if held for 5 years. 3 months penalty if withdrawals from 1 year to 5 years. Even if you took the penalty, your yield would be better than a CD.

    Comment by Cove -

  71. Mark

    When are you going to write a book? It’s needed desperately.

    You are the Sage of Omaha II!

    Comment by chika -

  72. Mark

    When are you going to write a book? It’s needed desperately.

    You are the Sage of Omaha II!

    Comment by chika -

  73. The stock market is like my favourite subject in the world, so I am having to rewrite this a few times, but I would love to know…who is still in the market? What percentage of investors are feeding money through mutual funds, and how many are actually just out there doing their own investing? After the shake out of 2000, how many Americans are still in the game? How many were smart enough to go to cash in March or even September of 2000? How many got traumatized for life, and left the market for good? Are the current players people who were not in the market in 2000, or are they the same players that were in the market in 1999? I love to read about the stock market because it’s so confusing. It’s this weird, unpredictable, spinning bin of conflicting data.

    I agree that CD’s are good stuff, especially since they are insured and all. Lately people on the news have been saying that stocks will do well in 2006. I remember wondering how they knew that for sure. How could they know?

    Comment by Haake -

  74. I am still young and learning, but as a person planning to retire early, I don’t see a possible way to get rich without risk. What you say seems great for saving money but maybe not to get rich. The stock market may not be the answer either, but I feel like there has to be risk to get rich. I’m probably the target audience of your post, but I guess I’m not convinced yet. At the very least though this will make me crunch some numbers and do some research, so thanks.

    Comment by Austin -

  75. People like to talk and think about the stock market. It is on Cuban’s mind – it is one of the first posts of the new year.

    Your advice reminds me somewhat of a book written by Tobias – “The Only Investment Guide You’ll Ever Need”

    Comment by nate -

  76. People like to talk and think about the stock market. It is on Cuban’s mind – it is one of the first posts of the new year.

    Your advice reminds me somewhat of a book written by Tobias – “The Only Investment Guide You’ll Ever Need”

    Comment by nate -

  77. Great post – I think it’s good advice. Have a great ’06!

    Comment by PeteCashmore -

Comments are closed.