My anti-Marc Cuban Investment Advice

If you read Mark Cuban’s blog you would have seen a very interesting article on a potential new revenue stream for newspapers. It’s got some flaws, but its an interesting idea.

On other hand you would have also seen this article about people investing in Madoff being better off then those who invested in DOW or S&P Index funds. This argument i see little merit in.

His point was essentially that the markets are broken. He gives us an example of different people with  potential investments in Madoff or Index funds. His example shows you would have been better off investing with Madoff because the SIPC will cover your investment loses as opposed to if you invested in supposedly safe index funds in 99 you’d have lost a lot of your investment right now.

Unfortunately for Mr. Cuban the flaws in his argument are several.

  1. SIPC only covers loses up to 500k for missing stocks while most Madoff investors invested far more.
  2. It’s unclear whether the investors will be able to recover the 500k because there were no investments/stocks that are missing and SIPC only covers 100k in cash claims .
  3. He choose one of the worst crashes the US economy has ever seen.

Had one invested anytime prior to 98 and held it to now (the very worst of this crash) they would still be MUCH better off or at least close to where they were before they invested. Historically speaking one would expect those who invested at anything but perhaps the top of the bubble (around the 1400 mark) can expect to regain much of their value over time. Perhaps we’re in a new era and that’s no longer the case, but at the moment we have no reason to believe that. We’ve gone through crashes and bubbles in the past. This one is pretty awful and it may take a while but we should recover.

Cuban argues, “There is no investment adviser anywhere that would have told you that 10 years is not a long enough time horizon to not only protect your money, but also make money” and largely he is correct.

Unfortunately the stock market is a gamble and like any gamble you only make it if you can afford to lose. That’s why you invest a high percentage of your portfolio in the stock market when you’re young. As you get closer to retirement you move further and further away from stocks into things like CD’s and bonds.

I’ve lost a significant amount from my portfolio recently like others, but honestly I haven’t lost a bit of sleep over it. I’m relatively speaking quite young,  I didn’t depend on the money or plan on using the money for quite some time and fully expected to lose value at times.

If I expected not to lose value from time to time I would have invested in someone like Madoff.

So what is my advice?  Invest in the market. Invest young, invest now.  Continue to invest in the market, but in a sound long term strategy. Change your strategy as you get older from somewhat risky to safe to even safer.

Don’t expect not to have periods and sometimes long periods of lose. If anyone tells you otherwise be very skeptical.

Know all this and you’re less likely to get taken by the Madoff’s of the world or lose sleep from investing.


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